OIL AND GAS LEASING

 Oil and gas firms have several advantages over you, the mineral owner, when their Landman negotiates a mineral lease.  They may have seismic results and other wells in the area and access to information that is not available to you.  You are at a disadvantage and, if you negotiate directly with a Landman, it can cost you tens of thousands of dollars.

 Our firm has successfully negotiated leases for clients for 40 years.  We have access to information that is not available to you and, therefore, usually are able to negotiate more favorable terms.

 A successfully negotiated lease should result in higher up-front payments and, with additional changes to some of the terms of the standard company lease, put more royalty payments and other benefits in your pocket year after year.

 MINERAL TRUSTS FOR UNLEASED MINERALS

 Mineral Trusts and Joint Ventures can be used to protect mineral titles.  On death, mineral titles are frequently left in an estate or divided among numerous beneficiaries. As unanimous consent or a court order is required to lease out oil and gas interests, multiple beneficiaries cause non-producing titles to become burdensome and uneconomic to retain or even lease out.  Trusts can provide an authority to maintain mineral titles in the name of one or more trustees so that it can be leased efficiently and the title preserved.

 MINERAL TRUSTS FOR LEASED MINERALS

 Upon death, the full value of an oil and gas interest becomes 100% taxable, unless given to a spouse.  When drilling is very likely, mineral titles are frequently transferred to ensure that this tax liability is postponed for at least a further 21 years.

Mineral Trusts can be established so that the taxable income from future production can be spread among several beneficiaries through a discretionary trust.  This allows the oil and gas interest to be taxed at much lower marginal rates rather than one person reporting all the income. 

 MINERAL CORPORATIONS

Because of the high potential income tax liability on death, mineral corporations are frequently used to hold minerals that are already producing. Holding mineral titles within a corporation can reduce the tax on death by at least 50% and also gives the advantage of creating income splitting possibilities with other members of the family to minimize taxes.

TESTAMENTARY MINERAL TRUSTS

As an alternative to incorporating, you can prepare your Will so that your minerals remain in a testamentary trust. The advantage of a testamentary trust is that it creates a new tax payer (the Trust) and allows those inheriting your mineral interests to report the tax on a separate estate and trust tax return.  This allows them to take advantage of low marginal tax rates and to retain benefits such as Old Age Security.  In addition, a proper testamentary trust allows the survivors to “sprinkle” the income to a spouse or children, some of whom may not be taxable at all.

 CONCLUSION

With new production in the Bakken formation, there has been an increased interest in oil and gas properties in this area.  To maximize your benefits, it is imperative to start with a sound oil and gas lease.  After that, there are several steps that can be taken to minimize the taxes that will be paid upon production and upon your death. We would be pleased to assist you.

Tom Schuck has profitably leased oil and gas properties for clients for over 30 years and has been actively involved in dealing with oil and gas issues.  He has successfully litigated to the Court of Appeal on behalf of a major oil and gas producer — one of the first cases dealing with horizontal drilling.

 For more information, be sure to contact us - particularly before you sign your oil and gas lease.  

You need an oil and gas lawyer!