In-House Landmen and women are employed by an oil and gas firm or corporation. They are not allowed to, and do not, receive bonus payments or royalty dividends since their duty is to represent the company they work for. They do all the necessary legwork under the direction and management of the company they represent.
Independent Landmen and women tend to have larger networks of company Executives or company Landmen and/or independent Landmen they do business with.
The Independent Landman’s job is to get the best possible outcome for their clients because if they do, then the monetary rewards can be substantial for them as well.
One way to make this happen is with the support and/or the relationships Independent Landmen have with oil and gas firms and corporations. If your Landman decides to bring in a partner, then that means he has to pay them a portion out of his payout, which could mean a higher premium payout for the Landman to make up for this disbursement.
Why would your Landman bring in a partner? Your Landman may decide to bring in a partner for a number of reasons, none of which are out of the ordinary:
1. To share in expenses
2. To bring in additional expertise
3. To utilize his/her network
Is it better to do business with an In-House Landman or Independent one?
This is a question we get a lot and the answer is, potentially yes and no, for both.
It all depends on the opportunity, the situation, and oftentimes the personality of the person(s) you’re dealing with.
In most cases, both are pleasant to do business and it really just depends on the opportunity and situation.
Granted, there are always those few bad apples that can spoil a whole orchard with very little effort, but we won’t focus on them.
The Independent Landman Scenario:
First, if you are contacted by an Independent Landman, is he/she acting as a broker?
A broker can be a Landman working independently for his/herself or can be a Landman working for a brokerage that is hired to do the land work – take leases or buy minerals for an oil and gas company.
The difference between the two can result in drastically different outcomes so it is important to find out which type of broker you’re dealing with. The best thing you could do in this scenario is to be patient and do some reconnaissance work…
If they are a broker, do you know him or her personally?
Did someone you know refer them to you?
Did they call you out of the blue and you have no personal ties?
It is important to find out as much information about who the Landman is working for, and if you discover they are working as a broker, or for a broker, you will want to ask these questions:
- Who the broker is
- Who the broker is working for
- Is the broker reputable – will they give you referrals or contacts to those they’ve done business with?
- Who could they (the broker) potentially sell your lease or minerals to?
- How much acreage have they (the Landman/broker) leased so far?
- How much has the Operator they are working for leased? Is the Operator well funded?
If you’re only working with an Independent Landman, it’s best to have that Landman bring you multiple offers from the actual end buyer AND you should always request to deal directly with the buyer once offers start coming in.
Before accepting any offers your Landman brings you, you would be better suited to work out some compensation with your Landman to ensure he is working in your best interest.
If you don’t work out a compensation agreement to pay your Independent Landman BEFORE he or she starts working on your behalf, know that your Landman is going to sell your lease to the highest bidder and you may or may not know what that bid is/was or even whether or not they’ve sold it to a prudent, well-funded operator.
You also won’t know if you got the best deal you could’ve possibly received because they made as much as they could by selling your lease or minerals by keeping the difference between what you were paid and what the oil and gas company paid them for your lease or minerals.
You definitely want the Landman you’ve brought in to help you and be on your side when it comes to them earning commissions. Once you work out your agreement, get something in writing, and move onwards. I go more into this blog.
When an offer is presented, then you can work together to finish the negotiations. This way, everything is transparent and you can maintain momentum on your project together.
It can almost be guaranteed that should you choose to work with an Independent Landman, you’ll eventually be working with an In-House Landman once he sells your lease to the oil and gas company, so you may as well get to know the In-house Landman.
The In-House Landman Scenario:
If an In-House Landman has approached you to buy a lease or to buy your minerals, this is a time to work with both the In-House Landman and an Independent Landman, if for no other reason than to have the Independent Landman assist you during your negotiations with the In-house Landman.
“The best scenario would be that you have multiple In-House Landman from different companies working to get you a good offer as well as an Independent Landman working with these In-House Landmen to ensure the best offer terms on your behalf…”
This way, you can be sure you’re getting a fair or even top market offer, the most money for your minerals and/or the best lease terms for your lease. If you’re only working with one In-House Landman, that’s all you’ll get, one offer, there won’t be any way of knowing if it’s a fair or top market offer for your minerals or whether or not you received a favorable lease.
Sometimes this is just the way it works out where only one company is interested in your lease or minerals, but you should still try and look around and try to seek other potential buyers, as well.
In any case, no matter what you’re buying or selling, it’s always best to “shop around” and get as many bids/offers as possible.
Should you have multiple oil and gas companies pursuing you to buy your lease or minerals, it’s also best to not mention any names of the companies to either party – keep that confidential.
You can discuss vaguely the other offer terms to try and get them to outbid the other, but that’s as far as I would go. Another thing to remember is that you shouldn’t let these negotiations drag on for too long, DON’T GET GREEDY.
Things can change quickly in this business so once you’ve received a few offers, negotiated those offers up and one against the other a time or two, it would be best to lock in a deal by signing an offer letter with one of them.
I’ve seen sellers drag on continuously thinking they’re going to get more and then the bottom fall out and all the oil and gas companies that were bidding for the lease or minerals just walked away and the seller was stuck receiving much less, or worse, with nothing…
When an Independent Landman Calls, but an In-House Landman Doesn’t:
Another scenario: If there’s not a lot of activity where you’re minerals are located and you’ve not been contacted by an In-House Landman from a oil and gas company, or someone working for an In-House Landman (like a contract Landman working for a brokerage) and you’re only approached by an Independent Landman wanting to buy a lease from you, it may be best to try and negotiate with the Independent Landman as much as possible in order to try and get the best deal possible.
Beware that you may just have to take what you can get because they could be buying the leases on their dime because they’re trying to generate some interest and put a play together based on close-ology or even a hunch.
In this case, you’re kind of stuck with one offer, but as I like to put it:
“One offer is better than no offer, or a little bit of something is better than a whole lot of nothin.”
No matter what, it’s always best to have a trusted source or someone close to you refer another trusted and knowledgeable source to assist.
Although with this scenario, given the fact that you may only have the one option – that is, dealing with the one Landman looking to buy your lease, there might not be much another Landman could do other than maybe just make sure you’re not getting taken advantage of.
It’s a personal decision.
Just be mindful, he will more than likely also need to be cut into the deal for his time and efforts.
That’s all for today!
If you haven’t done so already, check out the prequel to this article for more details on the subject. For our visual learners, we’ve created a fun infographic depicting the differences between these two types of Landmen.
Having been both a field and in-house Landman, I know a thing or two about how things work. 😉
Have you checked out our FAQ page yet? There you will find a wealth of information related to minerals and royalties that you will be sure to find useful.
Schedule a complimentary consultation with me today if you need further clarification or want to chat about what’s going on in the industry or fill out the form below and I’ll be in touch.