In Colorado, oil and gas leases are a common way for landowners to earn income from their property, but they can also lead to disputes and long-term obligations if not handled carefully. Whether you’re a mineral rights owner approached by an energy company or a business with development interests, it’s essential to understand how these leases work before signing anything. At Lohf Shaiman Jacobs, we assist both landowners and operators in structuring, reviewing, and enforcing oil and gas leases that comply with Colorado law and protect your interests.

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What Is an Oil and Gas Lease?

An oil and gas lease is a legal agreement between a mineral rights owner (the lessor) and an energy company or developer (the lessee). The lease gives the company the right to explore for, drill, and produce oil or gas from the property in exchange for payments. The typical lease involves two phases:

Primary Term: A fixed period during which the company can begin operations, usually 3 to 5 years.
Secondary Term: If production begins during the primary term, the lease continues as long as oil or gas is produced in paying quantities.

Without production or specific extensions, the lease expires when the primary term ends.

Key Terms to Watch in Colorado Oil and Gas Leases

Lease agreements can vary significantly, so it’s important to review each clause closely. Some of the most critical terms include:

Bonus Payment: A lump sum paid upfront to the lessor when the lease is signed.
Royalty Rate: The percentage of revenue the landowner receives from oil or gas production, often 12.5% to 20%.
Delay Rentals: Payments made to keep the lease active if no drilling begins during the primary term.
Surface Use Provisions: Language controlling how the operator may access, disturb, or use the land’s surface.
Pugh Clause: A provision that releases unproduced acreage from the lease after the primary term ends.
Shut-In Clause: Allows the lease to remain valid if a well is not producing due to market or mechanical issues, as long as a fee is paid.

These details can significantly affect your financial return, land use rights, and ability to renegotiate or exit the lease later.

Colorado-Specific Considerations for Mineral Leases

Colorado’s oil and gas regulatory environment adds another layer of complexity to leasing. Landowners and operators alike must consider:

Split estates: In many cases, surface rights and mineral rights are owned by different parties. Mineral owners generally have the dominant estate but must accommodate reasonable surface use.
SB-181: Colorado’s Senate Bill 181 allows greater local control over oil and gas development. Operators must comply with local ordinances and community impact regulations, which can delay or limit development.
Pooling and unitization: Your minerals may be combined with others in a larger production unit. How royalties are allocated across that unit can affect your bottom line.

Understanding how Colorado law interacts with your lease is critical for protecting your rights and maximizing revenue.

Common Lease Disputes

Even well-drafted leases can lead to disagreements. Common sources of conflict include:

Underpaid royalties: Disputes over pricing, deductions, or inaccurate production reporting.
Surface damage: Claims for harm to crops, water sources, or roadways during drilling operations.
Improper lease extensions: Operators attempting to hold leases beyond their expiration without valid production or payment.
Pooling disagreements: Owners arguing over fair allocation of royalties or inclusion in pooled units.

If you’re facing one of these issues, a legal review of your lease and production records can clarify your options and potentially recover lost income.

Do You Need a Lawyer to Review an Oil and Gas Lease?

Yes, and here’s why. Energy companies typically draft leases that favor their interests. As the mineral owner, you have every right to negotiate more favorable terms. Having an attorney review the lease can help you:

Identify and remove clauses that limit your rights
Negotiate higher royalty rates or better payment structures
Clarify responsibilities for surface use and restoration
Add protective clauses like indemnity or Pugh provisions

What seems like a simple agreement can create a decades-long relationship with real financial consequences. Professional legal guidance up front can prevent costly disputes later.

Protect Your Property and Your Royalties

Oil and gas development offers tremendous potential but also serious risk. Whether you’re reviewing a new lease offer, trying to enforce your rights, or fighting for unpaid royalties, you need legal counsel that understands both the law and the land. At Lohf Shaiman Jacobs, we’ve been helping clients across Colorado’s energy and land use sectors for decades. Our team understands the intricacies of mineral leases, regulatory compliance, and dispute resolution.

Contact Lohf Shaiman Jacobs and Get Legal Help Before You Sign

If you’re reviewing or renegotiating an oil and gas lease in Colorado, don’t do it alone. Make sure your interests and your land are protected. Contact us today to schedule a consultation.