Servicing Guide

Published November 10, 2020

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What should be considered before agreeing to a lease of oil, gas, or mineral rights to the property?

Before agreeing to a lease of oil, gas, or mineral rights, the servicer must consider the extent to which the subject property and neighboring properties may be affected by the exercise of the rights covered in the lease. The servicer must take the following into consideration:

  • The extent to which the rights granted by the lease infringe on the property owner’s rights. For example, if the lease permits removal of deposits by directional exploration from an area outside of the property, there may be little or no adverse effect, depending on the location of the exploration area and the attitude of the community. On the other hand, if the lease allows for complete ingress and egress to explore any part of the property or to store or install equipment on it, the property may no longer have any real value as a residential property.  

  • Any hazards, nuisances, or damages that may result from the exercise of the rights granted by the lease. In mineral areas where subsidence from directional mining may be a problem, the potential extent of a hazard or nuisance can be determined by reviewing the past history of such operations in the locality and taking into consideration the property’s subsurface soil structure and the extent and depth of the proposed mining. In oil-producing areas, hazards, nuisances, and damages can result from drilling operation, ingress and egress, storage, pipeline transportation, fire, explosion, or gusher wells. The effect of these potential hazards or nuisances on the value of the property would depend on their intensity and closeness and the community’s attitude toward such hazards or nuisances. For example, in areas in which oil exploration is a major part of the economy, the risk may be considered acceptable, whereas it might be unacceptable in areas in which such exploration has a minor effect on the economy.

See below for related Q&A's:

What information is required to evaluate a request to lease oil, gas, or mineral rights to the property?

What conditions must be met in order to approve a request to lease oil, gas, or mineral rights to be approved

Can a request to lease oil, gas or mineral rights be approved if all of the required conditions are not met?

For more information please see: D1-1-01, Evaluating a Request for the Release, or Partial Release, of Property Securing a Mortgage Loan.

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