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I have a small mineral interest in an East Texas county which I inherited.  Another family member owns the executive right.  The company that negotiated the lease has contacted me and told me that I am entitled to a bonus payment, but it's only half the per acre amount negotiated in the lease.

 This doesn't sound right to me as I know that years ago (before I inherited the interest) my father had this same non executive right and he was paid a full per acre lease bonus payment on the small mineral interest.  

I'd ask an attorney but it would cost more than what bonus amount covers.  

Any thoughts/ help would be appreciated.

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A bonus is based on your net acres and not the gross acres.  For example, if you own 1/2 interest in 100 acres, then you would own 50 net mineral acres.  So if the bonus is $100, then you would get $5,000 out of the $10,000 being paid for all of the acres.  You do not own 100% of the minerals as some portion (fractional interest) is owned by the other family member who is leasing on your behalf.  You can ask the oil company to explain how they arrived at your net mineral acres.  Be sure to ask for a copy of the executed lease and keep it for your records.

Thank you for your response.  I guess my question was not asked correctly.  The amount of net mineral acres is not in question.  What I don't think is correct is the amount of bonus payment that they are offering.  They are only offering half the amount per acre that was paid to the original lease negotiators.  This doesn't seem right to me.

Hi Pat - 

I am not an Attorney, but from my experience the per acre Bonus Payment negotiated by the holder of the Executive Rights would be what you are owed.  The actual amount paid, of course, adjusted to reflect your Net Mineral Acreage.  

If they attempt to pay you anything less than the same per acre Bonus amount that they paid the holder of the Executive Rights, then there is a strong possibility that their lease would not be valid. 

If you are certain of your facts and, in particular, if you have their cover letter or other evidence of what you claim they are saying, then I suggest you consult an experienced Oil and Gas Attorney and send them that evidence. 

Most Attorneys will allow you from a half hour to 45 minutes of their time for free as far as consultation time.  And a nice little "Love Note" to the company regarding the issue, which 99.999% of the time straightens these kinds of situations out, shouldn't cost you much. 

The peace of mind, knowing that you didn't let yourself get run over by a bunch of clods, will be worth the expense. 

Hope this helps - 

Charles Emery Tooke III

Certified Professional Landman

Fort Worth, Texas

Thank you, Mr Tooke.  That's what I thought.  For now, I am just emailing the company rep back and forth and it is a civil, friendly conversation.  I will definitely keep your advice in mind and it is much appreciated.

Dear Pat L.

Actually, it is the responsibility of the executive to properly manage the interests of the non-executives and are therefore placed and are held to a quasi-fiduciary standing.

Your first course is to ask the executive why you were not paid.  They will likely be in a place of shock, saying that it is the oil companies responsibility to pay.  

Well, it is, but it is the responsibility of the executive to have the non-executive treated exactly how the executive was treated.  The executive cannot carve out any benefit for himself that does not likewise benefit the non-executive.

They (the oil company) may want you to execute a ratification of lease in order to get paid.  You are NOT required to do so.  Tell them to send the money and you will execute a receipt.

It may be to your benefit to execute a ratification of lease, but it is beyond the scope of this response to go into the land strategy involved.

Best,

Buddy Cotten

Mineral Manager

Thank you, Mr. Cotten.  Last week I emailed the company rep & notified them that I believed I was entitled to the full per net acre bonus amount and calculated to the penny the exact amount for them.   Just today I received from them an email acknowledgment that I am correct.  I will continue to explore if ratifying the lease is in my best interest.

Thanks again,

Pat L.

Good for you, Pat!  

A Ratification won't change anything as far as your rights or royalty income go. 

I am confused at the situation.  I have a number of nonparticipating royalty interests, which I assumed I did NOT have any right to a bonus payment or any right to negotiate the lease.  I haven't seen a mineral inheritance that was split out to an executory right and still a participatory right.  Is this what is happening now?  I have had ONE company ask me to ratify a lease I didn't negotiate as a nonparticipatory mineral holder, but there was no payment.  This seems an unusual situation, and not sure why the non-executory holder would be entitled to any bonus.  Glad you are, but i haven't ever seen this situation.

It all depends on the exact wording of the deed which established the NPRI or mineral interest.  Some reserve only a specified royalty decimal (1/32).  Some reserve a portion on the negotiated royalty (1/8 of royalty).  Generally do not include bonus or delay rentals.  Some sell minerals but seller reserves executive right to lease on behalf of buyer, but specify that buyer gets his share of bonus.  So you have to go back though all the deeds to determine what you have.  There are many variations in language and a lot of court decisions interpreting the meaning.  

thanks for the explanation.  i have only dealt with royalty npri, and unfortunately, some are floating, which are always fun to get the right numbers from the operators.  I just haven't seen one that allowed npr to a bonus.

Dear Mr. Marrow,

A non-participating royalty interest is not entitled to a bonus.

A non-executive mineral owner has an absolute right to a bonus, unless the bonus was reserved.

There  are 5 elements of a mineral estate:

1.  The right to execute an oil and gas lease (executive right)

2.  The right to receive bonus

3.  The right to receive delay rental

4.  The right of ingress and egress

5.  The right to receive a cost free share of production (royalty).

Each of those elements can be retained, conveyed, etc., in any proportion to each other.

For example, you could reserve the executive rights, 1/2 of the bonus, all of the delay rental, convey the right of ingress and egress and reserve 3/4 of the royalty,  ALL IN ONE DOCUMENT.

Best,

Buddy Cotten

Mineral Manager

Everyone please see the attached reference materials. 

I was sent the excerpt I titled " NPRI vs NPMI" by a Land Services Broker I was working for many years ago when I first ran across the differing concepts of Non-Participating Royalties and Non-Participating Minerals.  I do not know it's source but would love to know if anyone recognizes where it might be from.  

The "Minerals v Royalties" One Pager I ran across a few years ago.  It is from a Real Estate website and keeps it pretty simple. 

The "FRENCH V CHEVRON...", which is referenced in the "Minerals v Royalties" One Pager, Buddy Cotten either posted or sent me a number of years ago. 

Hope these help - 

Charles

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