America’s conversation place for mineral & royalty owners
The Executive Right
I have a problem with executive rights as they exist today.
The proverbial “bundle of sticks” is an analogy familiar to most landmen. The analogy is that property ownership is like a bundle of sticks—that is ownership is composed of separate and individual property rights—and each “stick” represents a right or benefit available to the owner.
By the court ruling in Alford on the bundle of sticks theory on the nature of ownership of the mineral estate is comprised of the following, separate and distinct rights:
The executive right
The right of ingress and egress
The right to receive bonus
The right to receive delay rental and
The right to receive royalty.
The EXECUTIVE RIGHT is the right of leasing or administration of oil and gas interests in a variety of circumstances where the rights of another in the same mineral estate will be affected. Stated another way, it is the power to grant a lease from which persons other than the Lessor will enjoy be benefits of lease - bonus, delay rental, shut in royalty, and royalty. What the EXECUTIVE RIGHT owner DOES NOT have is the power to pool the interests of his non-executive. The pooling transaction has the efffect of cross conveyance of all interests in the pool, so that the pool can be developed as if it were a single tract or lease.
The problem that I have is that a person can hold the executive right with no underlying interest in the mineral estate. Clearly, the right to execute an oil and gas lease and the right to come and remove (ingress and egress) are the two most significant elements of hydrocarbon development. No doubt about it. If you do not have a lease, or if you do, and cannot get to the property, the minerals have been rendered essentially worthless.
In a Rule of Capture state like Texas, the non-executive mineral owners could be drained with little recourse to speak of. Do the non-executives have any right to appear before the Railroad Commission to force pool their interest or are they like the proverbial monkeys at the gate with their hands over their mouth, unable to speak because of their non-executive status? I do not know.
Typically, courts equate the executive right with the right to execute leases. (The executive owner can do other things as well -- grant seismic permits and options for example.) But when the executive right is severed from the underlying mineral interest, issues arise concerning the nature of the severed executive right and the duties owed by the executive to owners of nonparticipating royalty and non-executive mineral interests.
In Pan American Petroleum Corp. v. Cain, the Supreme Court of Texas classified the executive right as an agency power given as security. The Pan American court defined the executive right as a power and not as property right; this power was revocable upon death of the principal.
More than thirty years after Pan American, the court of appeals in Elick v. Champlin Petroleum Co. held that a non-mineral interest owner could hold the executive right.
In Day & Co. v. Texland Petroleum, the Texas Supreme Court confirmed Elick’s holding and reclassified the executive right as a separate property right that, like a royalty interest, does not terminate upon death of the holder.
Finally, the question of duty looms over executive rights. Texas courts have struggled with the duty owed by an executive to a non-executive. The duty was originally one of “utmost good faith and fair dealing”, but recent decisions suggest that the duty is fiduciary in nature.
The recent Texas Supreme Court opinion, In re Bass 113 S.W.3d 735 (Tex. 2003), adds turmoil to the duty question because that court stated that a duty is not owed by an executive to a non-executive if the executive does not first enter into an oil and gas lease.
Here are my other problems.
In order to avoid a breach of fiduciary duty, the executive could simply refuse to act or engage. He can literally stop exploration. Especially if he owned no underlying interest in the minerals.
A, a widow, owns Whiteacre's minerals. She transfers the minerals to B and C, her children, reserving the executive rights. A remarries to D. A dies, leaving everything to D, including the executive right. Horne Exploration comes to D to lease the land. D says nope, not interested. Make it worth my while. I have no interest in the minerals. Horne cannot pay D something to sign the lease. He is entitled to nothing since he as no mineral interest and has carved out something for himself to the fiduciary breach against B and C. Horne points this out and D says, "I never liked them damn kids anyway."
So now D tells B and C that if they assign to him 1/3 of their 1/2 each, he will execute the lease.
Now the kids are held hostage by their mother's last husband.
In a perfect little Rodney King mineral world, all classes of mineral interest owners would all just get along and everybody would benefit from mineral exploitation. Unfortunately, the reality is that greed, revenge, or spite can be the driving force.
Buddy Cotten
Mineral Management
Comment
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Comment by Kaye on February 25, 2012 at 7:15pm -
Well said, Buddy!
This is truly something important to think about especially, when there's a second marriage and children involved from a previous marriage! I would list greed at the very top of the list, but it could very well be a mix of revenge and downright spite too!
Bottom line, if you don't want "what you have worked for all your life" to go to your new spouse and his/her children, make sure you put in writing before you say, I do! Otherwise, you could be gifting everything you own to your new spouse and his/her children, leaving your own children out! Look up your state statutes to learn the laws that govern your state then, go a bit further and read up on some case law, pulling specific cases including supreme court cases. You'll be glad you did!
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Comment by Seth on January 24, 2012 at 10:04pm -
All,
Received e-mail from the RRC, for both your information and participation:
Thank you for sharing your concerns regarding the Railroad Commission’s review of our Mineral Interest Pooling Act (MIPA) rules. I agree that the rules should be transparent, consistent, and protect the rights of landowners and mineral rights owners.
We will be holding a public hearing at the Railroad Commission on January 30, 2012 in Room 1-111. I encourage you to testify at the hearing, if your schedule allows, and/or submit written testimony to the Commission. Testimony may be mailed to:
Railroad Commission of Texas Office of General Counsel
Attn: James Doherty P.O. Drawer 12967 Austin, TX 78711-2967
I appreciate your suggestions and look forward to working with you as the Commission reviews this important matter.
Sincerely,
David Porter
Texas Railroad Commissioner
Katie CarmichaelExecutive Assistant/SchedulerRailroad Commissioner David PorterP. O. Box 12967Austin, TX 78711-2967512-463-7133 Direct line512-463-7161 Fax
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Comment by Farrah G. Shepherd on September 28, 2011 at 1:38pm
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Those links are GOLDEN...wow.
There were some interesting concepts opened up by one of the justices.
Consider a non-executive minerals rights owner could potentially start frivilous lawsuits against the executive if a lease is not signed at a certain price for instance. If a duty to lease is imposed, then this could open up a pandoras box. What happens or what stops an oil company from strong arming the executive to sign the lease or the threat will be that a lawsuit will be filed on behalf of the non-executives?
The justices in the video asked some very invoking questions.
Thanks again !!!
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Comment by Buddy Cotten on September 27, 2011 at 11:47pm
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The actual opinion is here:
http://www.supreme.courts.state.tx.us/historical/2011/aug/090306.pdf
You can watch the oral argument here:
http://stmarytxlaw.mediasite.com/mediasite/SilverlightPlayer/Defaul...
The Court affirmed in part the appeals court ruling, overruled in part the appeals court ruling and remanded a portion to the trial court.
Buddy Cotten
Mineral Manager
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Here is a Texas Supreme Court EBRIEF on the recent Lesley vs. Veterans Land Board case which involves Executive Rights. This is an interesting legal history of Manges, Bass and other Texas Supreme Court decisions leading up to todays Executive Rights.
http://www.supreme.courts.state.tx.us/ebriefs/09/09030611.pdf
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I am happy to contribute.
I am extremely bothered by the fact the Executive Rights are just now being treated in a fiduciary manner. Your blog angered me to the point of wanting to know what has been done because I was seeing red.
I can not help but wonder what other little tid bits I am going to find out on my learning quest which will leave me shaking my head screaming "mama mia? "
Thanks again for taking out valuable time to educate the forum. All of your posts have been extremely inciteful.
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Farrah,
This is great stuff and what this board should be all about. I was well aware of the court of appeals case on Leslie, where the affirmed In Re Bass. (I acutally ran title on the Bass ranch about 15 years ago.
I did NOT know that it went to the supreme court. What I ended up on the synopsis, is that there is a question of fact involved in all cases on the executive's liability.
I will get the case tomorrow and have reading material in my NEW home library!
Best,
Buddy Cotten
Mineral Management
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Thank you for a your excellent contributions to the forum.
I was having a real hard time digesting the scenario you played out with an Executive Rights holder who essentially dodges a breach of fiduciary responsibility by not engaging in a lease.
The Texas Supreme Court recently weighed in on this topic so I thought I would post it here:
http://www.fulbright.com/index.cfm?fuseaction=publications.detail&a...
"Texas Supreme Court Clarifies Duty Owed by Executive Mineral Interest Owners to Non-Executive Mineral Interest Owners"
Fulbright Briefing
Rodney Acker and Cecil C. Kuhne, III
September 9, 2011
In Lesley v. Veterans Land Board, Cause No. 09-0306, the Court struck a balance between maintaining the executive owner's reasonable discretion to deal with the minerals, on the one hand, and protecting non-executive mineral owners from potential abuses of that discretion, on the other. Specifically, the Court maintained that the fiduciary duty that the executive owner owes to the non-executive owner can occur even when an oil and gas lease is not executed, and that the executive owner may not take affirmative acts affecting the mineral estate that bring benefits to itself at the expense of the non-executive owner or otherwise impair the value of the non-executive interest.It is my read above an executive rights holder can be held liable by the non executive rights holders for a breach of fiduciary responsiblity even when a lease is not signed. The Executive Rights holder essentially can not create economic damage to the estate by sitting on his/her hands.
Anyway, this law firm I got the above information from has offices all over the world but then so did ...... ENRON.
© 2012 Created by Kenny DuBose.
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