12% owner holding up drill

Texas Mineral Rights Reeves County, TX
1

I was notified that there is a owner on our trac of land that is keeping CWE from drilling.

I think the situation is that all of us normal everyday people have signed our leases on a 640 acre plot. We have someone in the oil business that is owns 12% and holding up the drilling activity because he wants an insane amount of money for the tiny 12% interest he owns and will not sign the lease until he gets this insane amount of money.

What can be done to get this turkey out of hair? He is keeping several families that could use the money from realizing their dreams. Really ticks me off....

Any help would be greatly appreciated.

2

I'll be very interested in the replies you get here.

I have a small undivided portion of a section & it appears that the land has been leases several times without contacting me.

Inquiries to the GLO have gone unanswered, so far.

3

We had the same problem a number of years ago when Cousin Jerry was holding everything up. So, we made him a ‘deal deal’. Yep, we each chipped in a little as an encouragement for him to sign. But we’re not going thru that again, next step is to form a trust. Good luck.

4

How about a sit down face to face meeting with all parties involved.

Everybody's opinion is very important to a good solution.

5

I just received a response from the GLO and the email response may be of interest to you:

"Common situations where a company doesn't lease all undivided interest owners are: 1) they can't find an owner; 2) they drop their prospect before all interests are leased; or 3) the undivided interest owner asks for lease terms that the company won't accept."

6

J Matthews - So does that mean they can drill without all the land leased? Thanks in advance…

7

It appears so.

I'm betting that a good lease lawyer would provide a more definitive answer.

8

Here's your answer since you are in Texas.

One co-tenant can drill on his lands, even if he does not own all of the interest. This is a co-tenancy situation. That is not true in all states. West Virginia comes to mind - the consent of all co-tenants are required.

There is an accounting procedure between the co-tenants. The 12% would be referred to as a carried interest.

9

Buddy,

Does that mean that someone not under lease is entitled to the same lease bonus & % as the signed owners?

10

Your Lessee can file a Rule 37 exception application or a MIPA application and get on with the business. You might inquire if the lessee is taking action on this. If not...maybe he doesn't really want to drill.

11

Dear Mr. Matthews,

The unleased co-tenant is a carried interest. He is entitled to no bonus, since he has not signed a lease. He is entitled to no royalty, since he has signed no lease.

After the well has paid out for itself, he would be entitled to his pro-rata share of production and his pro-rata share of costs. His position would be analogous to a working interest.

Mr. Lobdill, the Rule 37 exception has to do with drilling too close to property lines or wells drilled too close to each other on the same tract or farm. Mr. Harrison said that the open interest owned 12% in the 640 acres. MIPA actions are incredibly expensive and are rarely employed successfully.

12


Buddy Cotten said:

Dear Mr. Matthews,

The unleased co-tenant is a carried interest. He is entitled to no bonus, since he has not signed a lease. He is entitled to no royalty, since he has signed no lease.

After the well has paid out for itself, he would be entitled to his pro-rata share of production and his pro-rata share of costs. His position would be analogous to a working interest.

Mr. Lobdill, the Rule 37 exception has to do with drilling too close to property lines or wells drilled too close to each other on the same tract or farm. Mr. Harrison said that the open interest owned 12% in the 640 acres. MIPA actions are incredibly expensive and are rarely employed successfully.

Best,

Buddy Cotten

Mineral Management

Dear Mr. Cotten,

Thanks for the explanation. I was thinking that the 640 acre tract was a drilling unit, not a tract wholly owned by co-tenants.

Rule 37 has recently been used in a new way. In connection with urban shale gas fields drilling units typically encompass many mineral interest owners of small city lots. Some owners do not want to lease. Further, the wells are horizontal wells with long horizontal laterals.

Lessees are using the following tactic. They will lease properties in a checkerboard manner and then define a drilling unit that encompasses a tract that includes some unleased plots. They will then make low ball offers to hold-out owners and promptly use Rule 37 to claim that they cannot design a drilling plan for the unit that will avoid having the well bore violate the spacing rule (330 ft in the Barnett Shale). They will then ask the TX RRC for a Rule 37 exception to permit the drilling to proceed as planned. If none of the unleased owners protests by appearing at a hearing in Austin, the application is approved administratively. This essentially allows the lessee to take the minerals from the unleased owners without compensation. The lessee receives full ownership of these unleased mineral rights and does not share the proceeds with any other pooled interests.

This is happening right now. The net cost to the driller of this option (vs a MIPA forced pooling) is negative (profitable), whereas the MIPA option would leave the unleased owner's property rights in place and make him a carried interest owner with some net profit as a result of the drilling.

Best,

Jerry Lobdill

13

This is all somewhat interesting - because if what I am reading is true - then there should really be no hold up on drilling because 12% owner will not sign. I actually think its a bunch of people in the oil business that own small amounts that add up to 12%. But at the end of the day - the co-tenant rule should kick in and allow drilling. Hmmm.. now I am wondering why or how the 12% is holding things up... I am dealing with CWE - and I feel they are straight shooters and fair business people... but this is not making any sense to me.. damn the torpedoes and drill!

14

Similar situation has been the case in Sec 258 BLK 13 (unless something has changed). I was told a couple of months ago that the owner of 60 acres was holding out.

Meanwhile there are 3 direct offset locations permitted and not one location on 258.

Frustrating to say the least.

Kreg Harrison said:

This is all somewhat interesting - because if what I am reading is true - then there should really be no hold up on drilling because 12% owner will not sign. I actually think its a bunch of people in the oil business that own small amounts that add up to 12%. But at the end of the day - the co-tenant rule should kick in and allow drilling. Hmmm.. now I am wondering why or how the 12% is holding things up... I am dealing with CWE - and I feel they are straight shooters and fair business people... but this is not making any sense to me.. damn the torpedoes and drill!