Can a person who owns mineral rights have no right to receive lease or bonus payments as said rights may reside with surface owners?
Dear Mr. Tofson,
The basic elements of the mineral estate can be defined (in all states that I am aware of) as follows:
1. The right to execute a lease,
2. The right to receive bonus consideration,
3. The right to receive rental payments
4. The right of ingress and egress
5. The right to a cost free share of production (royalty).
Each element of the mineral estate is independent of the other,
So, you could own the right to execute a lease and the right to receive royalty, or a portion of royalty, and no rights to bonus.
So, cautiously (because of the way your question was worded) one could say that a person who owns what might be generally referred to as mineral rights, may not own all of the elements of mineral ownership and they could be vested in another (such as a surface owner, or even a astronaut).
What we see in some areas of the country is the owner of land sell the land, and reserve all of the minerals, except that he grants the rights of ingress and egress to the surface owner. That puts the surface owner in complete control over what happens to his property.
Was that an answer to your question?
Mr. Cotton, thanks for your insight on this. I can't say if this was an answer until I have a chance to review some additional documents however its a darn good start. That said, your points are well taken and very much appreciated. Thank you...
Bob T.
Dear Mr. Cotton, I have been reading all I can regarding "Executive Rights" and "Mineral Reservation", truly fascinating subjects. Last month on another thread here on the Mineral Rights Forum, you said...
"However, the oil company cannot just lease the executive owner - they must lease (read that as pay the non-executives their pro-rata share of the bonus) the non-executive interest. Once the executive rights have signed a lease, the non-executives are bound".
Can you expand on that a little. I am following your line of thought but got sidetracked on the above. When you have time,
Thanks,
Bob T.
Dear Mr. Tofson,
The executive right to lease, when exercised, automatically binds the non-executive interest to the lease agreement. The oil company cannot just lease the executive interest and leave the non-executives out. The are bound to the terms and must be compensated.
If the language that creates the executive right is silent, the Lessee pays the non-executives. There have been cases in my experience where the executive collects all the bonus dollars and distributes to the non-executives their pro rata share.
Mr. Cotton, thank you very much for your clarification. (I am still going to school here) Going back to my original question at the very top and from your last post. My simplified take is this:
If a surface owner has executive rights over a mineral owner, for one of the 5 elements you identified, the holder of those executive rights has an obligation to look after the mineral owners interests, per a signed lease agreement to the degree that the non-executive holder has been excluded.
BTW, I looked at your new web site and its very nice.
Greatly appreciated,
Bob T.
Buddy Cotten said:
Dear Mr. Tofson,
The executive right to lease, when exercised, automatically binds the non-executive interest to the lease agreement. The oil company cannot just lease the executive interest and leave the non-executives out. The are bound to the terms and must be compensated.
If the language that creates the executive right is silent, the Lessee pays the non-executives. There have been cases in my experience where the executive collects all the bonus dollars and distributes to the non-executives their pro rata share.
Best,
Buddy Cotten
Dear Mr. Tofson,
As to executive duty. I can only reply as to Texas Law. This is actually a subject with which I am very, very familiar.
Today, a person can hold the executive right with no underlying interest in the mineral estate. That was not always the case. It used to be an agency power coupled with an interest (mineral). Obviously, the right to execute an oil and gas lease and the right to come and remove (ingress and egress) the hydrocarbons are the two most significant elements of mineral development. If you do not have a lease, or if you do, and cannot get to the property, those assets have been rendered essentially valueless.
Most less informed lessors and way too many landmen 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.)
The question of duty was originally set by the courts of “utmost good faith and fair dealing”, but now cases indicate that the duty is more fiduciary in nature.
What really knocked over the apple cart was the Supreme Court opinion, In re Bass (a divided decision), in which the court stated that a duty is not owed by an executive to a non-executive (or a non participating royalty interest) if the executive does not first enter into an oil and gas lease. Huh?!?!?! That's nuts.
Now Texas is in a state of idiocy where the owner of the executive rights and nothing else (a naked executive right) has an fiduciary duty, but the duty only attaches if a lease is granted.
Therefore the executive can sit on the sideline because he has no "stake in the game" and do nothing and render the minerals worthless. And the courts have given him license and incentive to do so because fiduciary liability only attaches when the executive interest actually DOES something (grant a lease).
What about the owners of all other elements of the mineral estate? They like the proverbial monkeys at the gate with their hands over their mouth, unable to speak because of their non-executive status.
The dissenting opinion in Re Bass is a wonder of logic and should be required reading for how to write a dissenting opinion.
Sorry to get long winded.
Robert L. Tofson said:Mr. Cotton, thank you very much for your clarification. (I am still going to school here) Going back to my original question at the very top and from your last post. My simplified take is this:
If a surface owner has executive rights over a mineral owner, for one of the 5 elements you identifid, the holder of those executive rights has an obligation to look after the mineral owners interests, per a signed lease agreement to the degree that the non-executive holder has been excluded.
BTW, I looked at your new web site and its very nice.
Greatly appreciated,
Bob T.
Buddy Cotten said:
Dear Mr. Tofson,
The executive right to lease, when exercised, automatically binds the non-executive interest to the lease agreement. The oil company cannot just lease the executive interest and leave the non-executives out. The are bound to the terms and must be compensated.
If the language that creates the executive right is silent, the Lessee pays the non-executives. There have been cases in my experience where the executive collects all the bonus dollars and distributes to the non-executives their pro rata share.
Best,
Buddy Cotten
Dear Mr. Cotton, not long winded at all. Pretty straight forward actually. I'll crunch this and come back. I am following you and find all this to be most interesting. There is some nutty stuff out there. I need to read "Bass" although this is in Colorado and not Texas. Probably all ties in.
Many thanks..
Bob T.
And the Infamous Leslie Case, which continued to define the duty slammed by In re Bass.
Here is a link to the oral arguments.
http://stmarytxlaw.mediasite.com/mediasite/SilverlightPlayer/Defaul...
Whoa, I am still getting into "Bass" been there for 45 minutes or so. My head feels like its in a vise, twisted like a grape vine.
Thanks, I will be back..
Bob T.
Mr. Cotten,
Buying some land in East Texas on which the minerals were retained long ago by previous owners. I will own all of the surface rights.
I'm new to this so thanks for you guidance... a few questions:
1) How do you determine if you own the executive right?
2) If you own the executive right as a surface owner, what power does that give you?
3) I always heard that as surface owner you were a helpless bystander if you didn't own the minerals as long as the company was "reasonable" in how they handled access/surface use/damage. What input do I have as surface owner if the mineral owner elects to sign a new oil & gas lease?
4) There is an existing saltwater injection lease on the property that expires in a few years. The saltwater is a byproduct from wells not on my land. Does the oil and gas company have any rights if I elect not to renew the lease upon expiration?
5) How can I determine fair market value for an injection well if I decide to extend?
Thanks.
Robert L. Tofson said:
Mr. Cotton, thanks for your insight on this. I can't say if this was an answer until I have a chance to review some additional documents however its a darn good start. That said, your points are well taken and very much appreciated. Thank you...
Bob T.
Dear Steve,
In all liklihood, if you are buying surface, you have no executive rights. That would be highly unusual. Check with the abstract plant or title company and tell them you want to know.
As to rights as a surface owner, your rights have been increased over the past years. Reasonable use is one standard. However, the lessee must take into account planned future use and accomodate if reasonable alternatives are available. Most lessees want to take good care of the surface owner, They want a good reputation in the community,
As to commercial SWD wells, I have negotiated a ton of them. My most recent, in Orange County, Tx., was $0.25 per bbl.
If the current disposer of water's lease is up shortly as you say, well it should be up. Then you can cut your own deal.
Thank you. How does a landowner find out the # of bbls of water being pumped into the disposal well?
Buddy Cotten said:
Dear Steve,
In all liklihood, if you are buying surface, you have no executive rights. That would be highly unusual. Check with the abstract plant or title company and tell them you want to know.
As to rights as a surface owner, your rights have been increased over the past years. Reasonable use is one standard. However, the lessee must take into account planned future use and accomodate if reasonable alternatives are available. Most lessees want to take good care of the surface owner, They want a good reputation in the community,
As to commercial SWD wells, I have negotiated a ton of them. My most recent, in Orange County, Tx., was $0.25 per bbl.
If the current disposer of water’s lease is up shortly as you say, well it should be up. Then you can cut your own deal.
Best,
Buddy Cotten
Dear Steve,
They tell you when they send the check. If you can't believe them, there is a gauge that you can drive out and look at every day.
You seem quite knowledgable about all this. My question would be why Kaiser-Francis would not drill on a piece of land they have leased but will not allow another company to top-lease it and utilize the minerals the other company is so keen to get its hands on.
DF Agee
Buddy Cotten said:
Dear Steve,
They tell you when they send the check. If you can't believe them, there is a gauge that you can drive out and look at every day.
Best
Buddy Cotten