Help, anyone interested? The Texas Legislature needs to address this.
With respect, I think that the legislature ought to keep their beak out of the lives of its citizens who have entered into a valid contract that was entered into willingly by parties of competency and dealing with a subject matter that is not illegal or immoral.
The courts abhor a forfeiture and will not assist if someone has just made a bad deal, whatever the opinion of those generations down the line.
Great! I propose we have one in Oklahoma for old leases.
Gracie Troini
Buddy,
It is not that the leasor made a bad deal. It was okay for the time it was written. Was the Pugh being used in the early 90's? Most people did not know anything about fracking or consider that they might drill horizontal wells at some time or that there are all these formations down below. Most people simply did not have all the facts and those that did worked for the oil companies. I think it is common knowledge that large oil companies are not looking out for our concerns (hence this very forum). And, are the only considerations to a contract that it not be illegal or immoral?
Courts are there for changes and to improve upon current laws. I say we use them. "The courts abhor a forfeiture and will not assist if someone has just made a bad deal." Are you the spokesperson for the courts? These ARE the things the court should and does get involved in. Again, I say we use them.
Some of the these leases were written as far back a the 1950's. In our case it was in the 1980's. Most of the people were farmers or ranchers and a lot of them were not very educated. A lot of the original leasees sold their leases to other companies and so we are stuck with out of date leases held by companies that are not intersted in drilling.
Dear Gracie,
Pugh clauses were used since 1947, when Larry Pugh, an attorney in Crowley, Louisiana first developed one to help counteract a Supreme Court Case. I am so old, that I remember when landmen knew the difference between a Pugh Clause and a Freestone Rider (made famous in Freestone County, Texas at least as early as the mid-1970's). Sadly, they are used interchangeably now due to lack of knowledge by any landman with less than 25 years experience.
As to am I spokesperson for the court. No. The justices will tell you that they are quite capable of speaking for themselves. And they have already spoken, many times, on this issue. The phrase "abhors a forfeiture" comes out of the common law doctrine of equity. In this case, the oil company has done nothing wrong. They have complied by the terms of the lease. Done everything that they agreed to. Now, the equity court will not take something away from him, because someone down the line did not like the way that things turned out. That also fails the equity test. As far as the forfeiture part, law wins over equity if it is close. Sort of like tie goes to the runner in baseball.
I know that nobody with leases that have been generating income for years, that does not want to get in on this high bubble of oil prices, both bonus and royalty. Sometimes, it just is not possible. Bitterness ensues and claims of "It's just not fair (or just)." come out. I we knew then what we knew now, things would be different.
Horizontal drilling really came into its own beginning in the real late 1990's, early 2000's. By 2005, it was a big deal and now the whole country is under scientific scrutiny as to shale plays that might be economically justifiable.
I am reminded by Justice Oliver Wendell Holmes, the Great Dissenter of the US Supreme Court in the early 1900's. In a particularly messy case, he told the plaintiff (to my failing memory), "Young man, you came here seeking justice. You will not find it here. This is a court of law, not a court of justice." This also applies to the Treyvon Martin case. The law was applied, but justice perhaps failed. If the guy had stayed in his truck none of that would have happened.
Being the way I am, I do not want the government in any way in my business. That includes on telling me if I have to lease my land -- such as Oklahoma. Supposed I owned the surface and 15% of the minerals in a section. I would be forced into leasing and potentially have many wells drilled on the family dairy farm. Is that equitable? Keep the government out. Scariest words that a farmer can hear is "I am from the Federal Agricultural Agency and I am here to help you."
As to what make a contract enforceable are the following elements of contract:
An offer and an acceptance,
An agreement of the minds,
Consideration,
Capacity of the parties to execute the contract and
Dealing with a legal subject matter.
So, no is the answer. You are correct. There are more considerations other than the legality of the subject matter of the contract for it to be legally enforceable. For an example, you cannot force a drug dealer to deliver your heroin under a contract. Non-enforceable.
I hope that I am not seeming disagreeable to you. I have lease interests from the mid 1980's that are in production. I got my 1/4 royalty, but I would like to lease it again, also. But I made my deal. I took the money and spent it. Helped put my kids through school. Would not be fair to retrade the deal 25 years later. And, I would not ask them to or sue them, either.
We will have to agree to disagree, I suppose.
Gracie said:Buddy,
It is not that the leasor made a bad deal. It was okay for the time it was written. Was the Pugh being used in the early 90's? Most people did not know anything about fracking or consider that they might drill horizontal wells at some time or that there are all these formations down below. Most people simply did not have all the facts and those that did worked for the oil companies. I think it is common knowledge that large oil companies are not looking out for our concerns (hence this very forum). And, are the only considerations to a contract that it not be illegal or immoral?
Courts are there for changes and to improve upon current laws. I say we use them. "The courts abhor a forfeiture and will not assist if someone has just made a bad deal." Are you the spokesperson for the courts? These ARE the things the court should and does get involved in. Again, I say we use them.
Gracie & Baxter,
If the land that is HBP'd under the old lease is good enough, someone will find a way to get in there, even if the current Lessee isn't doing anything with it. Just give it time. Not everyone is sitting on a lake of oil.
Well put, Buddy. A voice of reason.
I know it sucks that grandpa signed a 1/8th lease in 1950 for 20,000 acres where a single well can hold it all. But, you don't know what grandpa did with the bonus money he got for that lease, I'll bet. And, by damn, I'd be willing to bet he was pleased as punch as soon as that bonus money came in. You should be happy that you were able to inherit a portion of grandpa's minerals, even if they are under lease.
Tom,
They probably did not have bonus money back then. I never heard of it until I got on this forum. I did not inherit my mineral rights. I paid my father $50.00 per acre in the early 1970's for it. And the money I used to buy the mineral rights I got from suing the insurance company of someone who ran into me. I suffered a cracked vetebra in my back. I was lucky and it healed well and I have not had any problems with it. This is no sad story, just facts to show you your example are way off base.
Just saying...
Gracie
Dear Gracie,
Unless someone can prove me wrong, Bonus was paid (in some form or fashion) as long as there have been leases. I can't speak for all counties and states. Who knows what happened in the 1850's in Pennsylvania?
When the Spindletop field discovery came in near Beaumont, Texas in 1901, it ushered in the modern era of petroleum exploration. Captain Lucas paid Patillo Higgins $33,150.00 for a lease on his farm in 1899. In January, 1901, he drilled the Lucas No. 1 gusher and it flowed at over 100,000 barrels a day. Oil sold for 3 cents a barrel and a cup of cool water sold for a dime on the derrick floor.
I have a client that has a 1928 lease granted to the Texas Company of 900+ acres. They were paid $100 per acre and 1/6 royalty in 1928.. Those wells only produce about $35k per month now. The bonus would have been about $1400 per acre in today's dollars.
You made a sparkling purchase on your minerals. In Oklahoma in the early 70's, bonus amounts generally ranged from $35-$50 an acre. So you purchased minerals pretty much at book value for a lease. Hard to lose money on a deal like that.
Minerals tend to get sold on economic downturns or by less than sophisticated sellers or both. A ton of minerals changed hands in the Great Depression. The farmers would sell 1/2 of their minerals to get money to pay back taxes so the farm did not get auctioned off at the courthouse steps by the Sheriff.
Yes, bonus payments have been around a long time.
Buddy,
My father never mentioned a bonus when he owned the rights and there was no mention of a bonus when I leased in 1990. I think I had leased one time prior to 1990, and I received no bonus. I guess we got screwed.
My father was much older than my mother and in his 50's when I was born. He told me he would probably not live to see them drill a well but thought they would at some time. I always was interested in the idea of owing the mineral rights and I would ask him now and then if he would sell them to me. I think he wanted me to have them and gave me a good price. They have drilled on it and it was just an okay well. I am hoping that I live long enough to see them drill again and hit a good one. Somehow this has become more than just about money. It is for my father. Weird, huh?
As you said, we will just have to agree to disagree about the old leases and contracts. I have been trying to think of an example and the only one I can come up with is a marriage contract. People get marriages annulled based (sometimes) on one partner not having all the facts about the other. Seems that could apply to a lease contract also.
Gracie
I
Buddy Cotten said:
Dear Gracie,
Unless someone can prove me wrong, Bonus was paid (in some form or fashion) as long as there have been leases. I can't speak for all counties and states. Who knows what happened in the 1850's in Pennsylvania?
When the Spindletop field discovery came in near Beaumont, Texas in 1901, it ushered in the modern era of petroleum exploration. Captain Lucas paid Patillo Higgins $33,150.00 for a lease on his farm in 1899. In January, 1901, he drilled the Lucas No. 1 gusher and it flowed at over 100,000 barrels a day. Oil sold for 3 cents a barrel and a cup of cool water sold for a dime on the derrick floor.
I have a client that has a 1928 lease granted to the Texas Company of 900+ acres. They were paid $100 per acre and 1/6 royalty in 1928.. Those wells only produce about $35k per month now. The bonus would have been about $1400 per acre in today's dollars.
You made a sparkling purchase on your minerals. In Oklahoma in the early 70's, bonus amounts generally ranged from $35-$50 an acre. So you purchased minerals pretty much at book value for a lease. Hard to lose money on a deal like that.
Minerals tend to get sold on economic downturns or by less than sophisticated sellers or both. A ton of minerals changed hands in the Great Depression. The farmers would sell 1/2 of their minerals to get money to pay back taxes so the farm did not get auctioned off at the courthouse steps by the Sheriff.
Yes, bonus payments have been around a long time.
Best
Buddy Cotten
Mineral Manager
Well, Gracie, I am delighted that you are here on MRF now! Sometimes you don't know what you don't know until you start finding out for yourself what you did not know. Seems like I am always finding out something that I did not know.
You sound like you have a curious nature. I do too. You will do fine next leasing go around. If you need help getting the best deal, then get some help. Being under represented is a major problem.
Several years ago, about 75% of people sign the first lease, or seismic option or whatever that is stuck under their nose with a check attached.
I think this forum and the opening of lands across the US where people have no idea what they are doing is contributing to lowering that 75% number.
There's nothing to stop an owner from talking to the lessee about an active lease. Have you ever considered speaking to them about utilizing the remaining unused portion of the lease? I've also met investors who specifically look for leases like yours to buy out the operator and then go after the remaining acreage for new production.
Yes, we have talked to the lessee and they don't appear to want to do anything. Other compaines have contacted us and we tell them that we are "sewed up" by the current lease holder. We tell them what company that is, but nothing has transpired in the past year. Our land is located in the nothern part of the Eagle Ford shale.
Actually, elected representatives are there to make changes to and improve upon laws, NOT courts! The courts are supposed to INTERPRET existing laws, keeping in mind the legislative intent of the elected representatives who passed the law. A MAJOR part of the reason that our country is in such a mess is because judges, who are unelected in the federal system, have taken upon themselves to "change" and "improve" laws when they have absolutely no business doing so, all they can do is affirm it or reject it. Having said that, I agree with Buddy that the Legislature should stay out of this one.
Gracie said:
Courts are there for changes and to improve upon current laws. I say we use them.
I believe a Class Action was the the original subject of this discussion. A Class Action Lawsuit is settled in court.
Pete Wrench said:
Actually, elected representatives are there to make changes to and improve upon laws, NOT courts! The courts are supposed to INTERPRET existing laws, keeping in mind the legislative intent of the elected representatives who passed the law. A MAJOR part of the reason that our country is in such a mess is because judges, who are unelected in the federal system, have taken upon themselves to "change" and "improve" laws when they have absolutely no business doing so, all they can do is affirm it or reject it. Having said that, I agree with Buddy that the Legislature should stay out of this one.
Gracie said:Courts are there for changes and to improve upon current laws. I say we use them.
I just don't see the grounds for any class-action lawsuit. What are the Plaintiffs supposed to say, "Yes, judge, we want you to invalidate tens of thousands of oil-and-gas leases, some of which have been in existence for many generations or changed hands many times, because we could have more money in our pockets if they were worded differently?" Really?
Pete,
Your statement, "What are the Plaintiffs supposed to say...." seems a little silly. The same lease that has been in existence for generations cries out for a review.
Things change, people differ (as we do). Courts can review and rule on these changes and differences. I believe there is a case for a class action lawsuit.
Gracie
Gracie
My statement was intended to be silly, because I think it is silly to think there is a class-action lawsuit here. There is something called an "implied covenant to develop," which some Plaintiffs have used to try to get held acreage released, but it is difficult to prevail on that cause of action. So tell me what other serious argument a Plaintiff could make before a judge in order to invalidate a legal contract willingly entered into by two parties.
How about, "Yes, judge, the same lease has been in existence for generations, so even though it is still a valid contract, because so much time has passed we want you to invalidate it so that we can make more money?"
Things change, but legal contracts don't, unless mutually agreed to. Courts have no business "reviewing" a valid legal contract willingly entered into by two parties just because one party no longer likes the terms of the contract or because it has been in existence "for generations." If you believe there is a case for a class-action lawsuit, by all means go out there, hire an attorney, and tilt at that windmill.
Pete, what you have just described is what happens in North Dakota when a lease HAS a pugh clause that mentions formations, the operator gets the state to call undrilled / produced formations a common source of supply so the oil company can hold them without drilling, make more money and not have to lease those other formations again. This clearly would go against the intent of the parties in the lease, but it's happening anyway. So tens of thousands of oil and gas leases have already had their intent invalidated, to the operators profit.
The class action will not prevail of course, but on the basis of equality, it sounds more reasonable than the after the fact discarding of pugh clauses that were in the leases, that people paid good money to have a lawyer put in their leases and to which the operator agreed to. Sauce for the goose is sauce for the gander.
Pete Wrench said:
I just don't see the grounds for any class-action lawsuit. What are the Plaintiffs supposed to say, "Yes, judge, we want you to invalidate tens of thousands of oil-and-gas leases, some of which have been in existence for many generations or changed hands many times, because we could have more money in our pockets if they were worded differently?" Really?
If a Lease contained a Pugh Clause stating that the "intent" of the two parties was that any, or any specific, formation or stratum not developed by the Lessee by the end of the Primary Term was released automatically to Lessor, and then the Lessee drilled there anyway without a new Lease and without additional consideration, that seems like a slam-dunk lawsuit to me in favor of the Lessor. The Lessee cannot just "discard" parts of the contract he doesn't like, just like a Lessor or his Successor/Assign cannot just "insert" or "change" parts of the contract that he doesn't like. Why even have a contract if either one of them could do that?
So that's a case where there IS a Pugh Clause and if the Lessee violates it the Lessor can go to Court to enforce the terms of the contract. But that's totally different from a Lease where there is NOT a Pugh Clause and then years, decades, or generations later somebody doesn't like the wording and wants to insert it into the Lease. One Party to an Oil and Gas Lease cannot go to Court with any reasonable expectation that it will CHANGE the wording of a legal contract that that Party willingly entered into.