I want to do a little time travel back to the 40's and take you with me and see if anyone knows of any common or statutory laws that have negated this practice.
Back in these "just barely past the great depression" days when oil and gas leases were traded back and forth for specific periods or no specific ending periods of time between the lessees
(i.e) the landowner and the leasing agent who would agree to drill on these poor dirt farmers land and in return give them 1/8th of the value of the oil, gas and other minerals dug out of the farmland the farmers owned (lessees), the lessors would slip wording into the lease agreements (knowing these people could not afford a lawyer, and after all he ate their hog and black eyed peas and had a glass of cold currant tea with them, he would put wording into the agreement that the lessor received the bonus money from any e&p company that did not drill within a specific period of time as well as other fees, in effect making the land owner, who was the lessee a non participating royalty interest owner.
To me this has an odor about it, particularly since it kept the landowners fields tied up with the possibilities of the possibilities of drilling about to occur while at the same time the lessor was getting the bonus money etc.
To anyones knowledge has the courts or the railroad commission come down on the side of the lessee and said: wait a minute - lessors can't bind a lessor to an agreement that ties up these farmer's and rancher's land and not expect them to be the recipient of the bonus money, etc.
Just wondering if the courts and administrative oversight commissions had become somewhat enlightened to letting some oil and gas speculator draw up a OGML that made the lessees non participating royalty interest owners.
Dear Mr. Ross,
No criticism intended. You interchangeably used the words lessor and lessee which made your post difficult for me to follow.
The RRC oversees administering the code as it applies to the Railroad Commission. The courts handle disputes on anything else. AND the courts are fact specific.
An oil and gas lease is a special animal. It is a conveyance of the minerals in the nature of a determinable fee with the landowner reserving a share of production and the possibility of reverter. What makes the mineral conveyance a determinable fee is that there are elements of contract included.
If you do go back to the 30's and 40's, you will find millionaires made of landowners. Not all, of course.
My post was specific to an OGML negotiated between a landowner (as the lessee of the OGML) and an oil and gas leasing agent (the named lessor in the OGML). In this specific OGML which I was looking at, signed in the early 40's the lessees (the landowners) signed with the lessor, who was an oil and gas landman/speculator, to develop these rancher's land into an area for hydrocarbon extraction and production. In the 40's OGML, the lessor kept the bonus money that would be paid for delays in starting of the work, etc., whereas the lessee (i.e. the landowner) got nothing, which made them non participating royalty owners, I believe. And I have wondered if anyone since this period of time (the 30's and 40's) had taken this type of lease into court and established a common law precedent, hopefully allowing the landowner to retain the participating royalty interest.
As you point out there are many different types of OGMLs out there, but some are notorious for being less than fair to the landowner, should the leasing agent (lessor in the OGML) be a person of less than reputable character and wanting to extract as much as possible from poor, and uneducated ranchers and farmers who could not afford attorneys during this period, i.e. the late 30's and 40's. But that is NOT, lumping all oil and gas leasing agents into the same pot.
Still got it backwards on Lessor (the landowner) and Lessee (the oil company). And no, a contract is a contract and the leases from the 30's are still good. On what basis could a court rule otherwise? The law does not protect you from making a bad deal. They were probably being paid the "going rate" and on the same lease form as everybody else.
The share of production referred to in my earlier post is a landowner's royalty, or lease royalty. Not a non participating royalty interest.
I represent one landowner whose lease was signed in 1928. The Lessee was the Texas Company. The consideration was for $100 per acre (somebody figure out what that is today) for 954 acres and the royalty was 1/6th. In 1941 a like lease was let to the Texas Company (the Lessee) and provided for 3/16 royalty. Both leases are still producing today. Many wells were drilled and not once did we complain about 80+ years of production.
As for the uneducated landowner, they are his minerals and he chose to lease and enter into a contract, took money for bonus and royalty and still producing and is it fair? I guess that the heirs say no.