We have ~2000 acres in So. TX and some of our neighbors have been approached by Oil Co. to lease their land. No oil co. has come to us as of yet but I had a few questions regarding lease bonuses and I read this forum from time to time so I thought I would post here.
We own 100% executive rights and 1/32 mineral rights.
Who receives the lease bonus upon signing the lease? Would I receive 100% or 1/32?
If I would receive 1/32 then what incentive do I really have to lease the land as this would be minimal compared to the full bonus and I would not receive much of a royalty payment being I only own 1/32?
Can/Do Oil Co. ever pay the executive right holder a bonus in a situation like this as an incentive to actually lease the land?
Do I have an obligation/duty to lease the land?
Thanks in advance.
-Chad
Mr. Jones,
I'm reading that you own:
- 100% of the Executive Rights on 2,000 acres
- 1/32 of the minerals on 2,000 acres (62.5 acres)
Is that correct?
That is correct
Reagan "R.T." Dukes said:
Mr. Jones,
I'm reading that you own:
- 100% of the Executive Rights on 2,000 acres
- 1/32 of the minerals on 2,000 acres (62.5 acres)
Is that correct?
You need to look at the document granting or reserving the executive rights.
Whether 62 net acres is small or not would depend on the lease terms, how much production there was from the mineral acres and the value of that production.
The minerals can sit in the ground, they aren't in the way or hurting anything. I do not forsee any near term substitute for oil and gas.
I think the choices are to lease, sell or do nothing. You have to pick the choice you think best.
As important as making the right choice of what to do with the mineral rights is timing, when to move on the choice you have made, assuming you didn't decide to just let it ride. Be watchful, patient and flexible with an eye to maximising what you have. Weigh what you hear the experts say but make your own decision because the experts seem to be wrong about as often as they are right. Good luck with your minerals whatever you do.
Chad, mineral rights include the right to lease, the right to negotiate the terms of the lease, I.E. bonus, rentals, term, royalty, etc. Mineral owners can carve those rights up in previous transactions.
It sounds like there was no previous reservation of executive rights which vests in you the absolute right to negotiate a lease on the minerals, or not, your choice.
Any lease you negotiate would provide you with 1/32 of the bonus, rentals, royalty, and other benefits inherit to the lease.
I feel that any negotiation outside of this would be subject to scrutiny, and could involve those dang Attorneys,
Surface damages are a different matter and are tied to surface ownership.
Chad Jones said:
That is correct
Reagan "R.T." Dukes said:
Mr. Jones,
I'm reading that you own:
- 100% of the Executive Rights on 2,000 acres
- 1/32 of the minerals on 2,000 acres (62.5 acres)
Is that correct?
This is what I thought. I would just wonder if its worth the headache/surface damage/etc. to put up with for only 1/32 of the bonus and royalty. I would probably rather keep my property "clean" if that is all we would get (if we are ever offered something) and the remaining mineral owners would just be stuck without getting anything also.
Could I contact the other mineral owners (3 I believe) and negotiate the lease bonus right from them and they keep their mineral rights? It would not make much sense for 1 person to own the executive rights and surface property with zero mineral rights. The person would have no motivation to ever lease the property as they would never see any type of money for it (except damages).
Chad, that is good thinking on your part and exactly what I would do. Anything is negotiable. It might be that you can acquire from them more mineral ownership for a reasonable cost. One word of advice... I would not use the threat of not leasing as a negotiating tool, the implication of it suffices, otherwise it appears you are holding them hostage.
Good luck!!
Chad Jones said:
This is what I thought. I would just wonder if its worth the headache/surface damage/etc. to put up with for only 1/32 of the bonus and royalty. I would probably rather keep my property "clean" if that is all we would get (if we are ever offered something) and the remaining mineral owners would just be stuck without getting anything also.
Could I contact the other mineral owners (3 I believe) and negotiate the lease bonus right from them and they keep their mineral rights? It would not make much sense for 1 person to own the executive rights and surface property with zero mineral rights. The person would have no motivation to ever lease the property as they would never see any type of money for it (except damages).
Sometimes the "right" thing to do benefits others far more than it benefits us individually.
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I'm confused, Chad said he owned 100% of the executive rights, then why would you Dirk say "It sounds like there was no previous reservation of executive rights. Any lease you negotiate would provide you with 1/32 of the bonus" when he already said he has 100% of the executive rights?
Chad, if you own the executive rights you have a fiduciary responsibility (you could get a law suit against you if you don't lease). You get 100% of the bonus and 1/32 of any royalties based on lease percentage.
Joe, what I said is correct.The only way you can own 100% of the executive rights is if there is no previous reservation of executive rights, and all other mineral owners did not receive executive rights to their mineral interest.
If I am understanding Chad correctly he owns the executive rights, or full right to sign leases, covering his 1/32 of the minerals and also the rest of the mineral estate. Not a common occurrence, but one I have seen several times over the past 30+ years.
He does have a fiduciary responsibility to the non-executory mineral owners and that is why I advised him to tread lightly in his negotiations going forward. However, the fact remains that he has the right to make the call on leasing or not leasing.
Mineral Joe said:
I'm confused, Chad said he owned 100% of the executive rights, then why would you Dirk say "It sounds like there was no previous reservation of executive rights" when he already said he has 100% of the executive rights?
Chad, if you own the executive rights you have a fiduciary responsibility (you get a law suit against you) and bonus money if you lease those executive rights.
I was in a rush and parts of what you said led to my reply where you said "Any lease you negotiate would provide you with 1/32 of the bonus", that's not true with most leases as they state your leasing all in that tract or tracts and he would have to specify which he is leasing and if his 1/32 are not undivided it would be basically impossible to be specific. I also believe Chad had to have misunderstood from reading his reply "Could I contact the other mineral owners (3 I believe) and negotiate the lease bonus right from them and they keep their mineral rights?". I also believe the opposite of what you say in that he is more likely to get taken to court if he doesn't lease theirs but leases his interest (if possible to lease separate) than to lease all. If he leases and does not get bonus but for 1/32 he will probably never get paid the rest later and no one else probably will either, it would be foolish to try and only lease a small 1/32 portion of your executive rights and not 100%. Too many executive mineral rights owners do not fully understand the law and the fiduciary responsibility that comes with executive rights.
Joe, if Chad owns ALL of the executive rights on the tract and1/32 of the minerals, as stated, when he signs a lease, it constitutes a lease on 100% of the minerals under the tract. The lessee will then pay him 1/32 of the bonus, or stated better full bonus on his 1/32 of the minerals.
The lessee must then pay the remaining 31/32 mineral owners their share of the bonus on a prorata basis. He cant sign a lease on his interest and it not include the other mineral owners,remember, they have no executive rights on their minerals.
Chad has indicated an unwillingness to lease knowing that he will only get 1/32 of the bonus, rentals and royalties. I understand his dilemma. I think it would be worth his time to contact them and see if he can negotiate a more palatable ownership between the mineral owners. I only suggested that he not openly imply that should they not deal with him he will counter by not signing a lease.
Mineral Joe said:
I was in a rush and parts of what you said led to my reply where you said "Any lease you negotiate would provide you with 1/32 of the bonus", that's not true with most leases as they state your leasing all in that tract or tracts and he would have to specify which he is leasing and if his 1/32 are not undivided it would be basically impossible to be specific. I also believe Chad had to have misunderstood from reading his reply "Could I contact the other mineral owners (3 I believe) and negotiate the lease bonus right from them and they keep their mineral rights?". I also believe the opposite of what you say in that he is more likely to get taken to court if he doesn't lease theirs but leases his interest (if possible to lease separate) than to lease all. If he leases and does not get bonus but for 1/32 he will probably never get paid the rest later and no one else probably will either, it would be foolish to try and only lease a small 1/32 portion of your executive rights and not 100%. Too many executive mineral rights owners do not fully understand the law and the fiduciary responsibility that comes with executive rights.
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Thank you for the comments! I do understand that in owning all the executive rights, I negotiate the lease for the remaining non-executive mineral holders. If the property was leased then I also understand that I would be leasing the entire property and not just my theoretical 1/32 part of the property. I believe Mineral Joe may have misunderstood this.
I am a bit confused now as Mineral Joe stated "You get 100% of the bonus and 1/32 of any royalties based on lease percentage." I was under the impression that I only received 1/32 of the bonus and 1/32 of royalties. If I would receive 100% of the bonus and 1/32 of royalties then I would not have a dilemma in leasing the property. Can someone clarify this?
I think we have confusion over terms -
The term "Mineral Rights owner" is usually used for people who own the executive rights. Your counterparts are just royalty owners if they do not have executive rights. Most commonly, this situation involves a Non-Participating Royalty owners (NPRI).
Do you know if a NPRI was involved in your situation? If so, you'll be entitled to ALL of the bonus and what is left of the royalty after the NPRI.
R.T.
I have only seen when the executive rights are stripped from the mineral rights they strip the right to bonus, rentals, leasing rights, etc. and all that is left is a royalty or NPRI but they could just strip the right to lease or any combination of the above. I would not consider the remainder rights to be just royalty if they also get other rights like bonus rights, there is a difference. I believe executive rights include right to a bonus, leasing rights, delay rentals, etc. and therefore Chad would get 100% of the bonus on all that he owes executive rights to, unless it states otherwise in reservation. I can not see how the term "Mineral Rights owner" could be used for someone who only owns the executive rights, they are executive rights holders which may or may not include any royalties. I have only seen conveyances leaving a royalty or where they were specific that right to lease, bonus, delay rentals, etc. were included in the reservation or executive rights and have never seen it not described in detail what was being reserved so I don't know case law on it but was pretty certain it only leaves a royalty and strips more than lease signing right or there would be too many like Chad with no reason to lease the non-executive.
Chad, I think you can clarify this, with the wording of the instrument that reserved or granted you the executive rights, which was the first thing I mentioned.
Taken from a Texas oil & gas attorney, doesn't tell me who gets bonus which is normally spelled out but does call the non-exec "mineral rights owners". It also brings up what can happen if fiduciary duties are not handled very well.
"Typically, disputes between executive and non-executive rights holders arise because there are questions about the duties that are owed to the non-executive mineral rights owners. Historically, this duty is called the duty of utmost good faith and fair dealing. For example, the executive rights holder should generally seek the reasonable benefits from developing the land and allow the non-executive owner to obtain such benefits. That said, an executive owner has no right to pool non-executive owners. An executive owner, however, should notify the non-executive owners of the execution of a pooled lease so that those owners can choose to ratify it or not.
Recent Texas Supreme Court rulings have clarified the fiduciary duties that executive rights holders owe to non-executive mineral rights owners. If the non-executives are deprived of benefits that they should be receiving, they may have a claim against the executive rights holders. In cases that have sided with non-executives, this can mean the executive’s rights can be cancelled along with any leases or contracts they signed that violate duties to the non-executive rights holders. Actual and exemplary damages can also be sought."
Chad, if you go back to my original reply you will see that it is exactly correct. You sign the lease, all other mineral owners are subject to it, you get 1/32 of the bonus, rentals, and royalties. You have responsibilities to the other mineral owners that you need to be careful of in your dealings.
Sorry for the confusion on the part of others. It really isn't as complicated as it must seem to you now. The other mineral (not royalty) owners are known as non-executory mineral owners.
I stand by my original theory that I would still contact the other mineral owners and see what you can work out. I only know that you will not be successful unless you try.
Good luck! Let me know if I can help.
Chad Jones said:
Thank you for the comments! I do understand that in owning all the executive rights, I negotiate the lease for the remaining non-executive mineral holders. If the property was leased then I also understand that I would be leasing the entire property and not just my theoretical 1/32 part of the property. I believe Mineral Joe may have misunderstood this.
I am a bit confused now as Mineral Joe stated "You get 100% of the bonus and 1/32 of any royalties based on lease percentage." I was under the impression that I only received 1/32 of the bonus and 1/32 of royalties. If I would receive 100% of the bonus and 1/32 of royalties then I would not have a dilemma in leasing the property. Can someone clarify this?
Chad-
This could depend on the wording of the reservation of the executive rights, so I would have an attorney look at it, especially due to the possible fiduciary duty issues.
Also, if you are in the Eagle Ford, or other hot areas, don't assume that 1/32nd of the royalties will be greater than 100% of the bonus. These wells produce some eye popping royalty payments.