Executive Rights

General Mineral Rights Discussion
1

June 30, 2012

A owns 50% of the minerals and holds Exec. Rights for 100% (B’s half as well as A’s half).

B owns 50% of the minerals with no Exec. Rights, but does have the right to share not only in royalty but also in bonus payments.

Does the O & G company have any obligation to pay B half of the agreed upon bonus? If so, when?

Thanks for any light you may be able to shed on these circumstances.

2

Dear Mr. Higgins,

There is an obligation to pay the non-executive his share of bonus, rentals, royalty, etc., unless the document creating the non-executive right provides for anyway.

The non-executive portion cannot be segregated from the executive portion, such as the oil company saying “Oh, we only meant to lease the 1/2 interest of A.”

I would love to have a legal opinion on who is burdened by the legal obligation to pay. The oil company or the executive owner. I would suspect that if the executive was paid 100%, then the executive would be who you would have to look at. If not, then the oil company.

There are other very important things of which to be aware if you own a non-executive interest, such as in these articles located on this board:

http://www.mineralrightsforum.com/profiles/blogs/the-executive-right

http://www.mineralrightsforum.com/profiles/blogs/npri-npmi-nonexecutive

3

Dear Mr. Higgins,

There is an obligation to pay the non-executive his share of bonus, rentals, royalty, etc., unless the document creating the non-executive right provides for any way.

The non-executive portion cannot be segregated from the executive portion, such as the oil company saying “Oh, we only meant to lease the 1/2 interest of A.”

I would love to have a legal opinion on who is burdened by the legal obligation to pay: the oil company or the executive owner. I would suspect that if the executive was paid 100%, then the executive would be who you would have to look at. If not, then the oil company.

There are other very important things of which to be aware if you own a non-executive interest, such as in these articles located on this board:

http://www.mineralrightsforum.com/profiles/blogs/the-executive-right

http://www.mineralrightsforum.com/profiles/blogs/npri-npmi-nonexecutive

4

Apparently, my latest edition to the discussion did not make it through the hoops. I commented that I was greatly impressed that you responded so quickly to my questions last night, even at that late hour. And then, I added this question. Have you dealt directly with Shell Western Energy and Production, and if so, can you direct me to someone there who would give me an answer about their practices and/or policies that seem to me to need a company review in the light of basic fairness.

Thanks CarlosTX@sbcglobal.net

5

Dear Mr. Higgins,

Thanks for your comments. You will find many people who just want to give good advice on this board. You just caught me awake.

I worked for Shell many, many moons ago. All my contacts are gone. Call Shell Western in Houston and ask to speak to the Division Land Manager. Make sure that you are prepared to e-mail to him the document creating the non executive right.

6

Mr. Buddy Cotten

I have read the distinction you’ve made between ‘non-participating’ mineral interests and ‘non-executive’ mineral interests. Here’s the essence of what I’ve recently heard about bonus payments in regard to these ownership interests.

For minerals to be fully leased, the company needs to pay non-participating owners of mineral interests their proportionate share of the bonus. However, the company may secure a lease by paying bonus only to the executive owners, and later pay bonuses to the remaining owners when the client decides to drill. This was represented to be common practice in the industry.

In your experience, is it common practice in the industry to lease minerals but to not pay any bonus to the ‘non-participating’ owners until the company decides to drill?

Is it common practice to lease minerals but to not pay any bonus to ‘non-executive’ owners until the company decides to drill?

And then, here’s one more question. Is it common practice for a company to pay an executive owner his share of the bonus but not reveal until after he signs the lease and cashes the bonus check that the company is paying bonus only to him because he is an executive owner, but won’t pay any bonus to his non-executive (but participating) relatives until the company is ready to drill?

Thanks for your help.

Carlos Higgins said:

Buddy Cotten said:

Dear Mr. Higgins,

There is an obligation to pay the non-executive his share of bonus, rentals, royalty, etc., unless the document creating the non-executive right provides for anyway.

The non-executive portion cannot be segregated from the executive portion, such as the oil company saying “Oh, we only meant to lease the 1/2 interest of A”

I would love to have a legal opinion on who is burdened by the legal obligation to pay. The oil company or the executive owner. I would suspect that if the executive was paid 100%, then the executive would be who you would have to look at. If not, then the oil company.

There are other very important things of which to be aware if you own a non-executive interest, such as in these articles located on this board:

http://www.mineralrightsforum.com/profiles/blogs/the-executive-right