I had to learn the hard way last year when considering selling a few NMA’s in Texas. The Gas/Oil companies who offered to buy and who I was considering, had me sign FIRST then they do the research (which they say is costly to them… I am sure it is used as tax right offs.). I didn’t worry about signing first as the clause was very thorough with this, but I do think it was my mistake, and when they came back I didn’t have the exact amount of shares and it was cut by half. So I didn’t sell (which I am happy I didn’t know after finding out about Jerry Jones and all the new drilling in our areas). I think they all do it that way, which to me is backwards.
Being a tax write-off is still a loss. The research is to verify that your title is clean and all the information is accurate. It is costly. No company wants to incur the expense of researching 100 people’s title and then make offers and have all of them refuse to sell. That is the road to bankruptcy.
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Thanks for explaining. I had in the past gotten letters from oil/gas companies explaining this can happen, and that if you sell , do it through the company leasing as they know EXACTLY what you have. So once again I am just stating what I have been told. I think I still have that letter.
Our SOP for mineral sales is we will only consider a letter of intent when there is an offer based upon title examination. Otherwise, there are just delays and changes since action incentives have been removed. We have also not sold a property in 35 years. When we buy properties, we operate within the SOP we expect of others.
I’ve seen all sides of this kind of transaction. The company that leases, or last leased, will have the best idea already of how much you actually own, having already done some or most of the necessary research. When you are selling the mineral rights, it is a different, deeper level of due diligence title research. For example, many companies will pay you for a lease as an heir of an unprobated estate, but you won’t be able to get royalties, depending on their rules and division order analyst requirements, until record title is cleared and it has been properly probated or their is a court order determining the heirship. On the other hand, mineral buyers may have different tolerance for how much curative they have an appetite to take on when they make you a deal.
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It’s always so many different opinions, very tough to figure it all out.
The buyer is responsible for doing due diligence and it can be very costly if there are a great number of owners involved.
Mineral owners are quite often wrong about their net mineral interest due to unclear deeds, errors in tax roles, and wrong information in wills. In your case, it appears that the buyer concluded that you have half of the interest that you thought you had. You should have asked to see their chain of title to justify that conclusion.
I recently was made aware of a property being drilled in Weld County Colorado that had mineral owners claiming ownership totaling more than 100%. It turned out that many owners “mineral rights” were the result of a fraud committed 90 years ago and their deeds were all invalid. Yet these deeds have been passed down to heirs who are all convinced that they own a legitimate interest.
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As previously stated, this is pretty standard. Once under contract then the full due diligence is done to confirm they are free and clear to buy the interest without taking on any issues or title failure. As far as selling to the company that leased you…that’s just typically not going to be an option…two separate sides of the business.
Not sure what you are trying to get at, other than letting us know the Dallas Cowboys owner is in your area? A mineral company’s title will be 10x better than an Oil and Gas Lease companys title 9 times out of 10. I have no idea what your question nor point is, Im guessing you are mad that the mineral company ran title on your interests, you own less than you thought and are mad that they did their job and you werent able to sell?
No not at all. I was more mad at myself because I was learning all this, and should have realized there could be a change in NMA’s and payment due to their research. I had no idea that they did NOT do the research first. I then learned this through the process and at the time I signed I saw the clause but was not worried because I thought we knew what we had. I was trying to do this on my own and looking up our records, but did not have the correct information. I thought I was getting a certain amount of money, picked out a condo to buy, then had to cancel that as after they did the research it was half the amount. I later understood it is costly to them to do the research and why they do it this way. I wish it was not, as it would save a lot of frustration for both parties. So to conclude I did not sell the NMA’s and could not buy the condo. Some people on here just assume things and can be so negative.
Any legit mineral buying company will require a due diligence period to examine title. Would you pay for a title search when buying a house and then submit your offer? No, because it doesn’t make any sense at all.
We received a letter last year from one of the companies that leased to us which stated to buy from them, as they know exactly the NMA’s we have, so not sure why this is stated in your message?
As you have seen first hand, mineral ownership can be complicated, due to all the preceding deeds and concepts of gross vs net minerals. And the value fluctuates over time, as oil and gas prices rise and fall and new area wells are more or less productive. Not to mention the lease terms when the time comes. Even for those with years of experience, there is always something new going on which requires time and patience to figure out. And opinions vary because some owners / investors hold forever and others buy and sell and still others have personal situations which drive decisions. Hopefully you will be able to use this new knowledge in future transactions.
@SHeath, You have been introduced to a growing SOP by many Buyers that can be very misleading to the non-professional mineral owner. In many cases, sloppy procedures lead to almost purposeful “Carrot” offers. When they finally get back to you on title, the total offer amount can change massively. In cases such as your’s, you based purchase decisions on your Seller’s performance.
@Permian, That period is extended far too long by most of these companies. When we are making purchase offers, it takes less than 10 days to confirm title since we have already done the base title work. That 10 days does require some minor coordination with the Seller.
The companies that are performing shotgun offers have no idea of the base title since their offers are based upon CAD information. We probably get at least 10-15 of the offers each month. Most are just ridiculous when they call and do not even know the property that they are calling about. I caution any mineral owner on executing a LOI with any of these companies since there are essentially no performance requirements or related penalties.
You actually do submit an offer to purchase a home prior to title. The Seller and Buyer then have the title insurance brought to current day and a closing is established.
Change the language in PSA to cover you if there is a swing in acreage up or down. Problem solved.
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@SRT1984 is on target here. What people need to understand is that the document that lays out all the terms and conditions of a contemplated transaction (most commonly called a PSA - Purchase and Sale Agreement) is as important as the transaction document (ie, a Deed) itself.
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I am not sure that is possible. All of them have told me that the clause states there could be a change and you have to sign ahead of time before they can continue to research. I realize there is an expense on their part and that I do have to sign, but if all else fails and it comes back that we do not own again the NMA’s we thought then I will have to not sign the rest of the paper work and it becomes null and void. Not good for anyone.
The problem here is that your family (predecessors) failed to keep good records and as a result you do not know what exactly you own. The burden is on the mineral owner to keep good title records, i.e. deeds back to sovereignty, in files or scanned and not to throw away papers. Many buyers will expect you to warrant (guarantee) that you own XX net mineral acres, which in fact you cannot do because no one has maintained the records. It is common for a contract to be set at $AA per acre, with the total sale proceeds to be adjusted based on either a physical survey in the case of surface land sales or a title search in the case of minerals. I have sympathy that you are a victim of the your predecessors not acting responsibly. However, it is not the buyer’s fault that you own fewer NMA than you originally claimed and no buyer should be expected to overpay because of that. And most buyers are not going to be willing to go to the expense of title determination and have you back out. The lesson for all mineral owners is to do the research and figure out exactly what is owned and not to rely on others.
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No, my family has had very good records, and over the years since my father died in 2006 we have all been very diligent and the companies who have leased our NMA’s have also been spot on. This mistake was my calculation and like I said, I was in the early stages of learning this business. Live and learn. I still go by what I feel, wishing there was a way they could just find out the exact NMA’s before signing, but doubt that will ever happen.