The minerals involved are in Block C-23, Sections 3 & 4. A landman recently approached us with a lease offer, but later withdrew the offer after discovering that these tracts appear to still be covered by a very old lease dating back to 1926.
Here is the general issue:
From what he could tell, the lessee(s) over the decades have managed to maintain production somewhere on the leased acreage since the early 1930s. Wells have been drilled or maintained in different sections at different times, but he says that there appears to have been continuous production somewhere on the original leased lands all the way to the present day. Current production appears to be in Section 13, Block 26âand while that is not our tract, it is reportedly part of the same 1926 lease.
Because this lease predates modern drafting practices, there is no Pugh Clause. Those did not become common until the 1940s. Without a Pugh Clause, any producing well anywhere on the total leased acreage holds the entire leaseâit holds every section and every acre.
So the logic the landman gave us is:
Production has existed somewhere on the leased acreage since the early 1930s.
The 1926 lease never expired.
The whole original acreage is still held by production (HBP).
Therefore, Sections 3 & 4, Block C-23 are already under lease.
Itâs a frustrating situation.
Iâm nowhere near as knowledgeable about this I probably should be. Trying to learn. Iâm posting here to get other opinions from people familiar with historical leases, HBP questions, and how these situations are evaluated. Iâve quizzed my resources and some have indicated that it may be possible to challenge the HBP.
Does anyone have experience with similar early-1900s leases that have been kept alive through scattered production? What is the usual outcome of such a challenge?
There are other mineral owners in a similar situation where a single landowner leased extensive acreage, and all the subsequent owners are subject to the lease. And you can see the problems this creates. You should get a copy of the lease from the deed records to see all the acreage and terms. Mounting a challenge will only be economic if you own sufficiently large net mineral acres or you can organize a group of owners to commit to paying legal fees. Often the acreage has been divided and subdivided into small interests. You will also need to trace the lessees over the last 100 years because it is likely that that leasehold interest has also been divided, by both section or partial section and by depths. So there may well be multiple lessees holding your acreage. No idea how likely you are to prevail or to convince the lessee(s) to voluntarily release their interests in the lease. Keep an eye on permits and area activity, since you know there is interest in development.
What, a landman withdrew an âofferâ - shocker! Understand that the oil and gas land âdisciplineâ is, if I may lovingly say so, fraught with the âshoot first, ask questions laterâ syndrome. The single greatest thing mineral owners can do for themselves is to know what they own and are contractually bound to - and have the âreceiptsâ to back it up. If youâre not confident of this (and so many are not), hire professional help who has a fiduciary duty to you and you alone.
Anyone can challenge anything theyâd like to. The question is whether it makes sense to do so. This is of course where all the facts and details come into play. Do some back of the envelope math to figure out the possible benefits. Variables will include: number of net mineral acres involved, old lease royalty rate vs the going rate now, RRC records (the root source), local and regional geology and/or drilling-permitting activity, and who youâd be up against. Youâll want a specialized attorney whoâs done this many may times - and has the history to prove it. Think about a fee structure that makes sense. Donât get involved in these % of whatever type deals. Hold your nose and pay them by the hour, with a fixed fee bonus assuming success (as defined by you).
You cannot generalize this type situation. Way too many important variables are at play. While it will make for interesting reading when/if others chime in here on actual experiences, your set of facts and characters involved are yours alone.
Felmont v Pan American Petroleum was filed back in the 50s in response to a similar 1926 lease in Winkler County including acreage in blks 26 and 27. Felmont did not get the outcome they were seeking and the old lease still stands today!
Thank you. The lease bonus computed to be low 6 figures, so itâs not insignificant (to us). We have recently leased some other sections in Winkler and have another offer pending. He provided a copy of the lease. Attached.
Youâre absolutely correct. We have relatively good handle on our Winkler interests just because of all the activity it has generated (this would be the 6th Winkler lease offer in the last 10 years). Iâm more on top of it now than I was when it started. But still a rookie. This forum has helped us shorten the learning curve. My dad and uncles purchased many mineral interests around 1950. All over Texas and Louisiana. Mailbox money has dwindled to a trickle, but these lease offers definitely got our attention. Thanks again everyone for your wisdom.
Yes our lease was signed by the Hendrick family. Title work is a challenge even for the best of land folks due to the numerous lease assignments made over the years.
Re: Offer to Lease âWinkler County : All of Section 3, Block C-23, Winkler County, Texas, save and except 20 acres, being the S/2 of the W/2 of the N/80 of the E/240 acres, Section 3, Block C-23, Winkler County, Texas, and save and except 80 acres, being the N/2 of the SE/4, Section 3, Block C-23, Winkler County, Texas. All of Section 4, Block C-23, Winkler County, Texas.
That is gross acres description. Most likely the minerals have been divided among heirs over the generations and you individually own a fractional interest. Such as great-grandfather to 4 kids so each has 1/4 and then Grandfather A gave his 1/4 to his 4 kids so each has 1/16, etc. Unless some heirs bought out others or you are working with siblings and cousins.
Actually, there are cousins that I converse with regularly. My dad and his three brothers were very active in the petroleum business between the 40s and the 60s. And they always participated equally. Would the NMAs on prior Winkler leases executed in the last two years be similar? Or is that too broad?
You need to determine exactly what gross and net acres you own which is usually done by tracing the deed records from sovereignty forward. It is the way to see both gross acres and net acres within each tract. This information is needed to verify your well DOI. You also need to review the leases to see what acreage is under lease, whether producing or not, and when the leases may expire in part or in whole. If you leased Section 3 when it is already HBP under the old lease, then that landman was not as careful In his title search as the current landman.
Thatâs great advice. Is this something I could hire a landman to do? I know that we had to sign a NEMI release. Iâm not sure if it was centered on section 3. Iâll go back and check the lengthy correspondence on that deal. Again, thanks so much. This really helps.
I hope you got legal advice before signing the release to make sure you understand what you were agreeing to. Ask for the full deed records relating to the NEMI from the date created forward. Add the deeds and the executed document to your saved title files for each affected tract.
We had to execute a NEMI release with the lease we did accept.
Does this mean we already leased that section to the first group which would preclude leasing it again? The landman who contacted us on the more recent approach said he was familiar with the outfit and lease we had recently executed. I think maybe this issue is too complex to work out in a forum post. I really do appreciate all of the advice and will follow up on some of these things
The following is what I recâd from landman from the previous lease that explained the need for a NEMI release. It mentions section 3, Blk C-23.
âDue to the extreme complexity of the mineral title for your Partnershipâs predecessor-in-interest, Fred & Nan Leck, we had a title attorney review the title and provide an accurate mineral interest for all subject tracts in which they own interest.
After we received the final title review, we had to revise the following mineral interests for the Partnership:â
We had to execute a NEMI release with the lease we did accept.
Does this mean we already leased that section to the first group which would preclude leasing it again? The landman who contacted us on the more recent approach said he was familiar with the outfit and lease we had recently executed. I think maybe this issue is too complex to work out in a forum post. I really do appreciate all of the advice and will follow up on some of these things
The following is what I recâd from landman from the previous lease that explained the need for a NEMI release. It mentions section 3, Blk C-23.
âDue to the extreme complexity of the mineral title for your Partnershipâs predecessor-in-interest, Fred & Nan Leck, we had a title attorney review the title and provide an accurate mineral interest for all subject tracts in which they own interest.
After we received the final title review, we had to revise the following mineral interests for the Partnership:â