Help with signed lease and a landman's motives

In January 2019 we signed a lease for the mineral rights we own. The lease was signed with a land management company. An oil company has been drilling on the sections that we own since October 2018. We have discovered that the landman that we signed the lease with has not sold the lease and is holding it. Apparently the oil company has yet to recognize the interest and the landman has not entered into a JOA with the oil company. We need help trying to assess the motives of the landman and why he would pay a bonus for signing a lease but then not sell the lease or enter into a JOA with the oil company that has been pumping for almost a year. Thank you for any information anyone can provide to help us understand the situation we are in.

M. Rogers

First question is what you mean by holding the lease - has it been recorded? The landman may have tried to sell the lease to the operator and the operator may have refused to buy it. The landman may or may not have the money to participate in the well. You are in the position of effectively being treated as an unleased mineral owner and should back-in to 100% upon payout. However, the landman may be hoping for payout and then he will take 75% (if you have a 25% royalty) and may pay you 25% from that point forward. Effectively, your royalties will be applied to the drilling costs, and then you will not benefit. Your rights depend on the state where the minerals are located. You best course would be to consult an oil and gas attorney. You may want to send a certified letter to the landman and demand that he pay you royalties attributable to the production or else release the lease. It would be best to have an attorney send this letter to be sure that the language conforms with state law and that you do not use language which could damage your legal position.

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Good advice, TennisDaze, each State has their own laws. In Texas the minerals can be within the unit, but far enough away from the drain hole to be left out completely. But the Lease has an implied covenant that may have been breached. Yes, talking to a good oil, gas attorney is the way to go.

Mr. Rogers, I am assuming this is a Lease of a Texas property? In Texas, which is not a forced pooling state, it is always a risk to lease to a party who is not doing the drilling because the drilling company does not have to buy the lease or agree for your Lessee to participate in their well. When any entity leases your interest they assume the responsibility of drilling you a well, so if the provisions of the lease or the cost of the lease you signed are deemed to be unreasonable to the drilling company, you may never see any royalty payments from your lease.

Thank you TennisDaze, Darrel_Mensey and Edward_Brawner for the information.

We are in Texas. And we did sign the lease through our lawyer. I guess we didn’t realize that we were signing the lease with a third party and not the company doing the drilling. We obviously don’t have a clue how to handle the mineral right we inherited. I assume our lawyer did and still thought it was a decent lease to agree to. At first our lawyer told us that the oil company doing the drilling would not recognize the interest. Since then he contacted us and told us that the landman we signed the lease with was working with the oil company for JOA. The wells on these acres have been producing since Oct/Nov 2018. If a JOA is agreed upon will we be able to recover back payments for the production that has been made already? This is assuming the cost of the wells have been covered.

Thank you very much for your assistance. We inherited these rights and are just beginning to learn the oil and gas business. Which we are learning isn’t easy.

M. Rogers

Mr. Rogers: If your Lessee did enter into a JOA, then either he or the Drilling Company will be responsible in paying you royalties from the date of first production. Who pays the royalties under your lease is detailed in the JOA; usually the drilling company is named “Operator” in the JOA and the Operator will many times want to be sure the royalties for the leases are paid. Feel free to contact the company who drilled the well(s). They will be able to tell you if your Lessee is a Non-Operator under a JOA that includes your lease. I would think if your lease was included you should have gotten a Tax Bill from the county taxing authorities (Appraisal District, Tax Assessor Collector, and or ISD) if the production was established in 2018. I do contract work for several large Operators and can most likely get you the contact information you need if you want to contact the Operator.