I received a requested copy of a lease from an oil company after receiving a division order with no explanation. There was a spud report that clued me in to new activity. I was told by an analyst at the oil company that all leases were "turned over to them by the previous company". There is a standard 3 year primary term then the phrase "and as long thereafter as oil or gas, or either of them, is produced from said land, or lands spaced or utilized therewith or the Leased Premises are being developed in commercially paying quantities." Additional language has me paying lessee taxes, transportation, allowing use of oil and gas, can hold active the lease without any production by payment of a $1.00 royalty per year covering them indefinitely to re-drill, pass the lease on to another company, etc. I didn't sign the lease but an executor to a trust I'm beneficiary of did. There is a phrase in the lease that covers that too. Do I have any options to break this or is this lifetime as long as conditions are met?
This is in Pottawatomie County Oklahoma,
Section 228N2E 40 acres.
Mr. Lynch, I wouldn't hold out much hope of breaking that lease. The trustee made a bad business decision, may have had little or no experience in O&G and may not have sought any advise. If the trustee had the power and responsibility to decide, you are stuck with the decision.
It may not have been in your best interest but it's hard to say it was outrageously against you best interest as people execute contracts every day just as bad and the courts seem ok with any deal that puts a single dollar more than you had before in your pocket as not being against your best interest even if it were not the best deal.
My brother and I just last week got a trustee lease released backdated to the date of first production but there were overtones of fraud on the court when the trust was sought and other issues. It took us years to reach this result.
Out of curiosity, how bad was the royalty on your lease? If you don't mind saying? If it is more than 12.5% I doubt you could call it an unconscionable bargain.
John Lynch,
In my experience trustees primary job is to make what they think to be a fair deal within the trustee's fiduciary responsibility. The trustee may have only reviewed the lease bonus and royalty rate when making a decision to sign; ignoring the consequences of actually obtaining production payments. It appears from your comments that the trustee didn't consult with an industry expert and you have seen some of the results of that. More will follow.
It is the obligation of the trustee to approve the division Order, not you. However, you should demand that approval be subject to a limit on the relative amount of operator designated production costs as they are often arbitrary in nature and un audible. Otherwise this cow has left the barn. In fact it left when the lease was signed.
If you are dissatisfied with the trustee's actions on this mineral property, you may get the trustee to forgive its fees on future production by protest. If there are other mineral properties in the trust, the beneficiaries may be able to extract them and self manage. Good luck with that. Trustee's generally get paid on a share of income generated from assets.
If you do extract mineral rights from the trust, there are other options available to you based on your desires and the value of the assets through more aggressive management.
Gary L Hutchinson
Minerals Managment
If you can prove that the executor breached his fiduciary duties, you may have a case. His power can be revoked and can be required to pay back any money that he took or that was lost from the trust as the result of his actions or lack of.
A breach of fiduciary duty occurs when an executor/trustee does not act with loyalty or care in their dealings with the trust terms and the beneficiaries. Was this his particular skill? Did he consult with an industry expert?
Check out what the Oklahoma Bar Association says about breach of fiduciary duties.
Good luck,
Pat
as the other posters have stated, you may have recourse against the Trustee, but in the absence of fraud, collusion, etc, you would have no recourse against the lessee. Further, even if you did have recourse, it vaporizes some because they have assigned their interest to the new operator.
I'm fairly certain a judge can vacate a lease for fraud. Nor does it matter if the lease has been assigned. The court probably wouldn't see that as the optimum solution because more lawsuits would probably ensue but that doesn't change that it is a remedy under law.