Im so confused i need help with my deceased dad mineral rights & 10 acres

[Texas_Tea]

Also, minerals are not like a stock or other investment as they require time and sometimes money to make sure that the oil company is holding up their end of the bargain. The time that Brenda would have to spend reviewing checks, potentially on hold with royalty owner relations at EOG, etc. is not worth the money she would be receiving. If Brenda had to hire to hire an attorney for an hour, that would wipe out 15 years worth of royalties! Also, for example, when Brenda passes away one day and wills these rights to her kids, her probate would need to be filed in La Salle Co. Let's say the probate it 15 pages long and includes 5 instruments. That would cost her kids $170 to refile that will in La Salle. Again, this wipes out 10+ years of royalty payments!

Sorry, I just don't believe in the "Never ever, ever sell your minerals" nonsense that most people here preach. It's bad business. I certainly wouldn't buy Brenda's minerals for $300, to me that is a bad investment. That is why I would recommend her sell for the $300 bird in the hand. Again, just my opinion.

[Randy_Lea_Barnes_Sr]

Mineral Right and Surface owners rights in a nut shell:

Mineral Rights in Oil and Gas Lease

Minerals rights in an oil and gas lease differ from surface rights. A landowner may own the surface land but not the mineral rights of that land. The owner of the land should check on whether he/she has ownership of mineral rights or title on the land.

One of the places to check on real ownership is through an independent landman or a bank. The landowner can also use an abstract company. Whoever is the one contacted to perform a mineral title is then empowered to obtain an ownership report or mineral takeoff.

The owner of the land, in order to legally negotiate with an oil and gas production company, has to know whether they have clear title to the mineral rights of that land. In many cases, the mineral rights are separated from the surface rights.

After the landowner has received a report of the land's mineral rights and who holds those rights, then the owner can discuss and negotiate in good faith with any oil and gas production company.

Only the mineral right owner may execute an oil or gas lease conveying his interest to the production company.

Surface rights and ownership of land is when the mineral rights have been detached. The surface rights owner can have the full use of the land; however, surface possession is subject to the mineral rights owner's right of extracting the minerals.

Oil and Gas Pooling

How it works and how forced pooling affects the owner

There are many terms in oil and gas leases that may not be familiar. One of the important clauses in the oil and gas lease is the pooling clause. A quick scan of the provisions and clauses in most, if not all leases, generally will show a pooling clause. It is in the best interest of the production company that leases the property to insert a pooling clause. It can also be in the best interest of the landowner to read and thoroughly understand the pooling clause in the lease. Signing a lease without understanding what rights are included in the lease can generate legal problems for the landowner. Not understanding the pooling clause and being unaware of the pooling terms can also lead to a compulsorily pooling of the leased land under state laws.

Pooling is the consolidation and combining of leased land with adjoining leased tracts. The area is called a pool or a unit. Pooling has the benefit to the production company of uniting all landowners' leases into a common pool under one drilling production company and utilizing one common underground geological reservoir.

There are several types of pooled units. There are voluntary pooled units, forced pooled units, drilling units, proration units, field wide/enhanced recovery units, and specially defined units in lease agreements. Of all these named units, the reality is there are only two real types of pooling that the landowner will experience.

Landowners may find that they are subject to two types of pooling on their leased land. The first and possibly the best situation is voluntary pooling. In voluntary pooling, the landowner gives free consent to the pooling and may reap some benefit by inserting various provisions in the pooling clause. Reading the pooling clause in the oil or gas lease may indicate that the clause sometimes gives unrestricted rights to the production company for the pooling of the leased land. Therefore, it is prudent in the lease terms to set the acreage to be pooled in the leased land to only the minimum acreage necessary for the drilling permit. The landowner should look at the production company's description and the extent of the proposed area to be pooled in the pooling clause. If there is a statutory acreage specified, then the landowner should limit the acreage to that minimum number of acres. If there is no set limitation to the number of acres to be included in the pool, then the production company could extend the coverage area to the entire leased area without any limitation.

The second type of pooling is compulsory or statutory. This type of pooling is compulsory whenever state law has been satisfied for oil and gas leases. Most states have this type of provision for compelling the landowner to enter into a pooling arrangement. In compulsory pooling of leased lands, the production company files a request for a pooling order, which provides for the surrender or sharing of interest by the landowner. When filing a request for a pooling order, the production company must provide a list to the state of all persons reasonably known to own an oil or gas interest in any tract or portion, which is proposed to be pooled. If there are unknown owners of the land, the pooling order and notice of a hearing must be published in a newspaper with the largest circulation in each county where the pooling will take effect. All known owners must be notified and advised of the legal action as well as the time and place of the hearing. After the specified time for landowner notification is reached, the hearing is held before the appropriate state agency. As a result of the hearing, an order can be issued by the state concerning the setting of the cost formula for sharing costs and revenues in the pooled area. The state and the production company usually set the cost formula. Most landowners have very little input in this situation. The landowners may speak in their own behalf at the hearing. This is a compulsory pooling hearing and pooling will take place.

Both types of pooling can change the way the lease is interpreted and how the lease provisions are applied. Before signing a lease, landowners may and should insert a Pugh clause into the lease to protect their interests and the leased land. The Pugh clause states that the lease shall terminate in all non-producing areas when the primary term ends or terminates. The landowner should also read and understand all of the terms of the lease before signing the lease. The landowner should negotiate as effectively as possible before signing the lease. A landowner cannot prevent a statutory pooling; however, in voluntary pooling, there may be ways to insert increased landowner rights and to mitigate the terms to a more satisfactory level for the landowner.

Oil and Gas Lease Terms Defined

The oil lease terms and gas lease terms cited on this page are commonly used in lease negotiations and agreements.

Absolute ownership

The theory that minerals such as oil and gas are fully owned in place before they are extracted and reduced to possession. Title to oil and gas may be lost by legitimate drainage and by the rule of capture.

Abstract company

A private company in the business of preparing abstracts of title and performing related services.

Acreage contribution

Acreage owned in the vicinity of a test being drilled by another party and contributed to the driller of the well in return for information obtained by drilling.

Adverse possession

A method of asserting and gaining title to property against other claimants, including the record owner. The claim through adverse possession must include certain acts, as required by statute, over an uninterrupted interval of time. It is also open, notorious, and hostile.

Assignment clause

A clause in any legal instrument that allows either party to the contract to assign all or part of his/her interest to others.

Authority for expenditure

An estimate of costs prepared by a lease operator and sent to non-operators for their approval before work begins. This estimate is normally used in connection with well drilling operations.

Bonus consideration

A cash payment by the lessee for the extraction of an oil and gas lease by the mineral owner, usually given in dollars per acre. Sometimes an oil payment or royalty is reserved as a bonus by the lessor.

Habendum clause

In an oil and gas lease, this clause fixes the duration of the lessee's interest in both a primary and secondary term. It is also refereed to as a term clause.

Joint operating agreement

A contract in which two or more co-owners of the operating rights in a tract of land join together to share costs of exploration and possible development.

Joint venture

A business undertaking in which the parties in the agreement share control, profit, losses, and liability.

Lease

A legal document executed between a landholder who is the lessor and a company or individual who is the lessee that grants the right to exploit the premises for minerals. It is also the land or area where the production wells, stock tanks, separators, and other production equipment are located.

Lease purchase agreement

An agreement between companies for the purchase by one company of a block of the other companies' leases.

Mineral owner

Owner of the rights and interests in a mineral estate, such as oil and gas, where interests in a landed estate have been severed.

Net revenue interest

The portion of oil and gas production money paid after all operating and development costs are paid.

Offset well

A well drilled on a tract of land next to another owner's tract on which there is a producing well.

Oil payment

A non-operating interest in oil and gas for one or more leases. It provides to the owner a fractional share of the oil and gas produced that are free of the costs of production. It terminates when a specified dollar amount or volume of production has occurred.

Paid-up lease

An oil and gas lease that is paid up through the primary term. It is part of the when the lease is first acquired.

Production payment

A cost free percentage of the working interest that ends when a specified amount of money or number of barrels has been reached.

Royalty

The part of the oil, gas, and minerals or their cash value paid by the lessee to the lessor based on a percentage of the gross production from the property free and clear of all costs except taxes.

Royalty clause

The clause that established the percentage of production paid to the lessor.

Oil + Gas

Basic Description of Oil and Gas Leases

The parties and their interaction in an oil and gas lease

A landowner who owns both the surface rights and the mineral rights to their farm is usually approached by a landman to begin the leasing of the mineral rights. The landman, more often than not, works for an oil company and is a vital part of the oil company's exploration team. This exploration team is assigned to your area and looks for land to lease for exploratory drilling. An oil and gas lease is created by the oil company after the landman has studied geologic maps of the area and researched deeds and acreage at the local courthouse. It is necessary to determine who owns the land and the mineral rights, since only the legal owner can be named on an oil lease. There is a lot of homework on the oil company's part before a landman comes to discuss an oil and gas lease.

A landman only comes to a landowner when all the pieces of the proposed oil or gas lease are in place. Now the negotiations begin in earnest with each landowner and farmer in the designated area. Titles are researched and blocks of land are put together to create the lease area.

Most farmers and landowners are aware that various states, in fact the majority of states, separate the mineral rights from the surface rights of the landholding. Therefore, the landman, the exploration team, and the oil company ensure ahead of time that the landowner does have the right to lease the mineral rights according to the terms in the oil and gas lease.

After everything is in order, the landowner is presented with an oil or gas lease. The lease states the rights and the obligations of both the oil company and the landowner. If a landowner has very little experience with legal contracts and leases, the document can be sometimes difficult to understand.

The landowner is the Lessor and the company is the Lessee. When the landowner signs the lease, the owner will be given a "Bonus." The bonus is a sum of money, agreed upon both the Lessor and the Lessee to be given on signing of the oil and gas lease. If there are producing wells near the land, the bonus can be substantial. If there is no drilling yet or none of the existing wells are not producing, the bonus will certainly be low. The landowner should check with the other landowners in the area and even somewhat further away to establish the amount of bonus the other landowners have received.

There is a length of time established in the oil and gas lease. It is called the "term." This is the primary term of the lease. Any additional amount of time after this leased time is called the secondary term. A secondary term can be written as for as long as the oil and gas are produced in paying quantities. The primary term is usually a fixed length of time, such as a year.

Another part of the oil and gas lease is royalty payments. It is an agreed on percentage of the profits of the oil and gas. The reasonable costs of the Lessee's operations are deducted first and the landowner receives a percentage of the remainder.

If the term of the oil or gas lease extends beyond the time that the bonus was paid, and a well was not drilled, then the Lessee is required to pay the landowner an agreed on sum. This sum could be $1.00 or more per acre. This is called a delay rental. The payment is due on or around the anniversary of the lease. Occasionally oil and gas companies pay this fee up front when an oil lease is negotiated and signed. The company's failure to pay a delay rental on time cancels the lease.

There are implied covenants that are part of the agreement, such as that the Lessee will protect the property from drainage, will develop the property after drilling the first well, will conduct all operations as a careful operator, and will attempt to secure a market for the oil and gas. The Environmental Protection Agency requires that the property be returned to a usable environmentally safe condition after drilling and production on the lease site has concluded.

[Texas_Tea]

And let me clarify one last thing. I'm not some heartless unsentimental person. I'm not advising you to sell your great grandfather's watch to make a few quick bucks. It's mineral rights to land that you never knew he owned and bought for investment purposes 100 years ago. But certainly do what you want. It's not going to make much of a difference either way.

So to answer your original question. It appears that EOG is offering you an extremely fair deal to lease or buy!

Texas Tea said:

Also, minerals are not like a stock or other investment as they require time and sometimes money to make sure that the oil company is holding up their end of the bargain. The time that Brenda would have to spend reviewing checks, potentially on hold with royalty owner relations at EOG, etc. is not worth the money she would be receiving. If Brenda had to hire to hire an attorney for an hour, that would wipe out 15 years worth of royalties! Also, for example, when Brenda passes away one day and wills these rights to her kids, her probate would need to be filed in La Salle Co. Let's say the probate it 15 pages long and includes 5 instruments. That would cost her kids $170 to refile that will in La Salle. Again, this wipes out 10+ years of royalty payments!

Sorry, I just don't believe in the "Never ever, ever sell your minerals" nonsense that most people here preach. It's bad business. I certainly wouldn't buy Brenda's minerals for $300, to me that is a bad investment. That is why I would recommend her sell for the $300 bird in the hand. Again, just my opinion.

[Buddy_Cotten]

Oh, Good Grief!

Randy Lea Barnes Sr. said:

Mineral Right and Surface owners rights in a nut shell:

[Ms_Pat_Malone]

Aha! There's an abbreviation I recognize...AT&T. My Father worked for the "phone company" for 35 years, as it was called before AT&T and Southwestern Bell split, and started buying AT&T stock. Almost every night, he'd sit with yellow pencil in hand and yellow legal pad balanced on his knees calculating and re-calculating. All that didn't mean much to me then, until the day the stock split, and he got a gleam in his eyes that didn't go away. That's when I begin to realize that his AT&T "stock fever" was going to be our "nest egg" for a rainy day.

So, here it is, years later and that stock is still around, probably because it became my inheritance. It isn't a great sum of money, but every 3 months it produces more than what it would IF it wasn't there. Where can you get free money these days?

Do I have a sentimental attachment to my inherited AT&T stock? You better believe I do.

I guess that I'm just a sentimental (not old) fool!

Thank you.

Pat

Texas Tea said:

I approach minerals rights as an investment, because that is what they are to me. I don't have any sentimental attachment to them just as I wouldn't have any sentimental attachment to stock in AT&T that I might have inherited. I just look at the numbers and do what the numbers dictate. Here's what the numbers say.

EOG has a well permitted in the 10 acres Brenda owns a portion on. The unit is 545.83 acres. Her interest in the well would be:

.00661367/545.83= .000012116721323 x 20% royalty = .000002423344265. If that well produced 300,000 BOE at a price of $80/ BBL she would make: .000002423344265 x 300,000 = .7270032795 x $80/BBL = $58.16. So, if they drilled 3 additional wells, she would make a total of $232.64 over the 4 wells lifetimes, thus making $32 over breaking even before taxes over the next 15+ years. Personally, I would take the upfront $300, but that's just me.

[Linton_Tomlin]

I’m with you, Pat. While I realize that mineral interests are an investment and the business end of owning is not to be taken lightly, there’s just something about the passing from one generation to another that instills in me that sentimental feeling. I had experiences like you with my Dad discussing mineral interests with me and I didn’t really know enough to appreciate them at the time either. But now those discussions come alive again and hold added meaning. Texas Tea doesn’t say whether the mineral interests owned were inherited, and if they weren’t I can certainly understand why Texas Tea has no sentimental attachment. But, as small as my mineral interests are, I still feel so fortunate to have something that belonged to family members before me, what a special gift. Linton

[Randy_Lea_Barnes_Sr]

Heritage is something that should be held to heart. My family has been receiving royalties in Texas, WV, Tenn,Virginia, Michigan since 1900's. I know that I put out allot of information on this board, but information is what people need to understand and how it applies. Some will say I went over board but its better to have the facts. The old original leases were simple format, not like today's where the Oil & Gas companies are accumulating Land and Mineral rights ownership. The bottom line is why keep paying for it long term , just buy everything and reap the rewards that is Oil & Gas in a nut shell.

Linton Tomlin said:

I'm with you, Pat. While I realize that mineral interests are an investment and the business end of owning is not to be taken lightly, there's just something about the passing from one generation to another that instills in me that sentimental feeling. I had experiences like you with my Dad discussing mineral interests with me and I didn't really know enough to appreciate them at the time either. But now those discussions come alive again and hold added meaning. Texas Tea doesn't say whether the mineral interests owned were inherited, and if they weren't I can certainly understand why Texas Tea has no sentimental attachment. But, as small as my mineral interests are, I still feel so fortunate to have something that belonged to family members before me, what a special gift. Linton