Info on lease

Hello Everyone:

A few weeks ago my cousins and I received a letter from a man who described himself as a landman representing the Amarado Oil Company in Austin, Texas. He included information on some land that belonged to our grandfather in Polk County. There was a lease included, but this lease said nothing about any terms or percentages regarding the royalties…when someone is first contacted, is that the usual thing or should there be explicit terms mentioned immediately? He said if we don’t sign that we won’t get anything.

Help!

Elizabeth Share Comment

Hi Elizabeth, I’ll get right to the point…

  1. Use common sense in all dealings.
  2. Don’t sign anything that is not specific.
  3. Do some web research on the company and the name of the person who contacted you.
  4. See if you can locate other mineral owners around you and try to talk with them. 5… Do some general web research on oil and gas activity in the county where your land is located.

These items should get you going in the right direction. See also www.mineralweb.com for some educational articles.

Thanks Kenny. I have done some research since my question was posed. Amarado Oil has a good report from the BBB and I also emailed John McFarland on his lawyer blog site (he recommends this forum). He called Arlie Telschow, the landman, and Arlie sent him the original lease which was then forwarded to me. John suggested I go ahead and sign it. I guess my main confusion has been the difference between the original lease and the ratification itself as I did not sign the original lease. This was signed by the woman who currently owns the land. I am assuming that only she would have negotiation rights.

Elizabeth

Kenny DuBose said:

Hi Elizabeth,
I’ll get right to the point…

  1. Use common sense in all dealings.
  2. Don’t sign anything that is not specific.
  3. Do some web research on the company and the name of the person who contacted you.
  4. See if you can locate other mineral owners around you and try to talk with them.
    5… Do some general web research on oil and gas activity in the county where your land is located.

    These items should get you going in the right direction. See also www.mineralweb.com for some educational articles.

NOT LEGAL ADVICE

Dear Ms. Richardson,

As soon as I read your introduction, I thought that you must be a royalty owner, not a mineral owner, because I have never seen an Oil and Gas Lease per se (as opposed to a Memorandum of Oil and Gas Lease) that did not mention a royalty percentage.

Those who have mineral rights are entitled to negotiate a lease, receive a one-time bonus payment for executing the document, as well as some other rights. Those who have royalty rights are asked to sign a ratification, not a lease, do not receive a bonus payment, and receive royalty payments only if the well produces in paying quantities.

Based upon what you have stated, I believe that your grandfather owned this land, sold it, and reserved a royalty interest in the property for himself and his heirs. But it is possible that he reserved a mineral interest instead, in which case you would have some bargaining powers. You would have to inspect the deed where he sold the land to know which one.

Sincerely,

Philip Wynne

Dear Mr. Wynne:

Thanks for your input. I do have a copy of the warranty deed which says it part, (after all the info on transfer of ownership, etc.)…"…it is distinctly understood and agreed, however, that grantors (my grandparents) herein expressly reserve for themselves, a one–sixty-fourth (1/64) of all oil, gas and minerals that may be saved and produced from said land to be delivered to grantors herein free of cost what the same be produced, it being our intention to hereby reserve for ourselves, and except from this conveyance a one-sixty-fourth of said oil, gas and other minerals, as a royalty interest, together with the right of ingress and egress over and across said land for the purpose of removing and marketing the same." It goes on: “TO HAVE AND TO HOLD, the above described premises, together with all and singular the rights and appurtenances thereto in anywise belonging unto the said J. T. Ehrlich, his heirs and assigns, subject to the reservations herein contained, forever; and we do hereby bind ourselves, our heirs, executors, and administrators to warrant and forever defend, all and singular this said premise herein conveyed unto J. T. Ehrlich his heirs and assigns against every person whomsoever lawfully claiming or to claim the same, or any part thereof.”

In the letter I received in Nov. of 2009, it says in part, “Enclosed please find an original, Ratification of Oil, Gas and Mineral Lease. This ratification will allow for pooling of your interest with other existing mineral and royalty interest in our Black Stone Brown Bear Unit and our proposed Grizzly Bear Unit.” On the first page of the lease it also says in part, “WHEREAS, the undersigned ELIZABETH RICHARDSON, whose address is…is an owner of a Royalty Interest, Nonparticipating Royalty Interest, Mineral Interest or other Nonexecutive Mineral interest under all or a portion of the Leased Premises, and desires to ADOPT, RATIFY, and CONFIRM the Lease and all of the terms and provisions thereof, as may be amended from time to time…”

What I don’t understand is, am I an owner of a Royalty Interest, a Nonparticipating Royalty Interest, Mineral Interest or other Nonexecutive Mineral interest…which one would apply…

Any translation appreciated!

Elizabeth

Philip Wynne said:

NOT LEGAL ADVICE

Dear Ms. Richardson,

As soon as I read your introduction, I thought that you must be a royalty owner, not a mineral owner, because I have never seen an Oil and Gas Lease per se (as opposed to a Memorandum of Oil and Gas Lease) that did not mention a royalty percentage.

Those who have mineral rights are entitled to negotiate a lease, receive a one-time bonus payment for executing the document, as well as some other rights. Those who have royalty rights are asked to sign a ratification, not a lease, do not receive a bonus payment, and receive royalty payments only if the well produces in paying quantities.

Based upon what you have stated, I believe that your grandfather owned this land, sold it, and reserved a royalty interest in the property for himself and his heirs. But it is possible that he reserved a mineral interest instead, in which case you would have some bargaining powers. You would have to inspect the deed where he sold the land to know which one.

Sincerely,

Philip Wynne

NOT LEGAL ADVICE

Dear Ms. Richardson,

According to my cousin, in Florida the surface owner automatically owns all the mineral rights and therefore receives all the royalty payments. So to figure out who owns the mineral rights one only has to look up the surface owner at the Appraisal District. I doubt that there is a very vibrant landman community there.

But in Texas, you have the surface estate, the mineral estate, and the royalty rights. All three are severable from one another and able to be divided any way. Your grandfather severed some of the royalty rights from that tract, and for the rest of time his heirs, heirs-at-law, and assigns are entitled to receive some royalties paid on production from that land. I hope that the 1/64 reservation was on a very large tract of land; otherwise, don’t rush out and buy the new Cadillac.

Based upon the information provided, you do not own any mineral rights on this tract, instead you are the owner of a Non-Participating Royalty Interest (NPRI), which means that you do not participate in the benefits of mineral ownership, such as negotiating the terms of the lease and receiving the one-time bonus payment. As you stated, somebody else signed the lease.

A Non-Executive Mineral Interest (NEMI) is a mineral owner who does not have the “executive rights” to his minerals, meaning that the rights to negotiate the terms of the lease and “execute” it were stripped from him somewhere in the chain of title. Occasionally, a property owner who owns minerals wants to sell the surface rights but keep the minerals and any future royalty payments, but the potential buyer wants to be able to say “what happens on the land.” So they create a NEMI in the conveying instrument so that the seller retains the minerals but the buyer decides what the terms of the lease are, including whether or not drilling is allowed on the tract, or even whether to lease at all.

You said you ran the Ratification by an attorney, that was wise. If he’s fine with it, you should have no hesitation. Sign it and thank your grandfather for whatever you get in the mail.

Sincerely,

Philip Wynne

Thanks Mr. Wynne. I appreciate the time you took to explain this. I wish that there were clearer explanations for these things when they are first sent as it is very difficult for the lay person to understand (speaking just for myself)!

Have you or anyone else on the forum had dealings with John McFarland? He is the attorney to whom I addressed some questions. He seems very nice and recommended this blog to me.

Elizabeth

NOT LEGAL ADVICE

Dear Ms. Richardson,

No, I do not know John McFarland. But please, people, if you hire an attorney to represent you in or advise you on an oil-and-gas matter, try to get one who actually specializes in that area or, preferably, is board certified in that practice of law. It’s worth a little bit more money to get top-quality advice, especially if you have a sizeable tract of land or there is an otherwise significant amount of money at stake.

Sincerely,

Philip Wynne

Elizabeth Richardson said:

Thanks Mr. Wynne. I appreciate the time you took to explain this. I wish that there were clearer explanations for these things when they are first sent as it is very difficult for the lay person to understand (speaking just for myself)!

Have you or anyone else on the forum had dealings with John McFarland? He is the attorney to whom I addressed some questions. He seems very nice and recommended this blog to me.

Elizabeth

Hi Mr. Wynne: Thanks for the comment. John McFarland has a blog at http://www.oilandgaslawyerblog.com (you might just have to google “oil and gas lawyer blog”) if anyone wants to check it out.

Philip Wynne said:

NOT LEGAL ADVICE

Dear Ms. Richardson,

No, I do not know John McFarland. But please, people, if you hire an attorney to represent you in or advise you on an oil-and-gas matter, try to get one who actually specializes in that area or, preferably, is board certified in that practice of law. It’s worth a little bit more money to get top-quality advice, especially if you have a sizeable tract of land or there is an otherwise significant amount of money at stake.

Sincerely,

Philip Wynne

Elizabeth Richardson said:
Thanks Mr. Wynne. I appreciate the time you took to explain this. I wish that there were clearer explanations for these things when they are first sent as it is very difficult for the lay person to understand (speaking just for myself)!

Have you or anyone else on the forum had dealings with John McFarland? He is the attorney to whom I addressed some questions. He seems very nice and recommended this blog to me.

Elizabeth