Leasing company not paying now with COVID19

So, our family had been in the works since the first of January with Lone Tree Energy and finalized all lease wording the middle of Feb. We were sent the final leases and most all were sent back by Feb 28th.

Now we’ve been waiting for Lone Tree to pay up. We received a certified letter stating because of Covid 19, and employee’s working from home, that it is causing a delay with sending payments at this time.

That was April 28th.

Now when calling and finding a live person at Lone Tree, they are saying THEY are waiting to be paid for the leases from Rockall before they can pay us.

My question is… does this seem right? We have to wait until they are paid from Rockall before paying us? AND… some of the Lone Tree leases reached family members later than others. This meant they didn’t receive them and send them back as soon as some other family members. Lone Tree decided to NOT accept the ‘late’ leases that came in (because of Postal service delivery later to family), which meant some of the family will be paid for a lease, some won’t. Our landman with Lone Tree was laid right after we mailed it all back.

Does this all make sense? I know we’re in uncharted territory with what’s going on in the world, but just seems a bit weird to me. Yes, I know oil has tanked and all is not looking good at the moment. Thanks for any thoughts… Beth

Yes, unfortunately, this can happen in normal times. It is always wise to get a payment at the same time as turning over a signed lease. Since this is even more unusual times and the plummet in oil prices, operators cut their capex budgets quickly in April and May which in turn caused layoffs and many deals to fall through.

An oil & gas company will look at areas where they’d like to possibly - “possibly” being the operative word - drill some wells. What they then do is hire a broker/landmen (in this case Lone Tree Energy) who will go into the area to run title at the county court house on the lands and then contact mineral owners who have mineral rights under the lands where the lands/mineral rights are not currently under lease. In other words, there aren’t any producing oil or gas wells on the lands and the mineral rights are available for lease by an oil & gas company. The landman and mineral owner will then negotiate terms for oil the & gas lease.

Once terms of the lease are agreed to, the mineral owner will sign the oil & gas lease in front of a notary public and return the lease to the landman. This is important to know regarding payment on the lease: You will most likely not receive a negotiable check at the time of signing. Most often with the lease papers will be an Order of Payment or bank draft for signing. The Order of Payment or draft will state that the mineral owner will be paid within 30-45 business days of signing and after re-examination of title.

This is done because title to the mineral rights is often rechecked to make sure the mineral owner actually owns what the original title report says the mineral owner owns.

It doesn’t happen often, but sometimes after rechecking title it will be discovered that a mineral owner doesn’t own - say, 50 mineral acres - and only has 25 mineral acres. At several hundred 's or thousands of ‘s per mineral acre, well, you get the drift. Also, you may show as an heir of a mineral owner but the mineral owners’ estate hasn’t been probated. In that event, you will most likely be allowed to be paid for the oil & gas lease but you won’t receive royalties on any producing wells until the mineral owners’ estate has been probated.

Here’s what you can do to protect yourself and not spend the money before it arrives (if it does arrive): Take the signed lease to your bank and give the lease and the Order of Payment or bank draft to your banker. Once your lease bonus has been deposited into your account the bank will then give the landman (or the oil & gas company) the signed lease.

If the Order of Payment gives the oil & gas company 45 days to pay but you haven’t been paid, then the lease isn’t valid and you’re free to negotiate terms with another company to sign a lease.

Another reason you would want to give the lease to a banker before being paid by the oil & gas company is because once you’ve signed the lease it will usually be recorded in the county courthouse the day or within several days later prior to your being paid. In other words, your recorded oil & gas lease will show other companies and landmen that your mineral rights have been leased (when you haven’t yet been paid). If that should happen, well, then that’s a bad scenario if you don’t get paid with the 30-45 business days.

That’s pretty much oil & gas leasing 101 and there are a boatload of other things you should know which you’ll see on this website.

All that said, the short answer is: The broker will most likely not pay you until they’ve been paid by the oil & gas company; they get the funds to pay you from the oil & gas company. A lot of times your lease bonus check very likely may come from the oil & gas company and not the broker. I dealt with Lone Tree Energy on numerous occasions about 15 years ago. They were upstanding and easy to deal with back then.