Legal: rights claims heir/ownership issues

Oil and Gas Leasing Help
#1

I'm a CPA with a client who's mother in law inherited rights from her mother, who rec'd them from an aunt or something like that. The aunt willed them to the grandmother and several others, the several others are mostly missing/unknown. The mother in law before her mother died, they knew about these rights and began the process of putting their name on it. Several years later and after the mother died, this mother in law was contacted as the only name they had in a list of heirs.

Mother in law and her two siblings have done everything necessary to claim their rights and have a few wells up, one producing, with more being planned and expect to rec'v royalties soon.

What happens to the unclaimed rights for the missing/disinterested heirs. What happens to the royalties. Does mother in law and her siblings have a right to claim this as the only known survivors, or at least the only interested survivors. Can they file a quiet claim, etc..

She has heard through landman or someone in the chain of leasing that a couple people have been found but have no interest in providing the information necessary to make their claim legal? This might sound dumb, but it was a lot of work, of course it was work when there were no royalties on the horizon, in hindsight it was pretty simple for the revenue that will come in.

My limited knowledge is that the land owner can make a claim on abandoned rights, but is this really abandoned? when there are fractional interest that aren't abandoned, do the fractional owners have a right to claim them? the easy answer is anyone can make a claim, but is there a legitimate chance that she can make this claim valid? She doesn't want them to go to strangers or the state if she can help it? She assumed people would be found and step up as her and her siblings did but for the past couple years, no one.

This is in North Dakota, bakken, not sure what county.

Main questions, do they have a claim to others rights? where do the royalties go? escrow? can they file a claim, like quiet claim for the rest of the rights?

#2

By law the oil company should pay royalty for unidentified parties into a suspense account (escrow). When/if those parties are identified it would be theirs. It won't go to the already known parties.

As far as I know, the only way your client's Mother in Law (MIL) may be entitled to some of the other interest is if some of it reverted to her indirectly. This is a funky example but hopefully clear enough to follow.

A) Original Auntie wills minerals to MIL's Mom & others.

B) If "others" included MIL's Mom's aunt or uncle who died without heirs, and without a will...

C) Then the deceased aunt or uncle's share of the minerals would be divided proportionally between their siblings. Thus MIL's Mom's parents are entitled to some of the deceased party's minerals. In this example the disposition of the MIL's Mom's parents estates would dictate who inherited that share of the interest.

It is an involved process; You need to know who Auntie deeded minerals to. You need to know if one of them died intestate without heirs (which you must confirm). You need to run records to confirm they (the deceased) didn't sell their interest. You need to learn the ND chain of inheritance for those assets. Then you need to initiate a court proceeding seeking a decree to distribute those minerals to all the proper parties. Unless MIL's Mom knows most of this to begin with and can conveniently check the rest, or if unless a huge sum is involved, this is probably not something they'll want to spend time on. Though others may see it differently.

#3

Thanks that's helpful. There maybe a couple others without heirs, but there are some people that had heirs. I found out the MIL knows of a couple people, has told them about this but they are disinterested, of course if they find out there is money waiting, they might become more involved. She could probably buy their interest, but they would still have to come forward and prove identity etc... The landman knows of these people, but can't seem to find anyone to step up and claim it, of course when they started this process there, wasn't a well, and it wasn't producing, now... the plot thickens. I'm sure they will trample each other when they find out there is money sitting their waiting to be claimed. I guess she's not sure how much money is involved yet. If a new well pumped out 100k barrels in its first three months, what would that be worth? She thinks these are the numbers they told her.

Eastern MT said:

By law the oil company should pay royalty for unidentified parties into a suspense account (escrow). When/if those parties are identified it would be theirs. It won't go to the already known parties.

As far as I know, the only way your client's Mother in Law (MIL) may be entitled to some of the other interest is if some of it reverted to her indirectly. This is a funky example but hopefully clear enough to follow.

A) Original Auntie wills minerals to MIL's Mom & others.

B) If "others" included MIL's Mom's aunt or uncle who died without heirs, and without a will...

C) Then the deceased aunt or uncle's share of the minerals would be divided proportionally between their siblings. Thus MIL's Mom's parents are entitled to some of the deceased party's minerals. In this example the disposition of the MIL's Mom's parents estates would dictate who inherited that share of the interest.

It is an involved process; You need to know who Auntie deeded minerals to. You need to know if one of them died intestate without heirs (which you must confirm). You need to run records to confirm they (the deceased) didn't sell their interest. You need to learn the ND chain of inheritance for those assets. Then you need to initiate a court proceeding seeking a decree to distribute those minerals to all the proper parties. Unless MIL's Mom knows most of this to begin with and can conveniently check the rest, or if unless a huge sum is involved, this is probably not something they'll want to spend time on. Though others may see it differently.

#4

That is extremely high production and would be serious money. So if MIL know of "others" who inherited and were related, who then died intestate and without heirs, it would be worth the MIL's time to do some exploring. I suspect the disinterested heirs may also become quite interested too. You didn't mention the amount of their interest but even small percentages would generate considerable income.

Draw your own conclusions. Wells cost averages between $7MM & $10MM to drill. Put it in perspective...

100,000 bbls at $80 is $8MM. Less ND prod tax leaves about $7MM revenue in a few short months. The production will rapidly decline but some production should continue for decades. I'd say it's worth a little investigating!

#5

The MIL has been told this is a very "nice" well and they should be turning on a few more. They signed a standard lease with Hess a couple years ago, not knowing anything about it, except she asked "what if we don't sign a lease" they told her she would have to pay for the cost of drilling because it would happen anyway, not sure it that was correct, but i have read something about there beings some truth in that, anyway the lease is up soon, i suppose production drops significantly, but they will need a good rep to get a good deal in the future.

I would have expected a bonus, or something, but she hasn't rec'd any money yet, not even lease revenue? should she have? the lease might have been one sided, but on the renewal there should now be some leverage. I'm not sure what the % is, i believe her and her two siblings have a 1/4 split between them, might be 1/5 or 1/3. She really didn't know much, wasn't expecting anything and then was just told of the production, so she is studying up on it. She wasn't sure but thinks it was 100k that seemed large to me, but i don't know much about this, just learning, as i might need to know a lot about oil royalty's and tax returns now. MIL's 1/3 of 1/4 would be approx $100k on current production? correct? royalty only. For tax planning, if these amounts are correct, then what is the longer term production like? I know that's impossible to answer, but there must be sort of a rule of thumb on just a basic average decline in production?

thanks much


Eastern MT said:

That is extremely high production and would be serious money. So if MIL know of "others" who inherited and were related, who then died intestate and without heirs, it would be worth the MIL's time to do some exploring. I suspect the disinterested heirs may also become quite interested too. You didn't mention the amount of their interest but even small percentages would generate considerable income.

Draw your own conclusions. Wells cost averages between $7MM & $10MM to drill. Put it in perspective...

100,000 bbls at $80 is $8MM. Less ND prod tax leaves about $7MM revenue in a few short months. The production will rapidly decline but some production should continue for decades. I'd say it's worth a little investigating!

#6

Jim, if the operator leased you, drilled a well and got production you are held by production and the lease continues until production ceases with no renegotiation, you get what is stated in the lease. That being said, if you received no bonus payment or royalties and the lessee made some tremendous errors other than that, you could conceivably get the lease recinded after some tens of thousands of dollars in legal fees, but the main thing would be the other great errors and not the fact that you were not paid. I have such a suit against a lessee myself. Read your lease. I recently read a lease from Irish Oil that stated they could not lose the lease for any reason until they had been notified of their breach and given 60 days to rectify the situation before a judicial remedy was sought. Study, ask questions here [ so you know what to ask a lawyer ] then get some legal help. Good luck.

#7

Thanks for the info. Right now we don't know enough, everything could be good and fine, the people with the lease (mineral rights) don't know the details enough to explain them. i'm going to get their info and study this further, so i might have some more good questions later based on their facts, right now I guess its hard to ask good questions when so many facts are a bit fuzzy. I'll probably have a few questions later in the week.

thanks, GREAT WEBSITE.

Jim



r w kennedy said:

Jim, if the operator leased you, drilled a well and got production you are held by production and the lease continues until production ceases with no renegotiation, you get what is stated in the lease. That being said, if you received no bonus payment or royalties and the lessee made some tremendous errors other than that, you could conceivably get the lease recinded after some tens of thousands of dollars in legal fees, but the main thing would be the other great errors and not the fact that you were not paid. I have such a suit against a lessee myself. Read your lease. I recently read a lease from Irish Oil that stated they could not lose the lease for any reason until they had been notified of their breach and given 60 days to rectify the situation before a judicial remedy was sought. Study, ask questions here [ so you know what to ask a lawyer ] then get some legal help. Good luck.

#8

There may be a brake in the chain of heirs. The MIL is on of three people splitting approx 20% of the 2 - qtr sections. One or two of the main five original heirs that would split this 20% each have died and possibly without heirs/wills. What's the best way to find out? If they did, who can claim their share? How? the other two are known and are being searched for.

No payments yet, they should be soon correct? see below

Here some details, there is one of six wells producing, the others should start up any day. The first one 35k bbl in the first 2 months or so (as of november). One is Hess one Brigham. 156-93-15 the other adjacent?. One the 'barstad" well, the others? This appears to be Alger field? There's about 1/4 of two sections owned. That seems to be 320 acres.

The lease is up in about a year. Any idea what that might be worth? Found the name of a couple attorneys' up there through family friends so will follow up on that.

What are Hess and Brigham like to work with?

#9

There could be royalty coming on any interest you could prove excellent title on. On the other hand, the operator could simply decide that they would rather pay you interest at a later date, than pay you anytime soon. It could be more than 18 months after first sales before they pay even with perfect title. Don't spend the money before it's in hand.

Jim Sampair Jr. said:

There may be a brake in the chain of heirs. The MIL is on of three people splitting approx 20% of the 2 - qtr sections. One or two of the main five original heirs that would split this 20% each have died and possibly without heirs/wills. What's the best way to find out? If they did, who can claim their share? How? the other two are known and are being searched for.

No payments yet, they should be soon correct? see below

Here some details, there is one of six wells producing, the others should start up any day. The first one 35k bbl in the first 2 months or so (as of november). One is Hess one Brigham. 156-93-15 the other adjacent?. One the 'barstad" well, the others? This appears to be Alger field? There's about 1/4 of two sections owned. That seems to be 320 acres.

The lease is up in about a year. Any idea what that might be worth? Found the name of a couple attorneys' up there through family friends so will follow up on that.

What are Hess and Brigham like to work with?

#10