In May, my sister and I received an offer to lease our mineral rights from "A Interests" for $5k consideration. We signed and returned the leases, and received our checks.
In September, we received an offer to ratify a lease of our mineral rights from "B Land & Minerals" for $14k consideration. In addition to the documents looking more professional, it included the information that we did not hold the executive rights, and copies of signtures from the other persons with mineral rights in property.
Three days later, "A Interests" called and told us because we do not hold the executive rights and that the leases we signed are invalid pursuant to the warranty provision of the lease. I cannot find anything in the lease about executive rights, invalidation of the lease, etc., but I am not an attorney and am new at this. They said they would release us from the lease if we return the consideration money we received.
My sister called "B Land & Minerals" and was told we did not have to wait for the release to sign the ratifacation of their lease.
Thanks to the discussion on this website about executive rights, I understand the lease with "A Interests" must be invalid.
1) if the lease is invalid, are we obliged to return the $5k consideration?
2) must we wait for the release before we can ratify the B Land & Minerals lease?
I can prove our interest; it is specifically named and described in my grandmother's will. Interestingly, it is the only one in that county that was never drilled on. The other three have wells.
I failed to mention that "A Interests" followed the invalid lease phone call with a letter stating they had done further research and discovered we do not have the executive rights. The information we received from "B Land and Minerals" names the individual with the executive rights. This is believable because the family had an association with my great grandfather, who originally owned our portion of the mineral rights. Indeed, one of the existing wells is known as "(individual's forefather) #2."
I think "A Interests" did not do their homework well enough and when they eventually found the family member who holds the executive rights were advised of their error.
Walter Stewart said:
Most likely neither lessee's landmen will put anything in writing and give you anything that proves your interest.
From what you have told us they don't know what they are doing and are in a "big hurry". You might could get a lot more money and better terms.
If you did not have the right to lease to A, then why did they lease you?
Landmen typically want you to warrant they work and you be held responsible!
You might want to consider a professional to help you understand what is going on.
Try Buddy Cotten. I bought some of his lease material and am way more than satisfied!
First, I have a business opinion on the return of bonus monies. If the lease was invalid, then how can you be bound by the terms of a document that never had any force and effect? They made a big mistake. AND, your title was good (apparently) - you just did not have the right to execute a lease.
Second, another business opinion. Tell company b that you choose not to ratify the lease and they still owe you the bonus money as a matter of law. The executive lessor cannot lease without binding your interest. The reason that they want you to ratify the lease is for the ability to pool, and I bet you a yankee silver dollar that the ratification specifically makes reference to the "pooling provision contained in lease B." By the way, since you are bound by the executive's decision, you have no negotiation privilege.
Third, tell company b that if they want you to ratify the lease, they must hold you harmless against any claim for monies paid to you by the dumba$$ company A. (That protects you six ways from Sunday)
Fourth, I would not ratify the lease, but would certainly consider ratifying a pooling agreement on a well by well, formation by formation basis.
All of this is not legal advice, just business advice.
Gayle ... like you, I don't know the law pertaining to this situation, either. But my gut feeling tells me to do the following, if it were me:
(1) I would cash the check, but keep the money in a separate account ... a government-insured savings account earning interest ... not mingled with my personal money ... until the issue is resolved by a good attorney. These oil and gas laws are complicated ... and not always fair ... and you might have to return the money ... possibly even with interest.
(2) I would make all future communications with Companies A and B in writing ... and insist that they do the same. In other words, I wouldn't talk to them any more on the phone (or in person), but would ask that they state their position in an email or a letter ... and then I would politely say good-bye and hang up. Hopefully, this will keep them more honest.
I would follow up this conversation with a letter stating what you told them ... and send it by certified mail ... printing a free receipt from the U.S. Postal Service website as proof that they received it ... so they could never claim that they tried to communicate but you refused.
(3) I would research and compile a list of attornies in your state who specialize in oil and gas law ... in case you and your sister can't resolve this by yourself in writing with the two companies.
Best of luck, and I hope you get to keep the money ... you deserve it for all the work they're putting you through with their shenanigans.
company A would be in bad faith trespass. If they did a bonehead stunt like that, Company B could throw a chain around the well, post guards, take over the production and call the cops.
I will blog about executive rights in the near future.
I look forward to reading about Executive Rights ... should I confess that I have limited knowledge of such?
Thank you.
Pat
Buddy Cotten said:
Dear Dillon,
company A would be in bad faith trespass. If they did a bonehead stunt like that, Company B could throw a chain around the well, post guards, take over the production and call the cops. Then file suit.
I look forward to reading about Executive Rights ... should I confess that I have limited knowledge of such?
Thank you.
Pat
Buddy Cotten said:
Dear Dillon,
company A would be in bad faith trespass. If they did a bonehead stunt like that, Company B could throw a chain around the well, post guards, take over the production and call the cops. Then file suit.
Thank you, Mr. Cotton for your advice and suggestions.
I have now obtained a copy of the 1964 deed of executive rights from my grandmother to the landowner, so I understand that.
My family attorney has spokent to B Land & Minerals, and they agree they owe the bonus money regardless of whether I ratify the lease. (In his opinion, they will drag their heels in paying it without the ratification.)
You surmised correctly that the lease makes reference to pooling "in Exhibit B," and that exhibit B is blank.
While I am still sorting out the demand to return the original bonus consideration from A Interests, I have two questions about the lease/ratification terms:
1) What is the advantage to me if I do not ratify the lease but choose instead to ratify a pooling agreement on a well by well/formation by formation basis? (I realize that pooling with a section(s) that I do not have an interest in would dilute my interest in any royalties.)
2) If I choose to ratify on a well by well/formation by formation basis, will I unnecessarily delay any activitiy on the site or even risk aborting the operation before it begins? It seems unlikely as the bonus consideration offered to me, when extrapolated to 100%, is extremely large.
Thank you to everyone for the kind suggestions and advice you have offered.
Gayle Lutgens
Buddy Cotten said:
Dear Mr. Lutgens,
This is interesting.
First, I have a business opinion on the return of bonus monies. If the lease was invalid, then how can you be bound by the terms of a document that never had any force and effect? They made a big mistake. AND, your title was good (apparently) - you just did not have the right to execute a lease.
Second, another business opinion. Tell company b that you choose not to ratify the lease and they still owe you the bonus money as a matter of law. The executive lessor cannot lease without binding your interest. The reason that they want you to ratify the lease is for the ability to pool, and I bet you a yankee silver dollar that the ratification specifically makes reference to the "pooling provision contained in lease B." By the way, since you are bound by the executive's decision, you have no negotiation privilege.
Third, tell company b that if they want you to ratify the lease, they must hold you harmless against any claim for monies paid to you by the dumba$$ company A. (That protects you six ways from Sunday)
Fourth, I would not ratify the lease, but would certainly consider ratifying a pooling agreement on a well by well, formation by formation basis.
All of this is not legal advice, just business advice.