My family has mineral rights in Montague County, Texas. Right now I am just a Legate (spelling). Right now it is with my dad and aunt’s and uncle’s. They received a lease from a company named EOG. There are 5 of them so each has 1/5th interest in it. If my dad and one of my aunts don’t want to sign the lease, can the company still drill?
Thank You, Berry
Dear Ms. Husband,
The short answer is that when a company has a lease on any of the mineral interest on a piece of property, they have the right to come on that property and drill.
The other question is “Will they?” I do not see EOG drilling a well on this property if perhaps around 40% of the interest would be a non-leased co-tenant. So, I am saying, “Probably not.”
There is one more thing to consider. In Montague County, most wells are horizontal wells. Depending on the size and configuration of the tract, the leased (not Dad or Aunt) property could be placed in a unit and Dad or Aunt will get nothing from that well unless they force their way into the unit. To do that in Texas is not generally practical.
If the objection of your father and Aunt is to not have a well on the property, an option would be to offer to EOG a lease but not grant any surface operations.
Best,
Thank you Mr. Cotton. They just have the mineral rights not the surface rights. Could they still drill if my dad and aunt don’t sign their lease agreements but my other aunt and uncle’s signed theirs? All of this is overwhelming for all of us so I’m trying to learn as much as I can to help my dad and aunt but also help myself so when it is passed to myself and brothers. None of us trust our other aunt and uncle’s. Thank you again Mr. Cotton.
Oops. I’m sorry Mr. Cotten. It kept auto correcting and I didn’t realize it. I apologize.
Dear Berry,
Yes, if ANY mineral interest is leased, they can begin operations on the leased acreage. With a large percentage not leased, it is unlikely that they will drill on the property. There is always the big risk that the wellbore will pass the property at a legal location, drain the oil under the property and the unleased parties will not share in the revenue.
Best Buddy Cotten
PS.. My computer ‘corrects’ my own name. No offense taken.
Hi, Berry -
Buddy, is it also not true that the unleased interests would be treated as Working Interests in the Well(s) and billed for their share of the costs of drilling, completing and operating the Well(s)? With penalties being assessed, possibly 200% or even more, before the unleased mineral owners receive a dime?
Charles,
If the unleased interests were on a drill site or drill bore tract, that is true. The real question would be if the operator would carry 40% (if each child had an equal 1/5 share) until payout. If the unleased interest is not drill site or drill bore and the well bore is at a legal location, the unleased interest would not be pooled (unless invited into the unit) or the unleased interest forced themselves into the unit.
Buddy
Thank you, Buddy. Just thought that Berry should be clear on that part.
Thank you both for your input. I’m still a little lost on what you are saying Mr. Tooke. So, if my dad and aunt choose not to sign their lease and EOG drills anyways, my dad and aunt will be paid for their share of the costs of drilling, completing, and operating the well? Do you have an e-mail I could contact either of you at? Mine is husbandb@cox.net. My phone number is 405-245-2298. I appreciate both of you gentlemen’s help. I’ve got a lot of reading and studying up on. This is not the only property they have mineral rights to and the other one is a complete mess because of my aunt and probably going to have to get a lawyer. I’m not sure if my dad and aunt will have to sue EOG or my aunt or both.
Thank You,
Berry Scott Husband
Berry -
Buddy is obviously more learned in these matters, but if you will send us the legal description of the lands your family’s mineral interest is in, I may be able to provide us all with a view of what is happening “on the ground”.
If EOG has filed a Permit to Drill, it may allow us to see where your lands (Mineral Interests) lie in relation to the proposed Drill Site, Bore Hole and Bottom Hole Locations. That way, we can advise you further more accurately.
This is what I know: it’s in Montague County, Texas. Being 160.00 acres, more or less, out of the Northeast Quarter (NE/4) of Block 20, Jack County School Land Survey, A-390, Montague County, Texas.
As I understand [and I welcome corrections from the pro landmen and others with more knowledge and experience than I hold], if EOG drills, your father and aunt will have to pay their proportional costs of the well to participate as operating partners with EOG, or they will have to wait until the well pays out to begin getting money for the oil/gas produced.
1/5 of 160 acres is 32 acres. If there are a thousand acres in the lease, then your father and aunt will each have about 3.2%. If the EOG lease has a 25% royalty, that means if they were to sign the lease, each could expect 0.8% of the oil produced by the well (excluding deductions, etc.). If the well ultimately produces 500,000 bbl of oil, your father and your aunt would each get 4,000 bbl of oil over the life of the well. That’s $228,000 at $57/bbl oil. On the other hand, should they choose to partner with EOG, they could expect to each pay about $192,000 to participate in a $6,000,000 well. If they do not participate and instead become non-operating partners with EOG, and if the well ever pays out, then they would at some future date each be entitled to begin getting their full cut of 3.2% of each bbl of oil produced. By the time the well pays out, the well will almost certainly be producing far, far less than the horizontal well’s initial production rate.
Why would your aunt and father not want to sign the EOG lease? Do they feel it is not a fair lease, or do they have some mysterious aversion to receiving “mailbox” money? While winning underdog stories are uplifting, they seem to be few and far between. What chance would your father and aunt have against a multi-billion dollar market cap value oil company in a Texas court?
Berry Husband said:
Thank you both for your input. I’m still a little lost on what you are saying Mr. Tooke. So, if my dad and aunt choose not to sign their lease and EOG drills anyways, my dad and aunt will be paid for their share of the costs of drilling completing and operating the well? Do you have an e-mail I could contact either of you at. Mine is husbandb@cox.net my phone number is 405-245-2298. I appreciate both of you gentlemen’s help. I’ve got a lot of reading and studying up on. This is not the only property they have mineral rights to and the other one is a complete mess because of my aunt and probably going to have to get a lawyer. I’m not sure if my dad and aunt will have to sue EOG or my aunt or both.
Thank You,
Berry Scott Husband
Dear Berry,
I am sorry that you got confused. There is no recent activity near the property. You would not expect that to be the case since your Father and Aunt’s interest is open.
Father and Aunt will not get a bill for drilling the well. If EOG ends up carrying the interest of your father and Aunt, their costs will be paid out of production. If the well never pays out, they do not owe anything.
My intention was never to advise, just answer one question that you posed. If you want the short course, go to the blog section and search for “pooling.” I wrote a 3 part series on pooling in Texas that should give you more than enough information.
Remember that it is not likely that EOG will drill under or on the property with major interests being unleased. But they could. The best advice is to cross that bridge when you come to it.
I try to answer questions that are general in nature. For me to get involved in deeper discussions, then I have a company which can help. The rest of the time, I try to help when I can. Do a search on “pooling” in the blog section. Read the 3 blogs that I wrote and see if they make sense to you — or sit tight and wait for EOG to make a move. I do not personally see that happening in the near future. But we could all be surprised.
Based on everything that you have disclosed, the comment about your father suing EOG kind of came out of left field to me. On what basis would he sue?
Best,
Buddy Cotten
Thank you Mr. Cotten, I will read that. The suing EOG or my aunt is complicated. In short my aunt took control of the mineral rights when she was not able to according to the original deed along with her husband. Her husband shouldn’t have been on it until she passed away. Now she is the executor of the estate and each individual (my dad, 2 aunts and 2 uncles) should have control over their own share. However, on that lease my dad and aunt just has to do whatever my aunt says because they are non-participating parties. That is on my grandfather’s side. On my grandmother’s side my dad and aunt are participating parties. The original landman from EOG did not look at the original deed and see how it was supposed to be divided up, therefore there were several years that my dad and aunt and my two uncles received nothing from the producing well because my aunt and her husband were receiving all of the money and they are still not receiving the 1/5 that they should be receiving. It’s divided between the other three.
I appreciate all of your answers Mr. Cotten, I did not realize there is so much you need to and should know when your family has mineral rights. I want to undo the mess that my aunt has caused for my dad and aunt and for my brothers, cousins, myself and our kids. Could I get the information for your company Mr. Cotten, just in case?
Thank You Sincerely,
Berry Husband
As I understand [and I welcome corrections from the pro landmen and others with more knowledge and experience than I hold], if EOG drills, your father and aunt will have to pay their proportional costs of the well to participate as operating partners with EOG, or they will have to wait until the well pays out to begin getting money for the oil/gas produced.
1/5 of 160 acres is 32 acres. If there are a thousand acres in the lease, then your father and aunt will each have about 3.2%. If the EOG lease has a 25% royalty, that means if they were to sign the lease, each could expect 0.8% of the oil produced by the well [excluding deductions, etc.]. If the well ultimately produces 500,000 bbl of oil, your father and your aunt would each get 4000 bbl of oil over the life of the well. That’s $228,000 at $57/bbl oil. On the other hand, should they choose to partner with EOG, they could expect to each pay about $192,000 to participate in a $6,000,000 well. If they do not participate and instead become non-operating partners with EOG, and IF the well ever pays out, then they would at some future date each be entitled to begin getting their full cut of 3.2% of each bbl of oil produced. By the time the well pays out, the well will almost certainly be producing far, far less than the horizontal well’s initial production rate.
Why would your aunt and father not want to sign the EOG lease? Do they feel it is not a fair lease, or do they have some mysterious aversion to receiving “mail box” money? While winning underdog stories are uplifting, they seem to be few and far between. What chance would your father and aunt have against a multi-billion dollar market cap value oil company in a Texas court?
Thank you both for your input. I’m still a little lost on what you are saying Mr. Tooke. So, if my dad and aunt choose not to sign their lease and EOG drills anyways, my dad and aunt will be paid for their share of the costs of drilling, completing and operating the well? Do you have an e-mail I could contact either of you at? Mine is husbandb@cox.net. My phone number is 405-245-2298. I appreciate both of you gentlemen’s help. I’ve got a lot of reading and studying up on. This is not the only property they have mineral rights to and the other one is a complete mess because of my aunt and probably going to have to get a lawyer. I’m not sure if my dad and aunt will have to sue EOG or my aunt or both.
AJ, EOG is not following the guidelines of the original deed written in 1954 about how the mineral rights are supposed to be passed down and divided up. My dad and aunt have lost out on tens of thousands of dollars because of this. The original landman who no longer works for EOG probably because of that told my dad and aunt that what my other aunt was doing was illegal.
Berry, I now understand why you may need to sue, and sincerely wish you well.
AJ, EOG is not following the guidelines of the original deed written in 1954 about how the mineral rights are supposed to be passed down and divided up. My dad and aunt have lost out on tens of thousands of dollars because of this. The original landman who no longer works for EOG probably because of that told my dad and aunt that what my other aunt was doing was illegal.
Excellent advice, as usual.
Buddy Cotten said:
Dear Ms. Husband,
The short answer is that when a company has a lease on any of the mineral interest on a piece of property, they have the right to come on that property and drill.
The other question is “Will they?” I do not see EOG drilling a well on this property if perhaps around 40% of the interest would be a non-leased co-tenant. So, I am saying, “Probably not.”
There is one more thing to consider. In Montague County, most wells are horizontal wells. Depending on the size and configuration of the tract, the leased (not Dad or Aunt) property could be placed in a unit and Dad or Aunt will get nothing from that well unless they force their way into the unit. To do that in Texas is not generally practical.
If the objection of your father and Aunt is to not have a well on the property, an option would be to offer to EOG a lease but not grant any surface operations.
Best,
Mineral Manager