Mineral Rights Inheritance


#1

Our parents, who have recently passed away, leased our mineral rights (in Range 61W; I had mentioned in a previous post Range 63W, that was an error )) to a major company a number of years ago, in the name of our family trust, and that contract included an automatic right of renewal clause, for an additional 5 years, at the same terms, following the first 5 years, which the company did exercise at the end of that first five years. The contract comes up for renewal again this fall. Here's the situation we face. In the wake of our parents' passing, the trust is being dissolved and those assets, including the Weld County mineral rights, will be transferred to a new LLC with my brothers and I as the sole members. Obviously, that will affect the contract in question, since it is with a now defunct trust. We are wanting to negotiate a whole new set of terms when the time comes this fall, since that initial contract is coming to an end, and was low-balled to begin with. Our fear is that the company, when notified, will simply want to change the name on the contract allowing them to keep right on renewing it at the present terms. Is this an issue we should be on the alert for? And, if so, should we have them cancel the contract completely and then begin the process of shopping for a new lease, perhaps even with a different company? Any guidance here would be greatly appreciated.


#2

I had a similar situation a couple years ago. Whoever is the trustee of the trust should prepare a quick claim deed transferring the ownership of the mineral interests in the trust to the new LLC and file the same with the county. That should clarify and establish ownership.


#3

The company only has the one extension, which expires this fall like you said.They can not keep extending it after, they would have to negotiate new terms with you. As long as there is no production or drilling operations at the end of the term, then the lease will expire and you are free to lease to whomever you would like.


#4

I need to add that we do not own the surface land. If you own the surface land and if the land has been transferred from the trust to the LLC then you shouldn't have to do anything except keep copies of the trust and other documents that establish ownership. The lease establishes what options the oil company has to extend the lease. Ours ran out after one extension and renegotiating including a bonus. I am not a lawyer and you should consider my advice as just that and not of a legal nature.


#5

Jay - The ownership has already been transferred, through a law firm there in Greeley. So ownership is established, however the lease is still in the name of the family trust, so we didn't know if we needed have the current lease agreement re-written in the name of our LLC, even though it it is up this fall.


#6

I would ask the oil company you have a lease with whether it is worthwhile to modify the existing lease. The new renewed lease should be in LLC name. I have had good luck working with the people that work for the lease holder we have. I have negotiated leases with three different oil companies over the years and have used local Weld County legal firms familiar with mineral leases in Weld County to review the leases. I would recommend that anyone do the same. Again I am offering this advice based on my experience and I am not lawyer and cannot give legal advice.


#7

So do they have a right to perpetually renew every 5 years? That seems wrong. Usually there is an option to renew but its not perpetual, you can only just do it once. If they in fact do have the right to keep renewing, all they really need to do is send payment for the bonus and notice that they are renewing. They dont need to take a new lease. Your lessors can try and get them to take new leases, but if Im the lessee and I can keep the minerals leased under the low cost terms stated under the original lease, I would instead of giving them each a new lease.

Let me know if you have any other questions.


#8

Thanks. Yes, the contract specifically says "lessee has the option to extend the primary term an additional 5 years with a payment of the equal amount to the original amount paid". That indicates it's only one additional 5 year term, which is the one that is about to expire. So, it sounds like we will be able to get establish new terms with whoever we want at that time.


#9

DKW - You are correct, the company can only extend the lease for one five year term. Making the entire lease 10 years in total length. You will be able to negotiate a new lease with any group you would like when it expires. Best, Chris


#10

Hi Jay. Do you have a recommendation for a Weld County legal firms you have used. I am the executor in my mothers will and in probate in NM (her state of residence) and she owned rights in Weld county. Thanks in advance for your time and info.


#11

I am not sure I should recommend who I used as there are probably better lawyers out there. I would sure recommend a local Colorado lawyer who is familiar with Colorado requirements and has a long record of working on mineral leases. Maybe someone on this site could recommend someone to you.


#12

Rob,

We were in the same situation with probate, ours was a bit different though since it was of my Grandfather who passed in “82. We had to open the estate again in order to transfer the rights to my father then to me, it was the only time my Father was happy about being an only child.

Per your request; we employed Eugene Burk who’s on S. Revere Parkway in Centenial, CO. We were and are very satisfied with the work product, he also recently consulted us on a new lease. A tid-bit about Eugene (Gene), his first job out of law school was working for Cortlandt Dietler who leased a great deal of the Weld County rights. Cortlandt is also the one who met my Grandfather and leased the rights to him and my Uncle in 1954. Gene had some stories and memories working for him in the early “70’s, I enjoyed the reminiscing.

Regards, John G.


#13

I would also echo John’s recommendation. I’ve used Gene Burk and was very happy with his work.

Good luck!

Matt Sands


#14

Have a Colorado attorney review the contract to see if there are unlimited renewal options. That would surprise me. If there are, the inheritance is probably bound by those terms no matter how often it is transferred or renewed.


#15

I’ve review hundreds of leases in the DJ and never have I seen one with perpetual renewals - actually I don’t think that’s even permitted under contract law. Most DJ leases are 3 + 2’s or 5 + 3’s, not 5 + 5’s.