Hello, I recently inherited 102 acres of mineral rights split with my 2 brothers on 102 acres, Its located Andrew Mcfadden Survey A-423 in Panola County Texas. Two weeks ago I received an offer for $500 an acre and 1/5 royalty (at the mouth of the well) to lease on a new well from a landman. My brothers immediately cashed their checks ($17K) and sent back signed contracts. I feel I should do some due diligence and was hoping for some advice. I am really new to this, any help/advice would be appreciated more than you would ever know.
Jason, first thing I would do is tell where my minerals were, whatever the legal description is from the lease. I know, I know, you might start getting unsolicited offers of up to twice what you were offered but that's the chance you have to take. Secrecy usually does not favor the mineral owner when the concern is a lowball offer.
Then too, there are alot of people on these forums, it's amazing how often people find that their minerals are neighbors even if they themselves are not and somebody may have some very specific information that pertains to your minerals.
Thank You RW I edited the original with all the info I have. I am not sure what you mean pertaining to your second paragraph.
Jason, my second paragraph just means that frequently someone else has minerals rights adjoining to or an undivided interest in exactly the same location and they may have alot of information to share with you. It's a small world sometimes.
It likely you could hold out a bit for a higher bonus, a better royalty, (although the bonus and royalty in the lease are good), perhaps you could ask for a drilling commitment- "ABC oil and gas will cause a well to be permitted, bonded and drilled to the minimum depth of the "TEXAS OIL FORMATION in your area" with-in 18mths" You did not indicate how long the primary term of the lease was or if there was an option included.
If each of you own a 1/3 interest, they cannot do very much there without your interest under lease and they are already in the deal 34,000.00 plus other expenses. Tell them to add a drilling performance addendum to the lease for your review- if they go for that, then I think you are good to go. All of the drilling unit on your minerals.
With only a 100 acre tract of minerals, the money is in the drilling, not the leasing- bonus money is nice, but a producing well on your property could generate excellent income for 10 or more years and then could continue to produce at some level for 20.
Betram or RWK:
This is more of an information question for me than anything else; however, if 2/3rds of this property has signed a lease, couldn't the oil company drill anyway after using the "non consenting royalty owner" boondoggle. I have a friend in Fayette county Texas that purchased a large piece of property (1050+ acres) about 15 years ago, but only got 15% of the minerals. The original owner had sold but kept 70%, then sold to another guy, this guy sold to my friend and kept 15% of the minerals. Since the new owners only had 15% of the minerals, they didn't want to lease; but, since the other two had already signed, the oil company was going to force pool them under the "non consenting royalty" provision of Texas. Finally got an attorney and hurriedly signed a lease otherwise, they would have been force pooled.
At least that is the story I was told!
Thanks!
Bertram Sippy said:
It likely you could hold out a bit for a higher bonus, a better royalty, (although the bonus and royalty in the lease are good), perhaps you could ask for a drilling commitment- "ABC oil and gas will cause a well to be permitted, bonded and drilled to the minimum depth of the "TEXAS OIL FORMATION in your area" with-in 18mths" You did not indicate how long the primary term of the lease was or if there was an option included.
If each of you own a 1/3 interest, they cannot do very much there without your interest under lease and they are already in the deal 34,000.00 plus other expenses. Tell them to add a drilling performance addendum to the lease for your review- if they go for that, then I think you are good to go. All of the drilling unit on your minerals.
I know a compulsory pooling can be required, but it requires a hearing and costs time and money. Since in this case the un leased interest constitutes 33% of the total mineral ownership in the tract, it would likely not be granted or a arbitration would be required. I am not suggesting not to sign a lease, just to require a drilling commitment with a time frame for completion stipulating that the entire drilling unit (if possible for the formation in question) be on the 3 brother's minerals so that they enjoy all the royalty revenue.
Betram:
I definitely wasn't making a statement for signing a or not signing a lease, I was only stating what I had heard. Again, I'm only quoting what I heard; but, nothing like "a hearing and arbitration was ever mentioned: in the case I was talking about. If in fact that is the case though, I am all for it. These guys have far too much power to run rough shod over the mineral owner anyway and they sure don't need any more, plus there are many long term issues that need to be in a lease that are never in a lease that an oil company or landman company first pulls out of the hat.
Thanks
Bertram Sippy said:
I know a compulsory pooling can be required, but it requires a hearing and costs time and money. Since in this case the un leased interest constitutes 33% of the total mineral ownership in the tract, it would likely not be granted or a arbitration would be required. I am not suggesting not to sign a lease, just to require a drilling commitment with a time frame for completion stipulating that the entire drilling unit (if possible for the formation in question) be on the 3 brother's minerals so that they enjoy all the royalty revenue.
When a company has the majority of the minerals in a tract under lease and there is a small hold out, they can be pooled, but first a motion must be filed with the agency that handles mineral wells in whatever state the drilling is taking place in. As for other items not mentioned in the lease, especially if you also own the surface portion of the land, it is wise to put in some addendum for things that apply to the location: ie, hunting season clause, water wells, removal of equipment after drilling operations are finished, site restoration if well is plugged etc. A land company ultimately wants a signed lease, so if you let them know your intention is to sign with some stipulations added, they will look favorably on it. They don't want to go through the work of making any concessions and then not end up getting the tract signed.
Dear Mr. Sippy,
I am not sure where you are getting your information, but what you are saying has nothing to do with Texas oil and gas law. Panola County is in Texas.
You might want to mention that to the totally confused person trying to feed you information on Texas oil and gas law.
Best
Buddy Cotten
Bertram Sippy said:
When a company has the majority of the minerals in a tract under lease and there is a small hold out, they can be pooled, but first a motion must be filed with the agency that handles mineral wells in whatever state the drilling is taking place in. As for other items not mentioned in the lease, especially if you also own the surface portion of the land, it is wise to put in some addendum for things that apply to the location: ie, hunting season clause, water wells, removal of equipment after drilling operations are finished, site restoration if well is plugged etc. A land company ultimately wants a signed lease, so if you let them know your intention is to sign with some stipulations added, they will look favorably on it. They don't want to go through the work of making any concessions and then not end up getting the tract signed.
Permalink Reply by Bertram Sippy yesterday
I know a compulsory pooling can be required, but it requires a hearing and costs time and money. Since in this case the un leased interest constitutes 33% of the total mineral ownership in the tract, it would likely not be granted or a arbitration would be required. I am not suggesting not to sign a lease, just to require a drilling commitment with a time frame for completion stipulating that the entire drilling unit (if possible for the formation in question) be on the 3 brother's minerals so that they enjoy all the royalty revenue.
So Buddy, in Texas, can a mineral owner be pooled without any contact with a regulatory agency of any kind?
In this example, 66% of minerals are under lease, 1/3 undivided interest be pooled?
Dear Mr. Sippy,
This is a somewhat confusing subject, so I blogged in three pieces some time ago. Here they are in order.
Buddy Cotten
http://www.mineralrightsforum.com/profiles/blogs/rule-of-capture-regarding-oil
http://www.mineralrightsforum.com/profiles/blogs/the-basics-of-pooling-and
http://www.mineralrightsforum.com/profiles/blogs/pooling-in-texas-part-3
Thank you, apparently Texas and New Mexico have different type of pooling laws for mineral wells. I will read up.
If you really want to read up, I suggest the 5 vol set of The Law of Pooling and Unitization. The e-book price is a bit over $1200. The bound version costs more. On top of that you have your annual updates.
Glad I could help.
Bertram Sippy said:
Thank you, apparently Texas and New Mexico have different type of pooling laws for mineral wells. I will read up.
Gentlemen, I can not thank you enough for all your advice. Mr. Cotten do I have any leverage?and if so, what what action plan or path should I take?
Jason,
Your bargaining power depends on whether the company needs to actually drill on (or under) your tract. If they do want to drill on/under your tract, they have to deal with you one way or the other, and will usually go to great lengths to get a drillsite tract fully leased. If they don’t lease an interest in a drillsite, the owner of the unleased interest becomes a partner in the well, and the operator has to finance the owner’s share of well costs without interest or recourse. Oil companies are not in the business of making investments with a best-case return of 0%. They need you in this scenario, maybe more than you need them.
In the other hand, if the company plans to pool your 102 acre tract with other tracts, and plans to drill on another tract (or at least not on/under yours), then you need them far more than they need you. Your 102 acre tract can be pooled without your lease because your siblings already leased interests in the tract. If your tract is pooled and you lease, you get paid a royalty on your interest’s proportionate share of production from the pool. If you do not lease, the company will pool your tract anyway and pay you nothing. They will keep the money they would have paid you in royalty for themselves. Obviously, it’s not exactly a Greek Tragedy for the oil company when this happens.
I simplified/generalized some of the finer points above for the sake of illustrating the important fact that you’ll have a better position in a drillsite tract than not.
Determine/Inquire as much as possible about their development plan. What type of formation they are targeting, oil or gas etc. The type of formation determines the size of drilling unit required and will answer the scenario questions that Andrew indicated above. Hopefully it is a smaller drilling unit that would be entirely contained with in your mineral acreage. If not it might be a horizontal type well and some of those drilling units can be as large as 1280 acres.