A owns 50% OGMs, 100% executive rights & 0% surface.
B owns 50% OGMs, 0% executive rights & 100% surface.
Throughout history, B has ratified the leases of A.
Recently, B signed a lease with XYZ on the subject property. A has not signed a lease with XYZ.
Is there a Texas Case Law or possibly a Statute that states whether this lease is good or not?
I havent been able to come up with anything through research. Thinking about it, I dont think the B can lease the interest to XYZ, however, the lease signed does give XYZ the right to pool. Could it be that XYZ only controls the right to pool B's interest, and nothing else?
It is my understanding ONLY the EXECUTIVE rights holder can sign oil and gas leases. A non-executive rights holder can not execute an oil and gas lease.
The lease from B is invalid, as B has no right to lease. There is ample Texas case law on this. The only way to validly pool B's interest is to include the valid lease covering such interest in the unit. The company would still have to get B to ratify the lease and unit. The company cannot pool B's interest by simply including the invalid lease from B in a unit, because they have no right to drill and develop the land without a valid lease. So the lease from B is essentially useless to them.
I have an interesting situation that I am intimately involved it. Here is the scenario. Grantor reserves a very convoluted interest in property, which almost everybody is saying is a Participating Royalty Interest, but with limited executive rights, extending only to the ratification of any lease or leases on Blackacre.
Prior to any ratification, Grantor is approached and is offered $120K for the lease (3K/ac). In the addendum, the warranty reads as follows:
"19.1 Lessor makes no warranty of any kind, express or implied, as to title to its interest in said land or its oil and/or gas interests thereunder, and there shall be no liability on the part of Lessor to refund any amount received under the Terms of this Lease (including but not limited to bonuses, delay rentals and/or royalties) in the event of any title failure, nor shall Lessor be required to furnish any bond, abstract or indemnification to any person or entity regarding its title to said lands, such matters of title to be determined at the sole cost, expense and risk of Lessee and not of Lessor."
Lessee now claims that Grantor had no right to execute and seems to be ignoring the Non-Warranty provision. Does their claim hold water?
Ben Elmore said:
The lease from B is invalid, as B has no right to lease. There is ample Texas case law on this. The only way to validly pool B's interest is to include the valid lease covering such interest in the unit. The company would still have to get B to ratify the lease and unit. The company cannot pool B's interest by simply including the invalid lease from B in a unit, because they have no right to drill and develop the land without a valid lease. So the lease from B is essentially useless to them.