Relative Signed Bad Lease

Oil and Gas Leasing Help
1

I have an elderly relative who just signed a bad O&G lease in Texas without notifying the rest of the family co-owners. After the deal was sealed, the landman contacted the rest of us with the offer.

I read about this situation in the Texas A&M article, “Rights and Responsibilities of Mineral Cotenants” here http://recenter.tamu.edu/pdf/843.pdf.

Do I understand correctly that the landman/oil company/lessee now has absolutely no legal requirement, and thus no vested interest, in negotiating with me to improve my offer… that it’s a take it or leave it situation for me… and that if I refuse to sign, I simply won’t get the bonus but will effectively be leased anyway?

I’m not too upset about the term, or the bonus and royalty amounts… although we could easily have gotten double the bonus. What upsets me most is that I’m sure this relative signed the first lease that was put in front of them… without using a lawyer… and thus obligating all of us to some unnecessary liability, extra production costs, and tying up the land for longer than necessary.

(1) Should I just sign the lease no matter what it says, take the bonus, and cross my fingers?

(2) If we ever have production, I’m afraid this relative will… against all recommendations… also sign the division order presented by the oil company. Do I have any individual protection by submitting a different division order… or am I again stuck with whatever the first relative signs?

Thanks for any thoughts!

2

Does this relative own more than 62% of the mineral rights to the property?

3

Mr. Joyson,

You seem to know more than the average bear about oil leases and such, which means you probably know the route to a successful lease is in the lease itself. You, I’m sure know, that you will never, ever, ever get a lease in your favor from an oil company or a landman. It’s just the nature of the beast. I’ve seen in several places in this forum where someone was telling someone to join this or that club and they could buy a lease for $250.00 or more. I would like to say their leases are good, but I’m not sure. Leave me a private message in my profile and I will give you a link to the best lease online for any price, and it costs 1/2 the $250.00 they are suggesting. I’m new to the oil business and have been very fortunate to have some quality, honest people on my side. Have a great day,

Yours,

Wes Luke

4

Well Mr Cotten: Excuse me. I beg your know-it-all forgiveness.

Buddy Cotten said:

Bill, we are in Texas, 62 1/2% does not have to do with squat in Texas, if you had read the article or knew the law of co-tenancy in Texas,

My Joyson,

Feel free to execute a lease with whomever you want. Your relative cannot bind your mineral interest. Justin Farnbough wrote a simple, concise article. You may lease to whom you choose or participate in the well as a non-consenting mineral interest owner. Your relative did not sign a bad lease. They may have signed a lease to not their advantage, but it does not affect you or other family members.

"The duty of accounting dictates the manner of distributing the proceeds from the well among the consenting and nonconsenting cotenants before and after payout. The rules vary depending on whether the tract serves as a drill site or as a corridor tract of a horizontal borehole.

In Texas, a mineral lessee may partition the mineral estate among the consenting and nonconsenting cotenants and avoid the duty of accounting."

It is an excellent, clear article. Perhaps everybody should read it again.

Buddy Cotten

5

Mr. Luke,

I would also be interested in receiving more info on the lease you are referring to here.

Have been tweaking a lease of my own before seeking legal advise and actually signing the lease.

My area of concern is the clause stating they will are no production costs and then they turn right around and state however: I will be charged accordingly for any cost they incur to "improve" the quality, and so forth.

Any problem with me leaving you a private message?

Larry Turner

Wes Luke said:

Mr Joyson,

You seem to know more than the average bear about oil leases and such, which means you probably know the route to a successful lease is in the lease itself. You, I'm sure know, that you will never, ever, ever get a lease in your favor from an oil company or a landman. It's just the nature of the beast. I've seen in several places in this forum where someone was telling someone to join this or that club and they could buy a lease for $250.00 or more. I would like to say their leases are good, but I'm not sure. Leave me a private message in my profile and I will give you a link to the best lease online for any price, and it costs 1/2 the $250.00 they are suggesting. I'm new to the oil business and have been very fortunate to have some quality, honest people on my side. Have a great day,

Yours,

Wes Luke

6

Mr. Cotten,

I have read the article but still have a couple questions.

One, am I correct in assuming that a corridor tract is a tract that is either near or bordering a drill site tract where the horizontal borehole passes underneath the surface and is included in the pooling unit? That seems obvious but I want to be absolutely clear.

Two, if the lessee partitions, are they required to notify the nonconsenting cotenant and how must they do so?

Three, in the example, if George and Harriet’s tract is a corridor tract, (with Harriet having leased) and the tract was not partitioned, would George, as a nonconsenting cotenant, have to be included?

Four is about George ratifying the lease or executing a division order. If George ratifies the lease or executes a division order, is he accepting the exact terms as Harriet such as % royalty, bonus, etc.?

Five, can you at least briefly explain the ratification process and the process of executing a division order and what it entails or at least steer a person in the direction of where this information may be obtained? I’m guessing the answer to the first part of this question may be no, and to the second part may be from a person like yourself or a good oil and gas lease attorney, but hey, at least I tried.

Any comments are certainly welcome.

Thanks,

Warren

Buddy Cotten said:

Bill, we are in Texas, 62 1/2% does not have to do with squat in Texas, if you had read the article or knew the law of co-tenancy in Texas,

My Joyson,

Feel free to execute a lease with whomever you want. Your relative cannot bind your mineral interest. Justin Farnbough wrote a simple, concise article. You may lease to whom you choose or participate in the well as a non-consenting mineral interest owner. Your relative did not sign a bad lease. They may have signed a lease not to their advantage, but it does not affect you or other family members.

"The duty of accounting dictates the manner of distributing the proceeds from the well among the consenting and nonconsenting cotenants before and after payout. The rules vary depending on whether the tract serves as a drill site or as a corridor tract of a horizontal borehole.

In Texas, a mineral lessee may partition the mineral estate among the consenting and nonconsenting cotenants and avoid the duty of accounting."

It is an excellent, clear article. Perhaps everybody should read it again.

Buddy Cotten

7

Mr. Turner,

I left a friend request in the private message section of your profile. I have no objection to you private messaging me. Whoever becomes the other’s friend first should leave a message.

Yours,

Wes Luke

8

I plan to read the article, but I am already wondering if it has any bearing on family estates, when only one member of the family has been named as the trustee/executor of the estate?

9

Mr. Turner,

You and anyone else is welcome to leave me a private message about this topic. There are entirely too many people in the oil business willing to take your money with trickery in a lease. That’s why a good lease of your own choosing is the only way to go. I myself wish I had had a good lease 4 months ago when my brother negotiated all our minerals on one lease form, keeping them tied up for 5 months. And as the draft is supposed to mature into cash, I’m wondering if we even have a lease. There are ways to prevent this sort of thing, and a good lease is paramount.

Yours,

Wes Luke

10

Wes Luke -

Did I read correctly in your recent response to Mr. Turner that your brother signed a lease 4 months ago and that the draft has not yet been paid?

Charles

Charles Emery Tooke III Certified Professional Landman

11

120 business days is a long time. I feel for you Wes. I have you beat by about 7 months though! I hope my lawyers get it sorted out soon.

12

Oh, come on guys!

RWK, now you’re saying that you have a draft that is 11 months old and still hasn’t been paid?

If these situations are really true, you guys need to send me copies of your leases, your unpaid drafts and any cover letters, communications or contact information that these purported Landmen sent or left with you and let me take a look.

Talk about fixing somebody’s little red wagon - those guys won’t know what hit them.

Charles

Charles Emery Tooke III Certified Professional Landman

13

Thank you Mr. Tooke. I have lawyers (possibly poor ones) trying to take care of mine. It was partly my fault. I knew nothing about leasing one year ago, and I trusted the lease agent. They sent instructions to return the 30-day draft with the lease. They received both June 7, 2010; the lease agent wrote the date received 6-7 and pay 7-7 on the draft. I know this because they sent the draft to my lawyer as part of their proof that they paid me; the draft showed no signs of bank processing. They recorded the lease July 21, 2010, 45 days after receipt. A producing well was completed. The lease agent sold my lease January 21, 2011, to three different LLCs in 42.5%, 42.5%, and 15%. I still have not been paid, which explains my fairly intensive study of O&G matters over the last year. Had I been paid I probably wouldn’t be here. I hope your offer stands if my lawyers cannot get the job done. I think my lawyers doubted me at first, but they know now I was not paid and that they have been lied to by the lease agent. They tell me there will be action now. I hope so, I hired them 4 1/2 months ago. In any case, I’d be more than happy to let you look at what I have.

14

Prior to about 1975, all leases were submitted to the Collections Department of the Landowner’s bank along with the Draft. When the Lessee’s bank honored the Draft, the lease was then mailed by the bank to the Lessee.

Guess the world’s gotten meaner since then.

What leasing agent and what company(ies) are involved?

Where is your land and how much acreage is involved?

r w kennedy said:

Thank you Mr. Tooke. I have lawyers (possibly poor ones) trying to take care of mine. It was partly my fault. I knew nothing about leasing one year ago, and I trusted the lease agent. They sent instructions to return the 30-day draft with the lease. They received both June 7, 2010; the lease agent wrote the date received 6-7 and pay 7-7 on the draft. I know this because they sent the draft to my lawyer as part of their proof that they paid me; the draft showed no signs of bank processing. They recorded the lease July 21, 2010, 45 days after receipt. A producing well was completed. The lease agent sold my lease January 21, 2011, to three different LLCs in 42.5%, 42.5%, and 15%. I still have not been paid, which explains my fairly intensive study of O&G matters over the last year. Had I been paid I probably wouldn’t be here. I hope your offer stands if my lawyers cannot get the job done. I think my lawyers doubted me at first, but they know now I was not paid and that they have been lied to by the lease agent. They tell me there will be action now. I hope so, I hired them 4 1/2 months ago. In any case, I’d be more than happy to let you look at what I have.

15

Mr. Tooke:

You just described the way business between the Lessor and Lessee should be handled in regards to bank drafts except there should be an expiration date, so if the draft is not honored by a certain date, the deal is null and void.

Charles Emery Tooke III said:

Prior to about 1975, all leases were submitted to the Collections Department of the Landowner’s bank along with the Draft. When the Lessee’s bank honored the Draft, the lease was then mailed by the bank to the Lessee.

Guess the world’s gotten meaner since then.

What leasing agent and what company(ies) are involved?

Where is your land and how much acreage is involved?

r w kennedy said:

Thank you Mr. Tooke. I have lawyers (possibly poor ones) trying to take care of mine. It was partly my fault. I knew nothing about leasing one year ago, and I trusted the lease agent. They sent instructions to return the 30-day draft with the lease. They received both June 7, 2010; the lease agent wrote the date received 6-7 and pay 7-7 on the draft. I know this because they sent the draft to my lawyer as part of their proof that they paid me; the draft showed no signs of bank processing. They recorded the lease July 21, 2010, 45 days after receipt. A producing well was completed. The lease agent sold my lease January 21, 2011, to three different LLCs in 42.5%, 42.5%, and 15%. I still have not been paid, which explains my fairly intensive study of O&G matters over the last year. Had I been paid I probably wouldn’t be here. I hope your offer stands if my lawyers cannot get the job done. I think my lawyers doubted me at first, but they know now I was not paid and that they have been lied to by the lease agent. They tell me there will be action now. I hope so, I hired them 4 1/2 months ago. In any case, I’d be more than happy to let you look at what I have.

16

Mr. Tooke, I have e-mailed you the documents and a brief explanation of how things have unfolded. I handled a similar issue with Kodiak Oil myself, but I placed the draft with my bank and it wasn’t honored. Neither of those can bear a candle to my issues with Diamond Resources, which I describe as unashamed, unquestionable and intentional fraud. They recorded a memorandum of lease with my brother and then later went to court to set up a trust claiming they couldn’t find us, after dealing with us for 8 months. We have all documents and phone records and my brother still has the same address and phone number. I still had the same address and phone when they sought the trust in court. They could have phoned or mailed something to us at any time, as they had frequently done. Without question, it’s a jungle out there. My apologies to the original poster for hijacking your thread. Please excuse me, on the grounds that it might be important for someone else to know what can happen. Sorry.

17

RWK -

Yeah, we did kind of hijack a thread here. My bad.

Kodiak Oil - the one out of Houston or Austin, Tx? I would be surprised and disappointed if it were them.

Where is Diamond Resources out of and what County is their trust suit filed in? [Usually a Cause brought before the Court to have a Receiver appointed, usually the County Clerk or Recorder, so they can sign a Receivership Lease on behalf of missing mineral owners.]

These guys sound like real gems. I’d like to gather up enough information on that one to have it submitted to our professional organization to be considered for publication.

18

Mr. Tooke:

I believe that Diamond Resources is out of Williston, ND. I was contacted by one of their representatives several years ago in regards to leasing but I declined since I had heard about some of their questionable practices.

Charles Emery Tooke III said:

RWK -

Yeah, we did kind of hijack a thread here. My bad.

Kodiak Oil - the one out of Houston or Austin, Tx? I would be surprised and disappointed if it were them.

Where is Diamond Resources out of and what County is their trust suit filed in? [Usually a Cause brought before the Court to have a Receiver appointed, usually the County Clerk or Recorder, so they can sign a Receivership Lease on behalf of missing mineral owners.]

These guys sound like real gems. I’d like to gather up enough information on that one to have it submitted to our professional organization to be considered for publication.

19

Tooke,

only change is that the Receivership is held with the District, not the County right?