In 2004, my husband and I purchased royalty interests in Leon County Texas. I filed the necessary paperwork with the county. A couple of months after we puchased the minerals, we were contacted by a landman with a very small company (Just a few guys) about leasing. We decided to wait and see. In the fall of 2012, I found out that they had drilled on this property and had been in production since 2005. I contacted them and they agreed to pay us from 2005 to current if we would sign the original lease presented to us. We signed and sent the lease back and since that time, the owner has promised to pay plus interest. In February, he said he was sending us the Division Order and we would have a check in two weeks. And since that day, I have been unable to reach him. I have been on the rrc site and it looks like the well is currently not producing (for the last 3 months). I finally reached him this week and he said they would pay us for production from now forward and nothing more. I mentioned to him I thought the well was no longer producing and he informed me that they were currently reworking the well. (the well has never been a hugh producer) Doesn't he have to pay us as royalty owners for the production from 2005?
I assume there are other mineral owners and they did sign leases? If so, you need to read your leases carefully about your options when they default. Also, do you have anything in writing about paying you back to 2005? You should probably visit with an attorney.
He agreed to pay me plus interests and then changed his mind. Now he says, there was no lease at the time and he doesn't have to pay anything at all for past production, but will pay us from now forward. I believe once he calculated the amount due over the years, it was more than he wanted to pay. In my opinion, this operator is just a handful of folks that put their money together on this well and spent what they made. At one point he made the comment that they just "left our oil in the ground".
He did NOT send the money to the State of Texas. Royalties on other properties were place with the State. But this operator knew exactly where to find us and chose not to pay.
Pete Wrench said:
Yes, the operator cannot legally keep royalties due to you. They must pay you or, after a period of time, escheat (turn over) your accrued royalties to the Texas State Comptroller for inclusion on the Unclaimed Property Web site. It's possible that the reason he can pay you only from here forward is because your accumulated royalties recently WERE escheated to the State of Texas. Check the Unclaimed Property Web site for the State of Texas and search for your name or the name of your predecessor in title.
If he defaults on the lease you signed, you might be able to terminate it. However, a lot of leases have language that makes them difficult to terminate. If the lease is terminated, you might be able to sue for profits in the well as an unleashed owner. However, sounds as if the well is marginal. Look at demanding an audit of the well. That usually gets their attention.
I wonder if your acres were drillsite tract and you were a partner in the well and didn't know it? If that is the case, I'm sure the operator/s feel relieved that you signed a lease. Relieved enough that they will now try to negotiate down from the original agreement.
You didn't say if the agreement to pay from 2005 to present was stated in a letter or was from a phone conversation. If it isn't written down, it's difficult to prove it happened.
Once someone has your lease, it's been my experience that they are about 100 times harder to deal with. Best to have all dealings in writing and done before you sign a lease. I don't know the extent of your interest, It may not be worth retaining a lawyer.
I was not a partner in the well. A few months ago, he asked me if I wanted to be and I said no. I just want what is due. He agreed to pay and after talking with his accountant, he quit returning calls for a couple of months. He finally answered his phone last week and told me they were reworking the well and he didn't owe anything for past production, but would pay for future production.
r w kennedy said:
I wonder if your acres were drillsite tract and you were a partner in the well and didn't know it? If that is the case, I'm sure the operator/s feel relieved that you signed a lease. Relieved enough that they will now try to negotiate down from the original agreement.
You didn't say if the agreement to pay from 2005 to present was stated in a letter or was from a phone conversation. If it isn't written down, it's difficult to prove it happened.
Once someone has your lease, it's been my experience that they are about 100 times harder to deal with. Best to have all dealings in writing and done before you sign a lease. I don't know the extent of your interest, It may not be worth retaining a lawyer.
Adriana, you could have owned an interest in the well if you were drillsite tract, after proceeds from your interest paid off your proportionate part of the well, but have it any way you want. I wasn't kidding when I said that in my opinion, operators are 100 times harder to deal with after you sign a lease. Good luck getting paid without many billable hours from your attorney. If you have to sue, a royalty percentage may not cover your attorney fees, whereas ownership might. You may or may not want to be an owner in this well, but I think if it's worth a lawsuit, twice to three times the money of a lease would be my goal or possibly selling the wellbore for as much as you would ever receive in royalty from the wellbore right now to someone who would like to participate in this well. I would not be too fast to close off options yet at this early stage. Best of luck to you.
Thank you. The scary part is they (owners) have not been honest with me and don't appear to be good businessmen. They are just a handful of guys that are very hard to reach.
r w kennedy said:
Adriana, you could have owned an interest in the well if you were drillsite tract, after proceeds from your interest paid off your proportionate part of the well, but have it any way you want. I wasn't kidding when I said that in my opinion, operators are 100 times harder to deal with after you sign a lease. Good luck getting paid without many billable hours from your attorney. If you have to sue, a royalty percentage may not cover your attorney fees, whereas ownership might. You may or may not want to be an owner in this well, but I think if it's worth a lawsuit, twice to three times the money of a lease would be my goal or possibly selling the wellbore for as much as you would ever receive in royalty from the wellbore right now to someone who would like to participate in this well. I would not be too fast to close off options yet at this early stage. Best of luck to you.
Adriana,
If your tract was not the drillsite of the well, they are not legally obligated to lease you or pay anything, even if you are inside of the unit boundaries. If they offered to pay back royalty with interest, that's great, but if you don't have evidence of that in writing you have virtually no chance at getting that money, because you are not legally entitled to it without a contract stating otherwise.
Read the lease you signed very carefully. If your lease provides for royalties from the date of first production, you have a strong claim for the royalties you would have received for the history of the well. If the lease provides for royalties from the date of first pooling, or otherwise limits itself to future production only, you probably won't have a claim.
As Wade suggested, a visit with an attorney may be worth your while. If you can prove the promise to pay back-royalty with interest, even if your lease says otherwise, a savvy attorney may be able to make a viable claim on your behalf for fraudulent inducement or claim promissory estoppel. Even then, it will likely be an uphill battle if your lease says otherwise.
you're saying that she's not legally entitled to her royalties without a lease? So oil-and-gas companies can go around, lease drill-site tracts, put whatever unleased mineral tracts they want into their units, and then tell those mineral owners to sign whatever lease they want them to sign or their royalties evaporate?
If she's in the state of Texas, and she's non-drillsite, then that's exactly what I'm saying. And yes, that's insanely unfair, but as long as the Lone Star state does not have forced pooling, that's the way it is.
I don't think we have really established whether Adriana was drillsite or not. I think she needs to find out and I really think it would have been a good idea before she signed a lease, but you have to play the ball as it lies. I think it's at least possible that Adriana is drillsite tract, hence the first offer, once Adriana executed and returned a lease, the emboldened operator decided that now since the most Adriana could recover in court would likely be the royalty amount plus some change, it was time to push for more. I've been hearing far too much lately of lessees/operators wanting to negotiate after they have a executed lease as a fallback position, and I find it despicable. It happened to my brother once also. When the lessee figured out their mistake, they then tried to smooth it over with 4 times the bonus.
Pete,
Believe me, I heartily share your dismay. But, this is the state of the law. Without forced pooling statutes, a mineral owner, even one inside a unit boundary, cannot "force" the other members of the pool to include them. The mineral owner is generally free to go drill their own well if they please.
OK, if that's true, then exactly who IS entitled to the royalties attributable to her tract, the Operator? I don't think so.
Technically, there are no "royalties" owed, because royalties are only due under a lease contract, and the mineral owner in such a situation has no lease. Rather than pay royalties for that proportion of the mineral acreage, the operator would retain those funds. Insane, I know, but I can name at least a dozen examples of this off the top of my head.
And also, if what you're saying is true, then what incentive or obligation is there for an Operator to lease ANY mineral acreage whatsoever that is non-drillsite?
Very little. For what they're worth, the incentives would include have increased net mineral acreage HBP that can be sold for consideration later, as well as not getting a soiled reputation with local mineral owners and the Railroad Commission.
And yes, I recognize the insanity of what I'm saying as I type it. This is why I have been advocating for a sensible forced pooling regime in Texas for years. The very people who always oppose these measures are exactly the ones that get bulldozed without its protections. Forced pooling protects the small mineral owner - it enables them to force unit operators to pool their interests. Texas has no such remedy (actually it does legally have provisions for this, but I've heard that this avenue has been used less than 200 times since that law was passed in 1977. That may be an exaggeration, but I've certainly never heard of it happening in real life).
And in case you still can't believe what I'm saying (and I didn't believe it when I first heard about it either), consider the following excerpts from an expert.
"What happens, then, if the lessee has acquired oil and gas leases on only a portion of the minerals in a tract? Can the lessee include that tract in a pooled unit? If so, how are royalties paid to the owners of unleased minerals in that tract? Do the unleased mineral owners have the right to share in production from the pooled unit?
"First, the lessee has the right to include a tract in a pooled unit if the lessee has leased any mineral interest in the tract. The lessee need not have under lease all of the minerals in the tract in order to include the tract in the pooled unit.
"Second, unless the unit well is located on the tract, the unleased owners in the pooled tract have no right to share in production from wells on the pooled unit. The unleased mineral interests are not pooled into the unit.
"Third, the unleased mineral owners still have the legal right to drill for and produce oil and gas from the tract in which they own an interest...
"...Moreover, because of the formula used to pay royalties on each tract within a pooled unit, the lessee benefits from having an unleased interest in the pooled unit; the lessee does not have to pay royalties to the owner of the unleased interest even though the lessee gets the benefit of including the tract in the pooled unit. Some operators will take advantage of this and intentionally leave unleased undivided interests in the pooled unit.
I know it's completely inequitable (I'm partial to the term "barbaric"), but please don't kill the messenger. I'm not a Texas resident, but if you are, I implore you to contact your legislator about the problem. If more people understood the current state of affairs forced pooling would have come to Texas a long time ago.
If she is in a drillsite tract then it's a whole new ballgame, and she's in a much better position.
r w kennedy said:
I don't think we have really established whether Adriana was drillsite or not.
I'm not sure what the term "drillsite" means. It is my understanding that the well is on the property that we own 50% royalty interest
r w kennedy said:
I don't think we have really established whether Adriana was drillsite or not. I think she needs to find out and I really think it would have been a good idea before she signed a lease, but you have to play the ball as it lies. I think it's at least possible that Adriana is drillsite tract, hence the first offer, once Adriana executed and returned a lease, the emboldened operator decided that now since the most Adriana could recover in court would likely be the royalty amount plus some change, it was time to push for more. I've been hearing far too much lately of lessees/operators wanting to negotiate after they have a executed lease as a fallback position, and I find it despicable. It happened to my brother once also. When the lessee figured out their mistake, they then tried to smooth it over with 4 times the bonus.
Adriana, drillsite means that your legal dscription is directly under the well if verticle. Wellbore would be similar in that the wellbore drilled passes directly through your minerals it would be equivalent to drillsite but for a horizontal well. Basically, if you fit the bill for either of the two terms above, the operator can't avoid dealing with you. In the case of wellbore, the operator may decide to not perforate the wellbore where your minerals are and thereby not produce them, but that would have been a decision made before they drilled the horizontal well if any, and I believe we are most likely talking a verticle well here.
Yes we are drillsite tract.
Andrew said:
If she is in a drillsite tract then it's a whole new ballgame, and she's in a much better position.
r w kennedy said:I don't think we have really established whether Adriana was drillsite or not.
BINGO! I think that is why you were offered royalty and interest to first production. You sign a lease that hampers your recovery to the point of possibly not worth it to hire a lawyer because you may be stuck with a royalty percentage, instead of a full amount and now they want to negotiate down. As I said above, I'm seeing far too much of this these days. Is your lease effective to the date of first production, back dated?
Yes, but now the operator denies ever receiving it.
r w kennedy said:
BINGO! I think that is why you were offered royalty and interest to first production. You sign a lease that hampers your recovery to the point of possibly not worth it to hire a lawyer because you may be stuck with a royalty percentage, instead of a full amount and now they want to negotiate down. As I said above, I'm seeing far too much of this these days. Is your lease effective to the date of first production, back dated?
That was our agreement and that is the date the Operator/Owner had me put on the lease.
Adriana Newsom Ginther said:
Yes, but now the operator denies ever receiving it.
r w kennedy said:BINGO! I think that is why you were offered royalty and interest to first production. You sign a lease that hampers your recovery to the point of possibly not worth it to hire a lawyer because you may be stuck with a royalty percentage, instead of a full amount and now they want to negotiate down. As I said above, I'm seeing far too much of this these days. Is your lease effective to the date of first production, back dated?
Pete Wrench said:
Yep, it was important to know that this is a drill-site tract and that she did not own all minerals.