I have a dilemma. There are 8 relatives including myself and my brother, who received a property, oil and gas mineral offer to lease 150 acres in NE Cass County TX. Six have signed a “standard paid-up lease” and no questions asked. They received a bonus of $200 per net mineral acre and royalty of 1/6. My brother and I were the last to be contacted after leases were signed by other family members. We are in awkward position with a standard paid up lease to be signed with Landman terms, and no qualified answers. We would like to negotiate equitable provisions. I’ve heard that companies can drill without our 2 signatures and cut us all out of bonus and royalties, which to me, doesn’t make sense. Please advise, we need to know from one who is experienced. Kudos to you and the site for keeping property and mineral owners informed. Otherwise, oil companies and Landmen would take advantage and institutionalize their “standard paid up lease”.
Dear Wen,
You are right on all counts. The royalty is way off. 25% should be what you shoot for. You are not in an awkward position. You and your brother are free to negotiate a lease or not. There may be ramifications if you do not, but there may be rewards if you do.
By any chance, do you own the surface as well?
Best
Buddy CottenDear Wen,
Our family has received similar lease offers in Cass County, based on a so-called "standard lease form". However, even a quick reading of the "standard" lease terms shows a wide range of language in the newer lease forms. We recently have been offered leases for small interests in the James Taylor, Fishback and Wilson surveys, with each having "standard" lease documents that initially appear to be the traditional, long-standing "standard 88" lease form. But closer examination reveals language that now often heavily favors the lessee.
Thus, as usual, Buddy Cotten has given you a straight, brief, and knowledgeable answer, which is much the same that we've been given by our attorneys.
I second your laudatory comments about Mr. Cotten and others who contribute to this Forum. And I agree that, without help such as theirs, the language favoring the industry operators might easily become institutionalized as the "New-Normal" standard.
Best of luck,
Jim Bemis
Generally speaking, and in Texas, if they include your family's tract in the pooling unit, they CAN cut you out of bonus if you don't sign a lease, and they CAN cut you out of royalties if you don't sign a lease IF AND UNTIL the well "pays out." However, after the well pays out, you will get 100% of your pro rata share of the well. Somebody please correct me if I didn't say that right.
Pete - I am from California so royalties when not signing a lease may be different in different states. In California, as I understand it, if you do not sign the lease, the lessee is required to set up a trust where your royalties (if the well is dug and there are royalties) are placed until you claim them (by signing a lease) or a court decides what to do with the funds. (Not sure if you are still entitled to the bonus first offered when first asked to sign lease.) A few of my relatives signed the lease also offered to me. I had some issues I wanted clarified / changed which the lessee had no qualms in doing. But as far as I know, if you have mineral rights, however split up between parties, your share of royalties are your share and can not just disappear.
Pete Wrench said:
Generally speaking, and in Texas, if they include your family's tract in the pooling unit, they CAN cut you out of bonus if you don't sign a lease, and they CAN cut you out of royalties if you don't sign a lease IF AND UNTIL the well "pays out." However, after the well pays out, you will get 100% of your pro rata share of the well. Somebody please correct me if I didn't say that right.
In Texas, they do disappear without a Lease until the well pays out. Then you get whatever your pro rata share of whatever royalties are left.
Pete, I don't think they actually disapear, they go to paying off the mineral owners portion of the well.
Pete Wrench said:
In Texas, they do disappear without a Lease until the well pays out. Then you get whatever your pro rata share of whatever royalties are left.
Pete, I think we may be saying the same thing. Royalties don't "disappear" - if there are no royalties, which is true until a well produces - they just have not come to fruition. The royalty rights are always there. If and when a well pays out, here in California, if you have not signed a lease, your portion of the royalties go into a trust until you sign a lease, or a court decides how to pay out what monies to whom. The bonus at signing is different. In California it is not clear to me if that "disappears" by not signing a lease. But the royalties never go away, they just may never exist if the well never produces. (Now I am confusing me.) :)
Yes, of course we are saying the same thing. A Royalty ownership doesn't just vanish into thin air, obviously I didn't mean that LITERALLY. In Texas, if you refuse to sign a lease and your tract is included in the proration unit, your royalties "temporarily disappear" in the sense that you get NO ROYALTIES until the well pays out, they are used to pay for your pro rata share of the E&P costs of that well. If the well does not pay out, you get nothing. So in a very productive play, it makes more sense to contemplate not taking the bonus in order to get a higher royalty APO than in a play where there is little production or in a play with unproven fields or zones.
I thought it had to do with placement of the well versus unit designation. For instance if the well is drilled on lands in which minerals are owned or if the well is drilled on adjacent land where a unit is formed including lands where minerals are owned but not leased.
Dear Buddy,
Thanks for your reply. I will see to it the royalty is acceptable. If not in a awkward position, I need to contact an attorney in Texas area for help. Hopefully at a reasonable fee. I live in Washington state and also it would be difficult for me to respond to mineral lease issues. Please advise.
Wen
Buddy Cotten said:
Dear Wen,
You are right on all counts. The royalty is way off. 25% should be what you shoot for. You are not in an awkward position. You and your brother are free to negotiate a lease or not. There may be ramifications if you do not, but there may be rewards if you do.
By any chance, do you own the surface as well?
Best
Dear Jim,
Thank you for your reply and reference to GoHanesvilleShale.com It is difficult to sign over lease for a limited bonus and for the life of the property. In addition, they are asking landowners to pay open-ended production fees. Best of luck to you as well.
Wen Jones
Jim Bemis said:
Dear Wen,
Our family has received similar lease offers in Cass County, based on a so-called "standard lease form". However, even a quick reading of the "standard" lease terms shows a wide range of language in the newer lease forms. We recently have been offered leases for small interests in the James Taylor, Fishback and Wilson surveys, with each having "standard" lease documents that initially appear to be the traditional, long-standing "standard 88" lease form. But closer examination reveals language that now often heavily favors the lessee.
Thus, as usual, Buddy Cotten has given you a straight, brief, and knowledgeable answer, which is much the same that we've been given by our attorneys.
I second your laudatory comments about Mr. Cotten and others who contribute to this Forum. And I agree that, without help such as theirs, the language favoring the industry operators might easily become institutionalized as the "New-Normal" standard.
(You also might find useful advice from mineral owners who visit the GoHaynesvilleShale.com website, which also has a strong Cass County discussion group.)
Best of luck,
Jim Bemis
Dear Pete,
Thanks for the reply. Hopefully you are not correct. But it sounds like a Landman's lease agreement. Especially the part about no pay until agreement produces and if it produces. Pooling rights become an issue as well. That's what they call coming and going.
Wen
Pete Wrench said:
Generally speaking, and in Texas, if they include your family's tract in the pooling unit, they CAN cut you out of bonus if you don't sign a lease, and they CAN cut you out of royalties if you don't sign a lease IF AND UNTIL the well "pays out." However, after the well pays out, you will get 100% of your pro rata share of the well. Somebody please correct me if I didn't say that right.
Mr. Wrench,
Are there any situations where the oil company gets 200% or any amount more than 100% before the royalty owner backs in for their full share less operating expenses?
Wen Jones said:
Dear Pete,
Thanks for the reply. Hopefully you are not correct. But it sounds like a Landman's lease agreement. Especially the part about no pay until agreement produces and if it produces. Pooling rights become an issue as well. That's what they call coming and going.
Wen
Pete Wrench said:Generally speaking, and in Texas, if they include your family's tract in the pooling unit, they CAN cut you out of bonus if you don't sign a lease, and they CAN cut you out of royalties if you don't sign a lease IF AND UNTIL the well "pays out." However, after the well pays out, you will get 100% of your pro rata share of the well. Somebody please correct me if I didn't say that right.
I believe that you are referring to a "non-consent penalty." Working-interest owners are assessed a penalty if they do not consent to the participation in a well and it turns out to be profitable, typically the penalty is 300%. I don't think that applies to mineral owners, but am not sure.