Terminating an un-recorded lease

Oil and Gas Leasing Help
#1

In September of 2010 my two sisters and I each signed a three year lease with an oil speculator on a property in North Dakota. Each of us received a signing bonus for the lease. As we have mineral interest on several properties in North Dakota our legal council advised us to form a mineral trust for all our properties which we did in July of 2011. In the course of recording the formation of the trust at the county courthouse it was noted that the September 2010 lease was never recorded. I am the Trustee for the trust and have since been approached by another oil company about leasing the property previously leased in September 2010. The oil company wanting to lease the property indicated that North Dakota is a "rush to record" state and that I can re-lease the property to them as the original lease was never recorded and we have since rolled our individual holdings in to the trust and as such the Sept 2010 lease is null and void. Can anyone shed some light on this for me? The new offer is a good one but I don't want to do anything that would be considered outside the law or general leasing protocol.

Thank You

Ed

#2

Dear Ed,

It is indeed a pleasure to read about a family that has put their inherited minerals together for the good of all, including the exploration companies. I have a few clients that have done so and management of the minerals is much easier and far more profitable to to the beneficiaries.

Please don't complicate a good situation where you have very little to gain and much to lose. Your minerals were put into the "mineral trust" subject to the lease. The lease may have language preventing you from issuing a top lease and may have been assigned by now to third parties. The risk you run by issuing another lease is that the new lessee has knowledge of the first lease from you and will most likely not pay a bonus until the title is cleared up and they have a signed lease. That eventuality could result in a very long court battle preventing exploration and production which is the big hurt you will suffer. All the while, the lessees will do inexpensive battle until one is ready to drill and will buy the other out. I have seen an interfering party do these things as a course of business and make millions in settlements. The Texaco/Pennzoil Case from the 1970's although huge may be an example.

Go back to your attorney for advise in breaking the lease before you have any further negotiations with the offering party. You have too much potential to loose for the promise of a quick buck. If you think you need a national law firm that specializes in mineral matters across the nation and world, I'll be happy to give you a couple of recommendations.

#3

Dear Gary,

Thank you for your prompt response. Sounds like good advise. I will meet with my attorney to determine the appropriate course of action. I was not aware that I could pursue breaking the first lease.

Thanks again

Ed

#4

Ed, I think that rush / race to record concerns when you have two offers simultaneously and neither side has actually put cash in your hands. I think once you are actually paid, you are bound by the contract. This johnny come lately landman knows he would be protected in any case, but what about you ? What if your first lessor sues you for breach ? The lease may have not been recorded but you know you are leased, and you've had the money for some time. I also think you should be wary about the lease being recorded, I have experience searching the ND recorders network and to be safe you have search for things several different ways. A memorandum of lease may not show up in a search of recorded oil and gas leases. Best case, you would have to return the first lease bonus. Ed, I wouldn't pin my hopes on breaking your current lease. If there is substantial net mineral acres involved you lessee would be bound to fight, you could be $100,000 out of pocket.....before you lost. I am in court against my lessee right now, but only because they never, ever, ever, paid me so much as a thin dime, never came out and actually told me we have a deal, and recorded the lease after the draft had expired. Had they paid me, a deal is a deal. Good luck with your research and descision.

#5