Texas non participating royalty interest

I recently found that I have a NPRI in a property that my father once owned in SW Texas. The property has already been leased, along with some other surrounding property in which I have no mineral rights. I am being asked to sign a lease ratification. Ive read a number of articles that indicate that I should ratify the lease as it pertains to the property in which I don’t have an interest, and that I should not ratify the lease as it pertains to property in which I do have an interest. I have been supplied a copy of the lease. What is the best course of action?

Dear Mr. Berry,

The information that you were told is not really accurate It all depends on where the wellbore is located. I do not ratify leases as a rule, but I personally will always ratify an unit. I just think that it a fair way to proceed.

Buddy, Thanks for your response. I’ve been told that the best place for a well is right in the middle of the property in which I have an interest, but that they are moving forward to drill the first well on a portion of the property where I do not have an interest. The reason, I was told, is some title issues on the property in which I do have an interest that were created during some transfers subsequent to my father’s ownership. While they are getting those cleared up, because the lease requires that they have a well drilling within a short amount of time, they are going to proceed with a well on the other property. Is there some drawing or paperwork that I should have them send to me that will verify where the well locations really are?

Dear Mr. Berry,

You can ask, but not receive. If they have a short fuse, the permits may already be filed, in which case they are available through the Railroad Commission website.

Thanks again.

Buddy,

How do you get them to sign a new lease if it is pretty clear the lease is held by production, and the lessee is insistent about holding onto their old royalty rate? Just looking for leverage ideas.

Good question Wade that truely sounds too good to B true. I will be inheriting trustee status (sooner than I want to). Would be great to have an opportunity to re-negotiate"-)

If you don't have something they want that they do not already have by contract, I don't think there is going to be any renegotiation. If you did have something they wanted, possibly more acres to lease or they needed your permission for something, there might be room for negotiation.

Wade, I had a leverage situation last year. The partial mineral owner on 40 acres was not leased to the operator, but a blockbuster and was not pooled and the two horizontal unit wells did not cross her minerals.

8 years later, the operator wanted to drill on her surface and needed her interest leased so she would not be a co-tenant. What we did was negotiate a lease, effective as of the date of first production on the unit (8 years worth),a higher royalty rate (than the other lease she signed) with no-deducts, lots of bells and whistles, $1500 per acre in $300 per acre territory and eco pads and the whole 9 yards, with the pads rented on a per well basis on each well drilled from the pad. Sweet deal.

I never know the leverage points until I know the truth of the situation.


Wade Caldwell said:
Buddy,

How do you get them to sign a new lease if it is pretty clear the lease is held by production, and the lessee is insistent about holding onto their old royalty rate? Just looking for leverage ideas.

Buddy-

Thanks for the insight.

If the NPRI owner does not sign the Ratification, the main purpose for which I understand is to give the Lessee and assigns the right to pool the royalty-owner's interest with other interests, does he not got treated as a non-consent owner, meaning that he might not get ANY royalties until payout? Wouldn't it be better to sign the Ratification, especially if the well is a dog, and at least get something all the way along?

Dear Pete,

The NPRI is not treated as a non-consent interest (co-tenancy).

If the NPRI is a drill site tract, then the NPRI begins sharing on date of first production, undiluted by the unit size. For example, if the NPRI was a 1/32 interest in 100 acres AND the drillsite, his sharing percentage would be 1/32 of the well.

If the NPRI was a non-drillsite tract, he is entitled to no share of production until the date that he either (1) ratifies the lease as to pooling, or (2) ratifies the pooling transaction.

So if the NPRI were a non-drillsite tract, the NPRI owner should ratify the lease as to pooling, otherwise he gets nothing, right? That's what I was trying to say, that depending upon the production, if the NPRI owner waits too long to ratify the lease as to pooling, he might end up with nothing or next to nothing when he might have been able to benefit in some way had he done so.

As far as the NPRI on a drill-site tract, if it is not diluted by unit size, then if the NPRI applied to 100 acres and the unit contained 200 acres, then whose interest would be burdened by the NPRI as to the OTHER 100 acres in the unit?

The Lessee's interest would be burdened and directly affect the NRI to the operator, which is why the operator REALLY wants the NPRI to ratify the unit/lease if the NPRI is on the drillsite tract. If it is non-drillsite, they could not really care, since they are enriched as to the NPRI not being pooled. Same thing as to an unleased, non-drillsite mineral interest.

For everybody else out there, we are talking Texas and not any Force Pooled states.

That's what I thought, so here's a follow-up question. In the case of a non-ratified NPRI owner whose tract covers the drill site, is it correct to say that the Lessor's interest would be burdened as to whatever acreage covered by the NPRI is included in the unit, and Lessee's interest would be burdened as to whatever acreage in the unit is NOT part of the NPRI?

In other words, if the original NPRI covered 100 acres but only 50 acres were included in the 200-acre unit designation, then is it correct to say that the Lessor's interest would be burdened by 50/200, or 1/4, of the NPRI's share of production, and the Lessee's interest would be burdened by 150/200, or 3/4, of the NPRI's share of production?

The Lessor's interest which was subject to the NPRI has the burden of carrying the NPRI as to the extent of the royalty provided on the lease. After which, the burden shifts to the operator.

However, there are ways the mineral interest owner gets around that. Here is a clause from one of my forms:

"5.17 Outstanding Royalty Interests. If there are royalty interests in oil and gas in the Leased Premises now owned by parties other than Lessor, Lessor makes no warranty or representation that this Lease grants Lessee the power or authority to pool such royalty interests, but in the event of pooling hereunder Lessor's royalty on production from the pooled unit shall be calculated and paid as if Lessee had the power, and had exercised the power, to pool such royalty interests in the Leased Premises, whether or not Lessee in fact has such authority."