Owners of the soil of mineral classified lands act as agents for the State of Texas regarding State owned minerals under the soil and in return, owners of the soil receive ½ of the consideration (royalty, bonus, delay rental, etc.) paid to the mineral owner under the lease. This payment is in lieu of all surface damages due the owner of the soil resulting from the production activities under lease.
The Texas General Land Office (“GLO”) promulgated lease form must be used on all leases of mineral classified lands. In actuality, the use of the GLO lease form is a good thing for Lessors, it is a good lease in Lessor’s favor, but there are shortcomings that should be addressed by an Addendum to the lease form. Any producer / Lessee on mineral classified lands is subject to the stringent terms and conditions under the GLO lease form. The owner of the soil benefits because Lessees must be on their best behavior and comply with the GLO lease terms and conditions or risk losing the lease.
Last month the Texas School Land Board approved policies giving the GLO authority to ease GLO lease terms and conditions to provide relief to Lessees during this un-precedented time of turmoil in the oil and gas industry due to the drop in the oil and gas market because of oversupply and the decrease in demand due to COVID-19 restrictions. These policies will directly affect the owners of the soil of mineral classified lands.
The GLO policies will affect owners of the soil of mineral classified lands by allowing for
the grant of up to a 6 month extension on all drilling commitments (affecting the delay rental clause, the offset wells provision clause, and the retained acreage clause under GLO leases);
90 day tolling on calculations for enforcing lease terminations for halting of production or failure to produce in paying quantities (affecting the shut in royalty provision and lease termination provisions under GLO leases); and
adopting a policy addressing a waiver of penalties and interest on late royalty payments submitted from April 1, 2020 through June 30, 2020 (affecting the royalty payment provisions under GLO leases).
Just as Lessees are subject to the stringent standards of the GLO lease form, so too are owners of the soil of mineral classified lands subject to the GLO policies and procedures determined to be in the best interests of the school children of Texas served by the School Land Board.