I am attempting to help my relatives understand the risks involved with Working Interest mineral rights. I contacted the operator and was told there is no contract governing our working interest partnership and that Texas law provides the framework for our relationship. Can anyone provide real world experience with the downsides vs leasing? My aunt has an umbrella homeowners policy(Missouri) and her agent claims she is covered should something go awry. My biggest concerns are some terrible event or tail end costs on decomissioning the wells. Grateful for any advice or experience shared… API #42-389-39709
Just curious if one of your relatives came up with buying a Working Interest in an Oil / Gas well on their own as an investment and trying to wrangle the rest of the family into it? Or, they have already invested? A working interest is up front money for an operator to get things going, and makes one financially responsible for costs of leasing, drilling, & producing. It would be like a silent partner or angel investor; there is no input other than financial on how the money is spent. The probability of hitting a well and getting returns depends on location, depth, if other producing wells around the area, etc. Yes, you can make some money, but you can also lose all of your investment money just as easily. I’m not quite sure how you think your aunt’s liability umbrella or a responsibility of leasing figures into a Working Interest. Since the operator is being evasive, do you have any paperwork showing that you / your family invested $xxx for an xx% working interest on xx well(s) located in (exact description) in the State of xx?
Assuming that your aunt is an unleased mineral owner and that the well has paid out and so now she receives 100% of the revenues for her minerals, less her share of the well costs. She will not be a party to the JOA because she is not a lessee holding lease rights under a 3rd party lease. She only owns her own minerals. That is why the operator says she does not have a contractual arrangement with the operator but her rights and responsibilities are based on Texas law. It is my understanding that under Texas law, as an unleased mineral owner she is not liable for the well plugging. I would not expect that her umbrella policy would cover well-related costs. Have you or she read all the details of the policy agreement? You should never depend on the verbal statements of the agent regarding interpretation of the legal document. Your aunt should consult an oil and gas attorney to understand her situation. Here is a link to a 2-part presentation be a law firm about unleased minerals. OG Energy Blog — Childers Hewett Slagle PLLC | Oil & Gas, Business & Real Estate Attorneys
My grandfather invested in minerals in 1970 and they have passed to his children. All of their other holdings are royalty based and these new wells are unleased. They claim to have never received a lease offer because the operator had enough other owners leased that they were told to take it or leave it. They did not put any money up for drilling and the wells have paid out and they are receving checks and JIBs. I’m thinking my aunt’s insurance agent is naive re: the umbrella policy. Apparently there is no agreement or paperwork for unleased co-tenants in Texas. I’m just looking to gauge the level of risk for their situation. There is a signed lease from 2018 with 25% royalty whch I guess must have lapsed.
Where would I find a policy agreement?
You actually provided a link on a previous thread showng the permit process where a group of owners protested and a law firm resolved it. I’m thinking that would be a good lead for legal consultation since they are already familiar with the situation. My mother’s siblings are hestitant to pay for legal counsel but that is probably where we are headed…
Thanks for the links but I’ve seen them in scouring the web for info.
Just wondering if you’ve seen any serious negative consequences for unleased co-tenants in this type of situation?
Thanks again for your expertise!
The Powderhorn Unit 3101H was completed in 2022 and it is too late to protest. Protests are due before the well is approved. There are 2 extensive service lists on permit, one for unleased owners whose addresses are known and one for owners who were notified by publication. Some owners protested timely and that protest was resolved with operator and withdrawn. I have not heard of any unleased mineral owner obtaining private well insurance and I doubt it is available, for a variety of reasons, and it would be prohibitively expensive relative to any income. I have not heard of any unleased mineral owner being held responsible for well operations or liabilities in Texas. If you are this concerned, then you should consult a Texas oil and gas attorney. There are several listed in directory. Here is permit link - https://webapps2.rrc.texas.gov/EWA/drillingPermitDetailAction.do?methodToCall=searchByUniversalDocNo&universalDocNo=494879192&rrcActionMan=H4sIAAAAAAAAAL1Ru27DMAz8mnQ09LDTeOBgBO2ctEEzGBkUW1AEyJZByX0A-vjSLgqkTudsvOPpeKQSZwxE4owDf0BsqiZa37802NbsBDP_oc9qGILIqJ1F_alCZvz7SlZ5LkkgYCWen44VlXIqW7TO2d7sNHY2hv2o8evHNWs9iXLodLz49uC3yjkiCkAdR-wP_lUrbC5EbYDdhKnD3K3QhGxQqLo35UY9Z6QMclPK8pGVEyrgrI3tw9HGyYzc_mAuFvhavxjL73aD8Lv7GgZlNF7t-O9B-Kle6qaswJMAzpKkT82BpYKINRG3r-9yzm8AjiJyXwIAAA
At the top right of the page, click on the magnifying glass icon, search “Judon Fambrough”, and click on the non-consent thread for a link to a paper about this subject matter.