We purchased an oil and gas lease.
According to the documentation, the lease is part of a pool.
We found out later that some of the previously paid royalties from the lease were unclaimed and submitted as unclaimed property under one of the pooled participant’s names.
Now that we own the lease, does the ownership of the unclaimed property automatically transfer to us, also?
I believe you will receive expert replies from others, but my understanding is that unless your deed or purchase agreement specifies that those rights were conveyed to you, the monies would belong to whomever owned the property during the period of production of the royalties. You should check to see if the ad valorem taxes were paid to the tax collector for those years. Just as likely they went unpaid. And while the previous owner should also have paid those taxes, if not paid they would be a lien against the royalties. The tax office can take legal action such as a warrant or foreclosure of royalties for unpaid taxes.
In my previous post I state property, but you most likely just received rights to royalty as dictated by the O&g lease. But same concepts should apply I would think. I’m interested in what the great contributors to this forum will say, as I only have a small amount of experience in Texas
Did you purchase the minerals or royalty rights under the lease, ie related to the lessor? Or did you purchase the leasehold right of the lessee so that you are a working interest owner / oil company?
Thank you for your replies.
Someone suggested that we just send the lease documentation into claim the property proceeds and let them sort it out on their end because they, more than likely, have come across this before and know exactly how to handle it.
Yes, I believe we purchased the rights under the lease. This is the language from the agreement (I removed the company name, etc for confidentiality):
“ASSIGNMENT OF OIL AND GAS LEASES KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, XYZ company, (herein called “Assignor”), for and in consideration of one and more dollars ($1.00), the receipt of which is hereby acknowledged, does hereby sell, assign, transfer and set over unto and____________________________________________________________________________,
(hereinafter called “Assignee”), ALL OF ASSIGNOR’S RIGHT, TITLE AND INTEREST in and to Oil and Gas Leases, described on Exhibit “A” attached hereto (“Leases”) insofar as said Leases cover lands located in ABC County, XYZ State, together with the rights incident thereto and the personal property thereon, appurtenant thereto, or used or obtained in connection therewith and subject to any restrictions, exceptions, reservations, conditions, limitations, burdens, contracts, agreements and other matters applicable to such leases and interests.
This assignment is made without warranty, either expressed or implied. But for the same consideration the Assignor covenants with the Assignee, their heirs, successors or assigns: that the Assignor is the lawful owner of, and has good title to the interest above assigned in and to said leases, estate, rights and property, free and clear from all liens, encumbrances, or adverse claims, by and through itself, but not otherwise.
This Assignment of Oil and Gas Leases may be executed in multiple counterparts, each of which shall be an original, but all of which shall constitute one instrument.
Executed this the 00th day of Month Year, but made effective as of Month Year.“
If you do not own the minerals, then you are not entitled to the royalties. You need to consult an oil and gas attorney in the state where the lease(s) are located to understand your legal rights as a working interest and your legal responsibilities to the mineral owners. Usually the operator will pay all the minerals owners and deduct your share of the royalties from your share of the gross sales and also send you monthly JIB statements for your of the monthly operating expenses. There are also income tax consequences as WI income is earned income for federal tax purposes. Your CPA can help you with this as it can be complex.
Post is a bit confusing. Assuming the unclaimed royalty payments were to the mineral owners and you bought their lease, no you do not get those rights. The operator puts those unclaimed payments into a suspense account for the mineral owner and their heirs.
Maybe, but the purchaser should be able to step into the shoes of the grantor at least for monies payable after the lease effective date.
This post is not legal, tax or investment advice. Reading or responding to this post does not create an attorney/client relationship.
Ive bought undivided interest in land and mineral rights many times. "All rights title and interest more or less!
As the Lessee and assignee, they are still entitled to and paid on the originals Lessor’s interest. Why should the “purcharser” of an oil and gas lease be able to take over the mineral owners/Lessor’s unclaimed interest?
I would suggest the effective date of the conveyance into you is the start date. If you post dated the execution, then you would retroactively have rights to the dormant royalty payments. I would not think that your claim to royalties prior to a date that you owned the leasehold rights would be valid
ugh. this is really giving me a headache because I’m trying to think of other parallel real estate-like scenarios that could be applied in order to prove/disprove the theory that the direct & indirect royalty rights stay with ownership.
I think I’ve thought of one scenario:
ABC Realty purchases a tenant occupied 10 unit building (real estate). At the time of purchase, two of the tenants are in the arrears in rent payments, each owing the landlord $2000.
*Three months later, both of the tenants pay their back rent. *
Do the tenants pay the back rent to the new landlord, ABC Realty or to the previous owner?
Everyone would agree that the tenants would pay the back rent to whoever currently owns the property; reinforced by the language of the contract which indicates the right to do so.
(I think I just convinced myself. lol)
Yeah, I think that’s a good way of looking at it. 
When in doubt, read the contract/document. There are no blanket rules to your original question or your scenario as mentioned above.
Being a working interest is not comparable to owning an office building. The WI (you) is the lessee (oil company) which leased the minerals owned by Mr X. The lease provides that the WI owes royalties to Mr X (as royalty owner) based on the well production and sales. Mr X never owes any money to the WI. If Mr X has died, then WI owes royalties to his heirs. If WI cannot find Mr X or his heirs, then WI holds the royalties on behalf of Mr X and still owes the royalties to Mr X. Many states require that at some point the WI is required to send the unpaid royalties to the State Treasurer and then Mr X needs to claim from the State by proving his ownership.
Suppose Mr X owns 5% of the minerals in the well and his royalty rate is 20%. Then Mr. X has a royalty decimal of 0.01 (calculated as 0.05 X 0.2 = 0.01). Mr X gets 1% of the total sales each and every month and it is owed to him by WI (you). WI (you) will be paid 5% of the total sales by the operator and will be billed 5% of the operating costs by the operator. So WI (you) gets 5% LESS Mr X's 1% which nets to 4% of the sales. WI (you) owe 5% of the costs out of your 4%. If the costs exceed the 4%, then you have a LOSS and that is your problem. Mr X never has a loss and must be paid.
Maybe you could think of Mr X as being the mortgage company for the office building. The mortgage company must be paid every month for the loan and it does matter whether the building owner is making a profit or not. Or think of Mr X as your landlord and you need to pay him rent whether or not your business is making any money.
Ii Once the minerals produced are sold by the operator the funds due to the mineral owners becomes theirs. If not paid, they would have a claim against the operator. Once payment is sent, regardless if the checks aren’t cashed, the operator has met its fiduciary duty and no longer has any rights to the funds. You cannot get any greater rights or re-obtain any of the prior paid funds.
You appear to have purchased just the lease and not the underlying minerals. Your lease will continue as long as there is actual or constructive production unless there are other provisions to keep the lease in active status. Production is generally defined as production in paying quantities,
The oil and gas lease you purchased not only governs the rights and obligations between the parties; it is also a fee simple determinable. Execution of an oil and gas lease gives the lessee—the party that takes the lease— (and you as a subsequent owner) the mineral property interest in fee simple subject to the condition of continued oil and gas production. If actual or constructive production ceases, the oil and gas lease automatically terminates and the mineral estate reverts to the lessor(s) —the party that granted the lease. The lessee/operator (you) no longer has any interest in the minerals after the lease terminates. The operator of record with the RRC still has the responsibility to plug the wellbore.
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