Unique Situation, Devon Energy, Avondale Heights Gas Unit, Tarrant County

Oil and Gas Leasing Help
1

Concerning Avondale Heights #1, #2, UT#7, UT#8, UT#9, #6, #3, UT#4H, UT#5 NW, UT#11, UT#10, UT#18
RRC# 190034, 193573, 198592, 198596, 198599, 199924, 209702, 213448, 215341, 236603, 240899, 249285

Background:

2/6/2007 We closed and moved into our home. At the time, not aware if we had mineral rights or not. Previous owner of home was forclosed on. We bought our house from HUD.

12/9/2008 Received a certified lease in the mail from Devon notifing us that we have a 50% mineral interest in our land. We contacted our mortgage co and requested a consent of leinholder. Repeatedly called and they never sent it. We dropped the ball and did not pursue.

2010 Received tax bills from Tarrant County Appraisal District (TAD) and Denton County. (Taxes split between the 2 counties.) I called TAD and asked what was going on. TAD informed me that the previous owner of the house had stopped paying the taxes on the mineral rights and they contacted Devon to find out who the owner was. TAD gave me the number to Devon's Division Order Division.

8/30/2010 First time to get in touch with Devon.

9/3/2010 Contact Jan Sherrod called me. She was going on vacation and would call me week of 13th.

9/15/2010 Got a letter from mortgage company with a list of items they need before they would give the go ahead for the lease.

9/27/2010 I left Jan a message and she called me back.

Off and on from that point I kept getting the run around. I would leave many messages for her and she would not call me back.

5/20/2010 Got a new lease in the mail.

Prior owner was paying taxes on mineral rights. Jan at Devon said he was still calling trying to collect checks. She said Devon was holding the money and it would be paid to us once we sign the lease. Now she and the landman are passing me back and forth saying we don't get the money. She said it was because the prior owner was forclosed on and then she turned around and said it was because we didn't have a lease.

The lease offered is for $500 an acre. We have 3.529 and own 50%. 1/4th plus production costs. I know we need to not pay production costs.

What I want to know is......

1. Are we entitled to the back royalties?

2. The bonus is not mentioned in the lease. Is it supposed to be?

3. What happens if we don't sign? Do they NEED us to sign?

4. Why do you think they are taking so long and giving us the run around?

Thank you for looking over all this. I appreciate any comment you might have. Please, let me know what questions you have or what I can clear up.

Thank you!
Kim Idell

2

Kim,

Based on my experience:

Have you gotten it clear whether you own title to 50% or 100% of the mineral rights? You should have a deed stating your ownership. If you don't, you need to get one drawn up by an oil/gas attorney before you get involved with a lease.

I would think that your papers on the house closing would convey if you are buying the surface rights only or if it does include minerals, but it will take an oil and gas attorney to investigate the title to the minerals and draw up the deed, if you do not have one, so it is legal and binding in Texas.

After taking care of the deed, it could be that you are only entitled to the production payments from wells from the date you became owner of the mineral rights. Once the former owner pays his taxes, he may have a valid claim to the production up to the date he lost title to the property. After that, production passes on to each subsequent owner until the date you purchased your 50%. Unless you paid the former owner's taxes for him, I wouldn't expect to get any of his production until the date you actually acquired title to the mineral property.

The Payor on the well normally has the right to suspend payments on production from a well if there is any challenge to a title. This is one of the ways they make money...on the interest on these funds. Until you sign a lease with Devon or another participant in the well, you are operating legally under the statutes and the rights the state gives you as a royalty owner because there are no lease terms to dictate your relationship with Devon.

You will also need to verify what you are finally paid for your production from the day you got title to the property to ensure you were paid all the monies owed you.

Once you get the deeding/title to the mineral rights straightened out, then the lease they are asking you to sign should be reviewed for language and that they have the correct legal description and % of interest, which in your case is 1/4.

Lease bonus amounts are not documented in leases. You might want to do some research and see if that is a fair lease bonus for your area or if it is the one that was dictated in any pooling orders. I believe pooling orders in Texas are on the Texas Railroad Commission site. The lease bonus and the terms of the lease should be documented in a lease letter to you stating the offer before you sign the lease. This solidifies and make the lease bonus and other terms such as the royalty % binding until the lease is signed.

If you use an oil/gas attorney to do the deedwork, they could probably read through your lease for you and recommend good language. We have a lease that we use for our family and I can send that to you if you like and you can see the clauses that our attorney wrote up. My email is jowflp@msn.com. Just remember that leases in Texas may vary slightly from those in Oklahoma, but the important clauses to protect you are pretty universal.

If you don't sign the lease with this company, you might be able to find a company that participated in the well or that would want to up a lease on your minerals. We can do that in Oklahoma, anyway.

Devon will want you to sign the lease with them if they were the holder of the lease with the former owner. You might be able to use that to get a higher lease bonus.

Oil companies, the operators and the payors on wells are notoriously busy and understaffed so they take forever to do some things. If you do not get answers in a reasonable time, you will need to call Devon and ask for the manager of the Land Department and get them involved in getting this resolved. I've worked with Devon and they have some folks in the Land Department that are spot-on, like Jeff, and some of the others are not quite as attentive.

My apologies for rambling so.

M. D. Wood