there are several groups of family members all sharing interest in acreage that an oil company is trying to lease- some have signed- some are holding out for more money- the oil company says they would like to include the acreage in the platt but will work around it if they have to- can some "holdouts" keep others from being included? how does this work? each group has same amount- no one has majority interest- thank you for any insight into this - it has to happen all the time- marie
In general it does not require all parties to lease. Nor do they all need to lease with the same company. If you want to lease, be sure you withhold the signed original until you are paid. Then you've at least secured your bonus payment regardless of what 'Betty' or 'Bob' choose to do. You don't want to be in a position where the Lessee decides to withhold your bonus payment (while also holding your lease) until the others decide.
The specifics will vary slightly depending upon which state the minerals are in. Yet as a broad example; If there were five of you and two lease with Exxon. Exxon can proceed with drilling a well with only your 40% interest leased. The other three will then either be responsible for their 60% of the well costs, or can lease it to some other company. That second company (with 60% of the leases) may then try to drill the well themselves and object to Exxon drilling it. Yet a well could be drilled with, or without, the other three family members leasing. As stated above, you have every right to lease your interest, and get paid for it, regardless of what the others choose to do. Just don't deliver a signed lease prior to being paid. Good Luck.
we are in texas and this is a small piece of land that the oil company says will be pooled into a large tract for drilling- so they could go ahead and drill without all parties having signed?
would they just hold the money for the other parties until they come to an agreement?
Eastern MT said:
In general it does not require all parties to lease. Nor do they all need to lease with the same company. If you want to lease, be sure you withhold the signed original until you are paid. Then you've at least secured your bonus payment regardless of what 'Betty' or 'Bob' choose to do. You don't want to be in a position where the Lessee decides to withhold your bonus payment (while also holding your lease) until the others decide.
The specifics will vary slightly depending upon which state the minerals are in. Yet as a broad example; If there were five of you and two lease with Exxon. Exxon can proceed with drilling a well with only your 40% interest leased. The other three will then either be responsible for their 60% of the well costs, or can lease it to some other company. That second company (with 60% of the leases) may then try to drill the well themselves and object to Exxon drilling it. Yet a well could be drilled with, or without, the other three family members leasing. As stated above, you have every right to lease your interest, and get paid for it, regardless of what the others choose to do. Just don't deliver a signed lease prior to being paid. Good Luck.
It's unlikely that the co. would drill the land without everybody, but undivided interests are more often pooled, or included in a unit.
The concern you were told to have about payment is way overstated. A lease is a contract. A bargained for exchange, or a meeting of the minds between lessor and lessee. If there is an agreed upon consideration between the parties, and the lessee fails to pay you the agreed upon consideration, there is a breach of contract, and no valid lease. You would be free to accept any other offer if not paid the agreed upon consideration.
Regarding the lease stating that consideration has been received, that is not strong enough. There has to be an actual transfer of the agreed upon consideration from lessee to lessor for a valid lease to exist. (A canceled check would be one example of proof.)
Just don't think that the average landman is stupid enough to pay you before you have delivered the signed lease. I know that I wouldn't.
In a case where you did deliver a signed lease, and they didn't pay you the agreed upon consideration, then they would have no lease. They would not have kept their end of the bargained for exchange. (lease contract requiring that consideration be paid.)
this is undivided interest - so a few holdouts could actually keep the oil company from drilling even though they have said right now they have the piece of property included in the 700 acre platt? no majority rules or anything? thanks marie
No majority rules. They are free to do as they please with their own undivided interests. Lease or not lease.
700 acre unit? You should be fine. Your tract probably isn't the drill tract, but they will more than likely include you in the pooled unit, so it doesn't matter what the others do.
Just read your follow-up about Texas and small tract being unitized.
Yep, don't worry about the others. They can pool undivided interests in Texas.
Dave, I believe you addressed Marie's concerns nicely. She is free to act and need not worry about the others.
Though I stand by my advice on receiving payment prior to delivering a signed lease. That can be done using a Bank and a Bank Draft. It may annoy some Lessees to not receive the signed Lease prior to paying for it. Yet with a properly handled Bank Draft both parties are protected, and neither is exposed.
Failure to pay the agreed upon bonus is a breach of contract by the Lessee, though it does not automatically mean "they would have no lease". It may mean your Lease was already recorded and that you now have a lawsuit and headache. Most Lessees and Landman are honest. Though finding one who is not can be a costly and drawn out experience. Further, there was a North Dakota court case where the Lessee who failed to pay the promised lease bonus successfully argued that the promised royalty was adequate "consideration" for the Lease. Don't know how in the hell that stood up but it did. So my advice remains, make sure payment is received (by your Bank) before your Bank delivers your signed Lease. Then everyone is safe and happy. ;)
thank you all - always lots of good advise and information on this forum- marie
Marie, you got some bad advice here. From what I deduce, several family members own a mineral interest in a small tract that the Lessee has already warned they are willing to "work around" if all of the family members cannot come to terms with the Lessee.
While it is true that each family member can lease or not lease as he or she chooses on an individual basis, and while it is true that the Lessee can pool all of them into the drilling unit, whether leased or unleased, if they want to, they are under absolutely no obligation to do so whatsoever. And it is FOOLISH for anybody to advise you that "you should be fine" or "don't worry about the others" in this scenario, basically just sign your lease and get on with your life. Why? Because if the Lessee cannot get ALL of the family members leased, it is highly likely that NONE of them will be included in the drilling unit, meaning that NONE of them will receive any royalties! They have already hinted that they are willing to do this, Marie! WHY would they not include any of the family members who did lease? Because these family members own a mineral interest in a small tract, because this tract obviously is not essential to the creation of the drilling unit, and because if they include those family members who DID lease they would have to include those family members who did NOT lease and treat them as "non-consent co-tenants" (some persons use the term "unleased co-tenants"). If the well is productive enough to reach payout (pay for itself), then on a go-forward basis the Lessee would lose money for every single non-consent co-tenant that they have in the drilling unit, hence their willingness to "work around" tracts with an unleased mineral interest whenever possible.
Here is a real-world example from my own experience. My client told me to lease a five-acre tract owned by four different family members because it would help slightly with positioning the lateral in the way they wanted, to maximize production. Three of the family members leased, the fourth one refused to lease, even though I offered him 2.5 times as much per net mineral acre as anybody else in the entire proposed unit. So what did my client do? My client cut ALL FOUR family members out of the drilling unit, moved the lateral slightly, and drilled SEVERAL very successful wells in that unit! That one family member not only lost out on about $2,500 in bonus consideration by not signing his Lease but also screwed himself AND his three relatives out of a royalty stream of income that probably will exceed $100,000 over a decade!
So YES, "some hold outs" definitely CAN keep others from being included and CAN keep others from enjoying the principal benefit of mineral ownership (passive income in the form of royalties). You should contact all unleased mineral owners and impress upon them that their intransigence could be very expensive for not only them but also everybody else in the family who owns an interest. I'm not saying that they should sign whatever the Lessee puts in front of them, but I AM saying to be reasonable and not adopt the attitude that "they need me so they'll call me back with a better offer." They could be waiting for a while.
Dear Ms. Dean,
There are a couple of assumptions that anybody would have to make. First, a tract of land that you have an interest in is partially leased. Second, that tract is non-drillsite on either a horizontal well or a vertical well (or, for horizontal wells, outside the buffer zone). Third, the lease that you signed did not have all of the parties listed as lessor, or if it did, the lease had language in it that says that the lease is binding on all who sign the lease, whether all the named parties executed the lease (or its counterpart) or not.
IF, a big if, all the above are in place, the unleased mineral interest owners are just that, they are unleased. The oil company has no authority to pool their acreage and Texas is a non-equitable pooling state. That has already been tested in the courts and the courts say that to have equitable pooling would be in conflict with the rule of capture.
Since the unleased cannot be pooled under the terms of the lease itself, their only opportunity is that the pooling declaration is so poorly written that it actually constitutes an offer to pool. Happens all the time on the Ratification of Unit by non-executive mineral owners or non-participating royalty owners. But anyway, in order to voluntarily pool in Texas requires a pooling transaction. Most of the time in the form of an oil and gas lease that allows pooling.
If I were your cousins, I would offer the Operator a free lease and 27.5% royalty. FREE LEASE! You mean you do not have to receive money to have consideration? Of course not. Love and affection could be consideration. The obligations, covenants and conditions stipulated in the lease is also consideration. Ask any law student. It might read, "In consideration of the royalties provided for herein and the covenants of Lessee and the mutual benefits contained herein.." Well, most read sort of that anyway.
I don't want to over confuse anybody, but the devil is in the details and sometimes you need to get the Devil's Flyswatter.
There were lots of assumptions made by me, just drawing inferences. But this could be exactly what is going on.
Wow. 27.5% royalty! That doesn't sound "free" to me.
Sounds very, very hopeful. Very, very high royalty. Good luck on getting that. That does sound like it would be a good deal for your cousins, but it's unlikely that the operator would ever agree to it. It wouldn't be much of a trade off for them.
Of course, there can be consideration without an actual bonus being paid, but typically in the oil and gas leasing business, there is an agreed upon cash bonus.
Buddy is correct regarding that there can be actual consideration without an actual bonus being paid, but typically in the oil and gas leasing business, there is an agreed upon cash bonus.
Buddy is hopeful in his suggestion that Marie's cousins shoot for a 27.5% royalty in return for a zero bonus lease. No principal that I have ever been associated with would jump at that deal. In fact, they just might implement a line from the Nancy Reagan era drug war, and "Just say no."
It would be a good deal for the cousins, but I don't think they will ever get it.
Please don't use my name. Please do not grade my answers. Please do not grade how hopeful I might be. I don't like you. Please give me one courtesy and not use my name or make any reference to me. The last thing that I want is to be painted with the same brush that you are painting yourself. That's four "Pleases."
I can think of plenty of scenarios where a company would jump at the chance. Just because you have not been exposed to them does not mean that those scenarios do not exist.
Dave Quincy said:
Buddy is correct regarding that there can be actual consideration without an actual bonus being paid, but typically in the oil and gas leasing business, there is an agreed upon cash bonus.
Buddy is hopeful in his suggestion that Marie's cousins shoot for a 27.5% royalty in return for a zero bonus lease. No principal that I have ever been associated with would jump at that deal. In fact, they just might implement a line from the Nancy Reagan era drug war, and "Just say no."
It would be a good deal for the cousins, but I don't think they will ever get it.
There is an awkward silence here.I hear cricketts.Yep its cricketts
Don't grade mine. Anything is possible I guess, but this would be very uncommon. The exception proves the rule.
Many people have appreciated my replies. I make them for them. The one who asks the question.
Why, just the other day, a chap was beside himself. He was scratching his head. He couldn't figure out what a registered letter that he received from EOG was all about. I made an assumption from his posting, not an educated guess, but an assumption that there was some type of clause in his lease that required the operator to obtain the consent from lessor. He then checked his lease and confirmed that the assumption I had made was correct. I think he slept better that night. He understood now why he received the letter. I also went a step further for him, and Googled the assignee, telling him that they appeared to be well funded, based on write-ups, what else they had purchased, and their own website. I didn't know the guy, I wasn't paid for the information, but I just wanted to help him out.
He appreciated the reply or replies, and said so. This is only one of many examples.
I have a lot of experience in an area where others don't. I don't mind sharing that experience, for no other reason than to help someone out. I look forward to continuing to do so.
Buddy Cotten said:
Please don't use my name. Please do not grade my answers. Please do not grade how hopeful I might be. I don't like you. Please give me one courtesy and not use my name or make any reference to me. The last thing that I want is to be painted with the same brush that you are yourself. That's four "Pleases."
I can think of plenty of scenarios where a company would jump at the chance. Just because you have not been exposed to them does not mean that those scenarios do not exist.
Dave Quincy said:
Buddy is correct regarding that there can be actual consideration without an actual bonus being paid, but typically in the oil and gas leasing business, there is an agreed upon .
Buddy is hopeful in his suggestion that Marie's cousins shoot for a 27.5% royalty in return for a zero bonus lease. No principal that I have ever been associated with would jump at that deal. In fact, they just might implement a line from the Nancy Reagan era drug war, and "Just say no."
It would be a good deal for the cousins, but I don't think they will ever get it.
Dave Quincy said:
Don't grade mine. Anything is possible I guess, but this would be very uncommon. The exception proves the rule.
Many people have appreciated my replies. I make them for them. The one who asks the question.
Why, just the other day, a chap was beside himself. He was scratching his head. He couldn't figure out what a registered letter that he received from EOG was all about. I made an assumption from his posting, not an educated guess, but an assumption that there was some type of clause in his lease that required the operator to obtain the consent from lessor. He then checked his lease and confirmed that the assumption I had made was correct. I think he slept better that night. He understood now why he received the letter. I also went a step further for him, and Googled the assignee, telling him that they appeared to be well funded, based on write-ups, what else they had purchased, and their own website. I didn't know the guy, I wasn't paid for the information, but I just wanted to help him out.
He appreciated the reply or replies, and said so. This is only one of many examples.
I have a lot of experience in an area where others don't. I don't mind sharing that experience, for no other reason than to help someone out. I look forward to continuing to do so.
Buddy Cotten said:Please don't use my name. Please do not grade my answers. Please do not grade how hopeful I might be. I don't like you. Please give me one courtesy and not use my name or make any reference to me. The last thing that I want is to be painted with the same brush that you are yourself. That's four "Pleases."
I can think of plenty of scenarios where a company would jump at the chance. Just because you have not been exposed to them does not mean that those scenarios do not exist.
Dave Quincy said:
Buddy is correct regarding that there can be actual consideration without an actual bonus being paid, but typically in the oil and gas leasing business, there is an agreed upon .
Buddy is hopeful in his suggestion that Marie's cousins shoot for a 27.5% royalty in return for a zero bonus lease. No principal that I have ever been associated with would jump at that deal. In fact, they just might implement a line from the Nancy Reagan era drug war, and "Just say no."
It would be a good deal for the cousins, but I don't think they will ever get it.
The day you do smething for somebobody else would surely be the day I die
I’m a little confused as is often the case.
Scenario:
- 1 new surface owner (given the land by his living parents)
- 5 mineral owners with equal shares (including surface owner & parents)
- the other 3 children were given equal mineral rights the same time 1 child received the land
- none of the 5 have a lease on the land, before or after the gift
- the parents gifted the land to 1 of their 4 children, divided the mineral rights equally among all 5 (parents retained 1/5)
- there was no mention of limited rights in the gift deed.
- the land lady approaches the surface owner & the parents, negotiates & offers a lease, however the land lady never contacts the other 3 children in writing or verbally nor does the surface owner & parents
- the surface owner & parents have never had the authority to speak or make decisions on behalf of the 3 children
- the surface owner and parents don’t tell the other 3 children about the opportunity until they present them with the lease & say sign - you have no rights in this transaction.
- the 3 children are not holding out for more money but have asked to understand their rights & speak to the land lady prior to signing
- the 3 children a listed at the county offices.
Questions:
- was the landlady legally obligated to notify the 3 children & include them in negotiation
- can the surface owner & parents exclude the 3 children? We’re they obligated to inform the others during the negotiation process
- do the children have any rights or say in the negotiations?
- is it reasonable for the 3 children to request time to get up to speed & speak to the land lady?
- do they have any rights or say in the matter?
- is this what is called NPRI
- can the surface owner & parents sign a lease, the oil company drill & the 3 children excluded from the bonus & royalty
Thanks
ASSUMPTIONS MADE:
1. The parents owned the minerals in "fee simple" at the time that they divided up the mineral ownership among themselves and their four children.
2. The parents did not reserve the "executive rights" when they conveyed the four (4) individual 1/5 mineral interests to each of the four (4) children.
If these things are true, then my answers are as follow. If these things are NOT true, then see my closing comments at the end. Nothing herein is to be construed as legal advice on my part, only my opinion from personal experience.
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Question:
- Was the landlady legally obligated to notify the 3 children & include them in negotiation?
Answer:
NO, although it would make perfect sense.
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Question:
- Can the surface owner & parents exclude the 3 children? Were they obligated to inform the others during the negotiation process?
Answer:
NO and NO.
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Question:
- Do the children have any rights or say in the negotiations?
Answer:
YES, the three other children exercise exclusive rights to negotiate a lease for their respective mineral interests.
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Question:
- Is it reasonable for the 3 children to request time to get up to speed & speak to the land lady?
Answer:
YES and NO. YES in the sense that they have a right to make an informed decision, NO in the sense that they don't have to ask permission from anyone to take as much time as they want to in the first place.
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Question:
- Do they have any rights or say in the matter?
Answer:
YES, they have EXCLUSIVE rights and say in regards to their respective interests if the assumptions mentioned above are true.
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Question:
- Is this what is called an NPRI?
Answer:
NO, you have mentioned nothing in your post that would lead me to believe that a Non-Participating Royalty Interest (NPRI) is involved. An NPRI is an interest in future production only, and is not a mineral interest, strictly speaking. As a royalty interest, the NPRI owner has no automatic rights to execute a lease or enjoy the other benefits of mineral ownership, although you could have a case, which I have seen only on rare occasion, in which a mineral owner also has an NPRI interest as well.
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Question:
- Can the surface owner & parents sign a lease, the oil company drill & the 3 children be excluded from the bonus & royalty?
Answer:
YES and NO. YES in the sense that the surface owner and parents can sign leases for their respective interests whenever they want to, YES in the sense that in most states the oil company can "pool" the tract including all five mineral interests into their drilling unit, even with some unleased mineral interests therein, and YES, if the oil company does so they can deprive you of bonus. HOWEVER, I cannot imagine any Operator NOT trying to lease every single mineral interest within their drilling unit because in order to pool any unleased mineral interest they probably will have to obtain permission from their state's regulatory agency and they probably are going to lose money on the well if it is productive. NO in the sense that a royalty owner can NEVER be deprived of his royalty except in a few situations (foreclosure, tax sale, or other lawsuit, and the application of royalties towards a loan, judgment, or tax levy by the Operator when allowed under a valid Oil and Gas Lease are a few examples that come to mind).
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CLOSING COMMENTS:
Having said all that, I have a couple of Questions for YOU about this landlady.
(1) First, you keep mentioning the landlady. There isn't some kind of "rent to own" situation regarding this land, whereby somebody is making rental payments to a landlady who "toted the note," is there, and once the rental payments reach a certain amount then the landlady will issue a Warranty Deed? If so, that could totally change many of the answers above.
(2) Second, is the landlady also the Operator? In other words, does the landlady own, work for, or somehow represent a legitimate oil-and-gas company? Because if not, then she is likely trying to "flip" the leases associated with this tract of land to a "real" Operator, somebody who is actually likely to drill an actual well. Why does that matter? Because you are likely to make MORE money for your bonus consideration if you deal directly with an Operator, preferably one with a large capitalization and a track record of actually drilling wells and of keeping leases that they acquire and not assigning many of them to other companies.
I meant landlady as in landman & was representing an oil co. No rent to own the land is owned outright by 1 of the kids. Sorry for the confusion.