What happens if I do not sign a lease in Wheeler County, TX?

I think this has been asked before, but I am in the middle of this and need information. Thank you in advance.

I have minerals in Texas and have been offered a lease with 4P Energy several times. I have not signed and am the last hold out. I have less than 50 acres. The wells there are usually very good.

So what happens now? They say they are going to drill anyway. What I hope happens is that they keep my production until my part of the drilling of the well is paid for. I've also read they can make me pay three times what my fraction of the drilling will be.

What do they do? I think they file something with the court. I'm guessing in the county where the minerals are. Do, I need a lawyer, and if so, WHO do you recommend? My experiences with lawyers has been very disturbing. :(

I know my uncle refused to sign with them and now gets 100% production. They said it took much longer than they expected to pay for their part of the well to be drilled.

I am 61 and may never see a dime from this. but hopefully my daughter and two grandchildren will. Is that too personal? I am new here.

If you have solid information or an opinion, please message me.

Karen

Karen,

Check out this link:

http://www.mineralrightsforum.com/forum/topics/what-happens-if-i-don-t-sign-a-lease

Also at top right part of the Mineral Rights Forum main page there is a SEARCH area. Click on that and type in: What if I don't Sign the Lease ......and you will find some results.

Clint Liles

Karen, I am not an expert so keep that in mind. I do not know why you did not sign a lease with this company, but it may not be too late. You do not have to sign the lease they offered; you can make a counter offer. Just because everyone else in your group signed one lease does not mean that you cannot negotiate a completely different - and better - lease. You need an expert to do this for you because leases are VERY tricky. We have had great luck with attorney Wade Caldwell, who is on this website. That said, it may be too late for you but you need to find out NOW. I don't know what portion of 50 acres you own. If you own 1/50th, then you have the equivalent of one acre and maybe hiring an outside expert wouldn't be cost efficient. But if you own the equivalent of several acres, you need an expert! And like yesterday! Best luck.

Hi Karen!

Don't worry, no one on The Forum has been ignoring you. They just have a few quirks in their website / software that they are trying to figure out.

For example, you posted your questions and requests at 2:10 PM yesterday, Clint Liles responded an hour ago, but I only just now received your posting.

Why is it you do not want to lease? If the 4P you are negotiating with is the same one I am familiar with, out of Dallas, it is an excellent company.

If they are willing to allow you to reserve a 1/4 royalty in your lease, there is no doubt in my mind's eye that you would be better off leasing. If you are not familiar with what all goes in to being an Unleased Co-Tenant, then you probably won't see a dime for years and years to come.

And, yes, they can penalize you up to what amounts to 300% of the monies attributable to your share of the expenses of the Lease, Land and Legal, the drilling and completing of the well (or each of them) and operating the well(s) before you see a dime. By their accounting figures.

You'll have to obtain liability insurance, hire an Accountant and probably an Oil and Gas Attorney.

Perhaps even your own Landman to prepare Title Run Sheets on each of the tracts of land pooled and then an Oil and Gas Attorney to prepare a Title Opinion or set of Title Opinions, including an eventual Division Order Title Opinion, as the Operator is not responsible for your legal work.

In addition, if your interests are subject to any outstanding Non-Participating Royalty Interests (NPRI), you will be responsible for the timely paying of those NPRIs, even 'tho you won't be receiving any income from the well(s) for years. And you will have to be correct in your payments of the NPRI's every month without access to the Operating Company's books. One penny off, and you could end up being sued.

The only way your Uncle would have remained unleased and is now receiving 100% of his production would be if he underwent the penalization period as I just described or if he put his share of the money up, as a Working Interest Partner in the well(s). If he did that, then he started receiving royalties and invoices right away, just like the other Working Interest Partners.

Think of a well or set of wells as being like a Limited Partnership with the Operator being the Managing Partner.

They don't have any reason to take you to court and, no, you can't lose anything except time and perhaps a lot of your personal savings while you address all of the expenses and overhead of becoming a Working Interest Partner.

Yes, the Landman / Landmen (it's one word and gender neutral - their are no Landwomen) are trying to get you to lease. We are paid to do so.

Most people are glad to hear from us because we aren't SELLING anything.

If you have any additional questions, do not hesitate to ask. If you feel you need the assistance of an experienced Oil and Gas Attorney, many of us here on The Forum can suggest one to you.

Hope this helps -

Charles Emery Tooke III

Certified Professional Landman

Fort Worth, Texas

I'm not familiar with any penalty in Texas if you do not sign. Can anyone provide something legal that documents that; otherwise, you are just a tenant in common waiting for the well's expense to match the well's revenue. Bob Malone, Malone Petroleum Consulting

Karen -

Yes, it was very nice of them to take time to help you understand your circumstances better, but if the company is asking you to lease, you do not own a Non-Participating Royalty Interest (NPRI). You own Mineral Interest (MI).

If you own an NPRI, they will be asking you to sign a Ratification of an already existing (signed) Lease. That's fairly normal, but you would probably rather sign a Pooling Agreement.

I just Googled "Unleased Co-Tenant penalties in Texas" and you and Mr. Malone and your new Attorney friends are correct - there are apparently no penalties in Texas, at least under circumstances.

There are dozens of articles and papers on the subject online. In just a few minutes I was about locate the following, including one written by Malone Petroleum Consulting!

54-MALONEPETCONSULTINGOilandGasTenantinCommonAuditsJointInterestBillings.pdf (130 KB) 55-RIGHTSANDRESPONSIBILITIESOFMINREALCOTENANTS.pdf (369 KB) 56-BUDDYCOTTEN2010.pdf (216 KB)

Nothing out of pocket, but note Buddy Cotten's comments regarding liability insurance in one of the attachments I sent you a few minutes ago.

Who knows, maybe you will land a well that Pays Out in a matter of months!

.

TAMU Special Report by Senior Lecturer and Attorney at Law Judon Fambrough:

Rights and Responsibilities of Mineral Cotenants

.

No conspiracy from here. Everything I described I have witnessed first hand, only maybe not in Texas.

I admit that in Texas the penalties I was thinking of may only come in to play if you sign an Operating Agreement. Other States provide for 200% or even 300% penalties for Non-Consent Working Interest Owners.

And I only mentioned Buddy Cotten's comments regarding liability insurance because I notice them. Buddy is much more well versed in these things than I am.

They put up all of the risk money, pay for all the lease, land and legal, drilling and completing costs, overhead, maintenance, post production costs, and insurance.

And they do all that even when it might be a Dry Hole.

Negotiate for a 1/4 royalty lease. That's 25% of everything coming out of the ground attributable to your interests.

If you wrote the Great American Novel and the publisher allowed you a 25% royalty, risk free, you'd be ecstatic.

Thanks AJ, I musta missed this one by JF. He's retired and now lives in Missouri.

Pat

Hello Mr. Tooke,

Can you please send me the attachment from Buddy regarding liability insurance>

Thank you.

Pat

Ms. Karen,

I'm not sure I agree with that advice. I cannot see how you would have zero liability. By not signing, your status would be as a co-tenant/non-operator. Co-tenants share all costs and all liabilities. So while you may not be paying costs before well payout, you would certainly bear your share of liability.

For example, say there was a well blowout while drilling, resulting in a death. I would think as a co-tenant/ non-operator of a well, you would certainly be subject to any lawsuit arising.

Those are a few of my thoughts.

-Mike

You say you are prepared to pay for your part of the well - that is where you can invite a very large liability (ask those who had the blowout in the Gulf of Mexico - a horrible liability - I could have easily saved the investors from their ignorance). If you just sit back and wait, you can either watch a duster happen or you can watch your money come in simply after the well has paid out. You choice is too easy and that is to do nothing. Relax and ignore unethical scare tactics by those who have a conflict of interest. Bob Malone, Malone Petroleum Consulting.

Dear Karen,

The attorneys you spoke with are close to being correct. Actually, what they are telling you is dependent upon you being included in the unit formed for a well the oil company drills or it being the drillsite tract where a well is located. I've seen cases where oil companies have left tracts out of their unit for the very reason you represent to them. If you own 100% of the minerals in the tract they cannot pool it mostly likely, without your consent and approval; can't include it in their unit. There's a chance they could force pool you, but that's never their 1st or 2nd goal.

The man that developed most of Irving, TX, I think his name was Carpenter, owned an undivided mineral interest in tract in Navarro County within 600' of a well drilled by a company. He did not lease to them. They left him out of the well and its unit. He never got any royalties. No other oil company came along later and drilled on his property; he got nothing, but then, he's probably a billionaire. TCU owned an interest in the same tract. Both this man and TCU were so unreasonable in the terms they wanted that we just abandoned the prospect we had altogether and we wanted to drill on his tract. And that original well made more than $15 million in gross value. Neither the man nor TCU ever got anything from that well, solely because they were so unreasonable in the terms they were demanding. Being greedy certainly isn't always the smart way to be. I have the same experience with Rice University several years ago. They wanted more bonus, rentals and royalty than we negotiated with ExxonMobil. Gump was right, "Stupid is as stupid does.", and Rice hadn't lease that tract in more than 50 years! We abandoned that prospect as well. We just gave and went elsewhere.

Its not likely this oil company will be able to pool only an undivided interest in your tract and leave you out. That won't happen if you have a good attorney. It is not likely this company's unit can surround your tract and leave you out of its unit, but it can form a unit without your tract so long as its unit does not totally surround your tract; in general that's the theory.

The company likely won't drill on your tract unless it gets you to sign a lease. It can, but its comparatively expensive for them to do so. They would have to pay you your undivided royalty interest in the tract, less costs, and your interest would not be diluted by the other tracts in its unit. If that makes any sense.

Unless you are very wealthy and have a whole lot of patience and the time and money to play this game with the oil company, I'd advise you to sign a lease with it. Why be left out and get nothing? Or, maybe your tract is the drillsite tract. Its not likely you know which is the case.

I'd recommend you get an attorney to negotiate the lease for you and demand what is referred to as a "Favored Nations Clause" as an addendum. This provision requires the oil company to pay you the highest bonus, rentals and royalties it paid to any other minerals owners in your area. I would recommend you add to the Favored Nations clause some definition of the area it covers. Oil companies hate Favored Nations clauses, but they have to sign them sometimes. Doing so will insure for you that you are not getting undercut on the bonus, rentals and royalties paid to you.

The legal fees required to play this game with an oil company can get very expensive, require a lot of time and often be pretty frustrating for a mineral owner. Life's too short for that. 4P Energy is a good company based on my experience. I charge people for vetting and evaluating oil companies, though I haven't evaluated it recently. I think its parent's name is FourPoint Energy LLC if my memory serves me correctly. 4P is reporting about $17 million in gross value a month right now, making it a pretty large private and independent operator. In 2014 I think it was, the parent announced it had access to about $1.2 billion in capital. It was a startup company in Texas at the time. Its been pretty successful and I think it is very reputable based on what I know about it. Its not run by a bunch of crooks, and there are operators in Texas who are nothing but crooks. Its a serious player. I'm sure they wouldn't want me to tell you about a Favored Nations clause, so that's between us.

Dear Karen,

I've been in the oil business for more than 40 years, and frequently not very friendly towards oil companies and their practices. But the guiding run most minerals owners need to follow, I think, is don't make it so expensive and cause oil companies so many problems that they simply stop working in areas where mineral owners act that way.

When mineral owners become so caustic and aggressive and difficult to work with, oil companies usually go somewhere else. The area of South Louisiana is a great example. 15 years ago there were more than 1,000 upstream operators in Louisiana. Now, I think that number has fallen to about 650. The decline will continue. And a lot of the reason is its so expensive to drill and operate wells in S Louisiana.

I once spent a lot of time putting prospects together for sale to oil companies. We routinely left areas where mineral owners were asking for prices that we considered unreasonable. Considering what I've read you write, I think you should just sign a lease and be done with hassles of thinking you can outdo the oil company you are negotiating with. And if you've been offered a 1/4th royalty by them, how much more do you want? That's historically one of the highest royalties oil companies pay to mineral owners. I've negotiated higher ones in the past, but that's been a rarity.

I adopted a rule about mineral owners who demand unreasonably high bonus and royalty amounts years ago. It applies to politics too. It is, "100% of nothing equals zero". The day oil companies face from mineral owners what you seem to be doing, if in fact you've been offered and declined a 1/4th royalty like another forum participant suggested, oil companies will pack up and go home, a lot of them, just like in South Louisiana.

And again, if it was me I would not want to spend the time and effort and money to navigate what you may have to navigate in order to get your royalties if you don't execute a lease, and I know a whole lot more about than you do or anybody else I've seen posting to this thread. You may end up spending a lot more money than you ever get, and as I suggested in my prior message to you, this company may legitimately leave you out of its unit and you get nothing, be it a good or bad well. It all depends on how valuable your tract is to this company, and that's an unknown to you I would suspect.

Mark Skipper, Thank you for your excellent post. Can an unsigned mineral owner with an undivided mineral interest in a whole section be excluded from production in the section? Any producing drill tract/unit on the section would seem to necessarily contain the unsigned mineral owner's fractional interest.

This is some great information from Mark Skipper! That leaves you three choices: lease, ignore or invest. He is right in getting an attorney to negotiate the lease for you.

I disagree. If Karen doesn't participate the oil company will be obligated to give her her share of production, should her tract be the drillsite or included in the company's unit, and since she did not participate I can't imagine a court of law finding her liable for the actions of a party where she had absolutely no agreement or participation with that party. Maybe I'm wrong, but I'm dubious a Texas court could somehow find her liable for a blowout of a well that she never agreed to participate in the drilling of. Notwithstanding the fact that modern courts are dominated by criminals in the legal profession and judiciary.

Why don't you go to the courthouse and check the terms of the oil & gas leases 4P Energy has executed with your neighbors and in the surrounding area. Many may have been filed constructively using a memoranda, but a lot of companies still file the actual oil & gas leases. For the ones noticed by a memoranda, get the names and addresses of the lessor parties. Find their phone #s and give them a call and see if you can find out what they were paid as bonus and royalty.