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

I agree. There's no point in treating what is probably a good company, like 4P Energy, like its the enemy of the world or something. That's counterproductive for everybody involved, including Karen's neighbors.

If you find out it is a great producer and you have not been paid within a reasonable time as an unleased owner, you can simply have them audited to find out how much they honestly spent and how much revenue they received. Bob Malone, Malone Petroleum Consulting

Karen, as I said earlier, you are not necessarily stuck with that lease. You can counter their offer with a proposal of your own. The bonus and percentage are just the beginning of a good lease, however. There is much devilry in the small print. That is why you need a good oil attorney like Wade Caldwell. Personally, as a mineral owner myself, I would always prefer a good lease over just trusting my luck with no lease. There's many a slip twixt the cup and the lip, as they say - soooooooo many things can go wrong if you just try to wait for your 100 percent. Experts here have been gently trying to point them out. But of course it is up to you. Whatever you decide to do, best luck.

Respectfully Mr. Skipper,

We are speaking to two separate issues here. I am not saying she would be held to fault (in which case I would agree with you- a court would likely not rule against her).

What I am saying is that she will incur liability based upon her status as a co-tenant (non-operator) of the well as a matter of law, which is not the same as saying she is at fault. By stating she will incur liability, I am saying is that other parties will have standing to bring suit against her should something go array (which is likely a low probability considering the number of wells that are drilled without suits arising). Regardless, attorney fees will arise even if not at fault.

Again, I am not saying she would have a judgement against her, but if she steps into the role as a co-tenant, she will incur the same liabilities as any other producer, operator, owner, etc. It goes with the territory.

Respectfully,

-Mike

I would not think so. If it is in fact an entire section, roughly 640 acres, then its pretty difficult to form a unit for a conventional vertical well any larger than that, by about 10% or 704 gross acres. If the well is located in the section, then the oil company has to swallow the fact it will only be able to recoup its costs of drilling the well to the extent of that interest. Say its a 1/4th undivided interest in the section, which is the drillsite tract. If it drills and completes a well on the tract it will likely get to recoup 25% of its drilling and associated costs before it is required to pay the unleased mineral owner of the 1/4th interest, and his associated non-participating royalty owners.

If a well costs $5 million to drill and complete, along with LO&E etc, then the Company gets to keep 1/4th of the $5 million until payout of its costs. Then, 1/4th of the gross proceeds, probably less severance taxes & LO&E costs, goes to the mineral and royalty owners of the 1/4th interest.

But, if the well depletes after $5 million gross value, its very likely the 1/4th owners won't get any royalties at all, and had they had a 1/4th royalty under a lease they would have gotten, in general, 1/4 X 1/4, less taxes and probably some small costs, multiplied by $5 million, or $312,500. Its a crapshoot for a lot of owners that try this. Do you forego $312,500 (plus bonus on 160 acres that might be $500/acre?, for the chance to possibly receive a million dollars?

Finally, I can't imagine many oil companies drilling on a tract of land where they do not have an oil & gas lease covering an undivided interest as large as 1/4th. I've seen as high as 10% in my 40 years. I'm sure there's been higher amounts. That just means the unleased co-tenant prevents the other owners from receiving any royalties at all if the 1/4th owner never leases to the company; most probably. The company just leaves the prospect, and I've seen that happen many times. And we have done it not infrequently. And I'm no huge fan of oil companies, but I think its unreasonable to be so difficult in leasing with them that they leave areas they had hoped to drill and explore in. Again, we ran into this with Rice University several years ago on a track Rice had not leased in more than 50 years! Rice wanted a higher bonus and royalty than we negotiated with ExxonMobil on the same tract of land!

I also have a rule about the folks in the oil business that goes like this, "If it wasn't for the top 1 or 2% of the folks in the oil business and the fact oil wells can produce so much money, the oil industry could never survive.". Why? Because most of the people in the oil industry are sharp like bowling balls.

You complained that you weren't getting answers, so people answered. Now you seem unhappy that you got answers you didn't like. At this point, I'm not sure what you wanted. ??

In fact, after 25 years I left upstream E&P and putting oil & gas prospects together because the folks in the business, mineral owners and oil companies, were so unreasonable at times it just was not worth the effort any longer for me personally.

What if she were to form an LLC whose sole duty is to participate--however that might be--in the well but which does not in any way allow a clawback to her mineral ownership?

I agree with that, but then, I regularly see lawsuits that name parties not primarily responsible for a debt incurred by the party, what one attorney I know referred to long ago as the "Shotgun Effect". It does go with the territory. That's legal jurisprudence in Texas and the USA today.

Ms. Karen,

I am sorry that you feel that way. You asked a question regarding your current situation, which many people have responded to with their sincere opinions. Several of these members are highly respected on this forum, both as wise mineral owners, and as oil and gas professionals.

What you will not receive on this forum is confirmation-bias (I hope). What you will receive are thoughts from many different people looking at your specific situation through different lenses and offering their insights. There is rarely a right or wrong answer as to what you should do regarding your mineral interests. The one absolute answer is the answer arrived at based upon all relevant information given to you to inform your decision. I believe the members of this forum have done that.

Best Regards,

Mike

I would think that would protect her from personal liability, but would also have tax implications as well. I have seen mineral owners form LLCs in which they leased their interest to, then the LLC participates in the well... but I do not know if that is the best solution or not?

Thank you, Mark Skipper! I agree leasing would seem to be preferred except in the case of an intransigent company which insists on keeping to some sort of a one-sided, piratical lease form.

A fraction of an uneconomic well is profitable to a leased mineral owner but will never pay a penny to the unsigned mineral owner.

That sounds like 6.875% in the drillsite tract to me. I have to believe that won't stop them from drilling the well. They won't like it. You are going to need an attorney and accountant to help you navigate the cost accounting on the well's costs and production in the future. Its a pain in the bottom, but if the well turns out to be a good one, then you win. If it only makes back the costs of drilling and completion, you'll likely get nothing and have to pay the attorney and account their fees. If its a dry hole, it won't likely cost you anything. You really are in the driver's seat with the company under the circumstances you described, if you own an undivided 44/640 mineral interest a 640 acre drillsite tract.

I would also think the company will probably consider a royalty as high as 50%, if the circumstances you described are accurate.

Karen sounds like a Democrat to me. And not very thankful or grateful either.

That is in line with my thinking sir. I'll qualify that I am a landman, I have completed law school, and I am waiting on bar results. Accordingly, I am not an attorney, so this is only my two cents. Additionally, there are many landmen (yourself), and actual attorneys that could give Ms. Karen more competent advice than I can.

But should something go south, the unofficial rule in personal injury is to sue everyone- the shotgun effect, exactly. I really do not know how someone would limit their personal liability if they decided to participate in the well. That stuff just gets too messy!

I always learn a lot from this website. It is absolutely fantastic. I even learned a lot TODAY! Thank you geniuses!! Bob Malone, Malone Petroleum Consulting

Here you go!

53-BUDDYCOTTEN2010.pdf (216 KB)

Ah, to the contraire!

The only landmen that aren't dirty-lying cheats are those I have met on this Forum. I'm glad I joined.

As for the people who sell their minerals for pennies, they still do. Up here at the ranch/farm ... 150 miles from where I live in Houston, these people, ok, most of them raise cows and hay and come from "poor" days and families and never had a "pot to P in" ... so they only see the $ sign and sign. They look forward to a landman knocking on their door.

Then, it's too late as the operator and his "disrespectful" contractors take over their land, abuse it, drink water from their house faucets, contaminates their groundwater, cross out of the ROW, kill their crop, leave the gates open and their cows get out, cut their fences, fish from their ponds, and blah, blah, blah. These poor people are helpless but they continue to sit and wait for a check to come in so they can survive.

I didn't sign the O&G lease that was offered for my 50 acres with full mineral rights. All my neighbors did. And this was after negotiating for a whole year. Finally, the operator was willing to accept a "no drill" lease, but their $ offer dropped down considerably. I was insulted. So, I did some more practical thinking and decided that what I really did not want was strangers on my land.

It's not all bad, but you just gotta clear your thinking and do what you wanta do.

Good luck,

Pat

Ah, to the contraire!

The only landmen that aren't dirty-lying cheats are those I have met on this Forum. I'm glad I joined.

As for the people who sell their minerals for pennies, they still do. Up here at the ranch/farm ... 150 miles from where I live in Houston, these people, ok, most of them raise cows and hay and come from "poor" days and families and never had a "pot to P in" ... so they only see the $ sign and sign. They look forward to a landman knocking on their door.

Then, it's too late as the operator and his "disrespectful" contractors take over their land, abuse it, drink water from their house faucets, contaminates their groundwater, cross out of the ROW, kill their crop, leave the gates open and their cows get out, cut their fences, fish from their ponds, and blah, blah, blah. These poor people are helpless but they continue to sit and wait for a check to come in so they can survive.

I didn't sign the O&G lease that was offered for my 50 acres with full mineral rights. All my neighbors did. And this was after negotiating for a whole year. Finally, the operator was willing to accept a "no drill" lease, but their $ offer dropped down considerably. I was insulted. So, I did some more practical thinking and decided that what I really did not want was strangers on my land.

It's not all bad, but you just gotta clear your thinking and do what you wanta do.

Good luck,

Pat