What happens if I DON’T sign a lease?

General Mineral Rights Discussion
1

I fully understand the proverbs of “gift horse…”, “bird in the hand…” and “pigs gets slaughtered…” But what happens if I don’t sign a lease?

I own 1/3 of a chunk of land where the other 2/3 has already been lease to 2 separate companies (one that has 50%). The land is in La Salle County TX in an area that is being carpet-bombed by a horde of oil companies. If I play hard-ball and do not sign a lease – will I lose?

Will I lose the generous lease bonus that was offered? Will I prevent drilling because of my obstinate? If they do drill without my lease will I get the full 1/3?

I guess the question is “how far can I go without shooting myself in the foot?”

2

Go to the home page and scroll down to blogs. Look for the blog by Ben Elmore. In Texas I believe that your best option is to lease unless you are absolutely certain that you are drillsite/wellbore. In other states you get force pooled and receive payment anyway. It does not work that way in Texas, you can be drained and never receive a dime. In your position I would shamelessly [really no shame in it, marketing your minerals to the highest bidder, just capitalism] solicit offers from each and every company that you say is "carpet bombing" in your area. Get cash before you hand over a lease and good luck.

3

Do you know who the companies are that have the other portion leased?

4

Yes, and I am in contact with 2 companies.

5

So yes, in Texas I can lose it all if I’m the ultimate holdout. But that begs the question: “If the oil company could not find me in the first place does that mean that my potential 1/3 now goes in the community kitty?” That would seem like a financial incentive for both the company and the other interest owners to not help find me. This doesn’t seem too “Lone Star-ish” to me.



r w kennedy said:

Go to the home page and scroll down to blogs. Look for the blog by Ben Elmore. In Texas I believe that your best option is to lease unless you are absolutely certain that you are drillsite/wellbore. In other states you get force pooled and receive payment anyway. It does not work that way in Texas, you can be drained and never receive a dime. In your position I would shamelessly [really no shame in it, marketing your minerals to the highest bidder, just capitalism] solicit offers from each and every company that you say is "carpet bombing" in your area. Get cash before you hand over a lease and good luck.

6

Under Texas law, yes the company does have the right to seek a receiver lease if they can show they cannot find you. Under a receiver lease, they go to court and the court appoints a receiver, oftentimes a county employee, and the receiver executes the lease covering the interest and the royalties and bonus go to the county. The receiver should ask for the market rate for bonus and royalty, so the company does not typically gain anything financially by doing it. In fact, they prefer not to because the receivership can be challenged by the actual owner if they find out in time.

7

Hi, Sam -

I'm not an Attorney and If you have questions about your options suggest that you contact one that specializes in oil and gas matters.

Having said that, the following is what I understand your situation is:

You are a fortunate man. LaSalle County is in the heart of the Eagle Ford Shale play in South Texas, possibly the largest and most prolific oil and gas play that any of us will witness in our lifetimes. Even a small amount of mineral interest in LaSalle County has the potential of making you a much wealthier man.

If you do not lease, you do not receive any Bonus or Rentals.

Leased or unleased, if your land lies within a producing unit, you are due your proportionate share of the production. They pool the lands, not the interests.

If you do not lease, however, you will become a Working Interest partner in the well and liable for your proportionate share of all of the expenses incurred in developing the unit: Lease, Land, Legal, Drilling, Completing, Construction of Infrastucture, Maintainance, Re-Completing, Re-Fracking the well(s) over time, things you can't even imagine.

They will send you a series of Authority For Expenditures (AFEs) setting out what your share of the expenses are and for what. You can choose to pay them, as an active partner in the development of the unit, in which case you will also receive the amounts payable towards your percentage of the unit once production is established.

Or you can choose to go "Non-Participatory" and not pay the AFE(s), in which case any income attributable to your interests goes towards paying your share of the expenses. You will be allowed to chose whether to participate of not in each well, as they are drilled.

If you choose to go Non-Participatory, however, in Texas the law allows them to charge you a 200% penalty, so you won't see a dime until the companies that did put up their share of the risk money receive twice the monies attributable to your Non-Participatory Working Interest back.

That's 2 times "Payout" and by THEIR accounting methods...

Oh, and you'll have to carry one hell of an insurance policy, pay for an Accountant that specializes in the oil and gas industry and probably an Oil and Gas Attorney as well (You can get your lunch eaten just by the Operating Agreement alone).

Unless you are either extremely experienced in the oil and gas industry or extremely wealthy and ready for one hell of a new adventure (and possibly stress-related illnesses), I'd advise you to lease your interests.

And, for reasons I don't have time to go into today, if one of the companies is Chesapeake, I would extremely strongly advise you to go with the other. Any other company. I'll even help you find another.

If you will send me your legal description, I will take a look at the area and tell you what is happening.

Send me a copy of your lease and I'll take a look at it, too. Have you included a Pugh Clause? Depth Severance Clause? Free Royalty Clause? Environmental Indemnity Clause? Lots to consider in negotiating one.

You have to accept me as a Friend on the Forum for us to share contact information, so look for my invitation.

Hope this helps -

Charles Emery Tooke III

Certified Professional Landman

Fort Worth, Texas

8

I'd be a BAD mistake to 'hide' from the oil-co's; worse case, they give your $$ to someone else (claiming the minerals), and you spend $ and forever trying to get some of the mispaid$ back, if ever.

Way better for you to negotiate the lease of your minerals, to the 'highest bidder'.

State outright that you'll take no less than 25% royalty (which is very reasonable for this area), then go for highest bonus you can get (by pitting offers against each other). Very simple when they're beating your door down.

If you have more than 10 net mineral acres, I suggest you get some help with the 'fine-terms' of the lease, someone like Charles or Buddy can help here. how many acres you have?

good luck!

Sam Gaines said:

So yes, in Texas I can lose it all if I’m the ultimate holdout. But that begs the question: “If the oil company could not find me in the first place does that mean that my potential 1/3 now goes in the community kitty?” That would seem like a financial incentive for both the company and the other interest owners to not help find me. This doesn’t seem too “Lone Star-ish” to me.



r w kennedy said:

Go to the home page and scroll down to blogs. Look for the blog by Ben Elmore. In Texas I believe that your best option is to lease unless you are absolutely certain that you are drillsite/wellbore. In other states you get force pooled and receive payment anyway. It does not work that way in Texas, you can be drained and never receive a dime. In your position I would shamelessly [really no shame in it, marketing your minerals to the highest bidder, just capitalism] solicit offers from each and every company that you say is "carpet bombing" in your area. Get cash before you hand over a lease and good luck.

9

Or you can choose to go "Non-Participatory" and not pay the AFE(s), in which case any income attributable to your interests goes towards paying your share of the expenses. You will be allowed to chose whether to participate of not in each well, as they are drilled.

If you choose to go Non-Participatory, however, in Texas the law allows them to charge you a 200% penalty, so you won't see a dime until the companies that did put up their share of the risk money receive twice the monies attributable to your Non-Participatory Working Interest back.

That's 2 times "Payout" and by THEIR accounting methods...

In other words, you do not have a good position to bargain from...and when they send you a bill for the cost, you need to be able to pay it, whether the well produces or not.

Lease...and the ONE thing that is absolutely a necessity is to have a "no post production expenses" clause. I am seeing checks in the Fayetteville Shale where 40% of the royalty owner's check is being taken out as "transportation, compression, treatment, and marketing".... You are better off with 3/16th and no post-production expense than you will be with 20% and post production expenses... And after the well produces for a couple of years, those post-production expenses only increase until 100% of your check is gone.