If a company wants to lease your minerals and you don’t come to terms so you don’t lease to them and they drill a well. What happens then? How is it determined how much you are paid? Do you have to pay expenses, etc?
Dear Ms. Watters,
I can only answer your question as to Texas law with authority. It is a necessity to give the location of the minerals on which you have a question to receive a definitive answer.
First, it is well established that a co-tenant’s rights are not exclusive. That also means that the rights of possession are shared among the co-tenants.
That is to say that one co-tenant can explore for its minerals without the consent of the other co-tenant.
This right of possession is tempered with the rules of accounting between co-tenants. Each co-tenant must account to the other co-tenants as to revenue and expenses. In your case, you (as an unleased co-tenant) will have to pay your share of the well costs before you can participate in the production. However, in Texas, the non-consenting co-tenant is not required to come out of pocket, but rather have your share of the costs come out of production.
At such time as the well has paid out, you will be charged with your share of operating and marketing costs (which must be reasonable) and you receive your share of gross production. For example, if you own 10% of the minerals, you will be entitled to 10% of the revenue after your drilling costs have been recouped by the operating party, less your 10% share of reasonable operating and marketing expenses.
This situation ONLY applies when your tract is the drillsite, or on the well bore corridor on a horizontal well.
Other jurisdictions do allow a penalty be assessed to the non-consenting co-tenant, for example having the consenting co-tenant the ability to recover 200% of the no-consenting co-tenants share of expenses prior to payout of the well, before the non-consenting co-tenant receives any revenue. I personally strongly support a risk penalty in this situation, but it is not the law in Texas.
Also, in theory and in law, the non-consenting co-tenant will incur his share of the liability of plugging and abandoning the well at the end of its life.
This type of non-consenting interest is sometimes referred to as a carried interest. One of the larger dangers in being an unleased co-tenant is that you open yourself up to unlimited liability related to the actions of the operator, with no protection in the form of being under the umbrella of the operating parties insurance.
I’m sorry. I was referring to North Dakota. I think they do have a risk penalty there, but I didn’t really understand whta it meant. Thank you for your reply. Julia
Buddy Cotten said:
Dear Ms. Watters,
I can only answer your question as to Texas law with authority. It is a necessity to give the location of the minerals on which you have a question to receive a definitive answer.
First, it is well established that a co-tenant’s rights are not exclusive. That also means that the rights of possession are shared among the co-tenants.
That is to say that one co-tenant can explore for its minerals without the consent of the other co-tenant.
This right of possession is tempered with the rules of accounting between co-tenants. Each co-tenant must account to the other co-tenants as to revenue and expenses. In your case, you (as an unleased co-tenant) will have to pay your share of the well costs before you can participate in the production. However, in Texas, the non-consenting co-tenant is not required to come out of pocket, but rather have your share of the costs come out of production.
At such time as the well has paid out, you will be charged with your share of operating and marketing costs (which must be reasonable) and you receive your share of gross production. For example, if you own 10% of the minerals, you will be entitled to 10% of the revenue after your drilling costs have been recouped by the operating party, less your 10% share of reasonable operating and marketing expenses.
This situation ONLY applies when your tract is the drillsite, or on the well bore corridor on a horizontal well.
Other jurisdictions do allow a penalty be assessed to the non-consenting co-tenant, for example having the consenting co-tenant the ability to recover 200% of the no-consenting co-tenants share of expenses prior to payout of the well, before the non-consenting co-tenant receives any revenue. I personally strongly support a risk penalty in this situation, but it is not the law in Texas.
Also, in theory and in law, the non-consenting co-tenant will incur his share of the liability of plugging and abandoning the well at the end of its life.
This type of non-consenting interest is sometimes referred to as a carried interest. One of the larger dangers in being an unleased co-tenant is that you open yourself up to unlimited liability related to the actions of the operator, with no protection in the form of being under the umbrella of the operating parties insurance.
Regards,
Buddy Cotten
www.cottenoilproperties.com
You’re welcome.
I will give you my bottom line boilerplate suggestion. If you are a lay person, lease your land and collect the royalty checks. It’s not a bad way to go and has no risk.
Thank you, Mr. Cotten. I have some minerals in Reeves County, TX and my husband has some in Cherokee County. We have had some offers to lease and I have been trying to find out what the going rates are in those areas. Do you have any idea?
Buddy Cotten said:
You’re welcome.
I will give you my bottom line boilerplate suggestion. If you are a lay person, lease your land and collect the royalty checks. It’s not a bad way to go and has no risk.
Buddy Cotten
www.cottenoilproperties.com