My family owns mineral but not surface rights of roughly 4,000 gross acres in Kings and Tulare counties in California. Some family members have been approached with lease offers from Venoco through Karo Associates while others have not. As of now, only one person has a fully executed lease while others have had their offers rescinded. It appears that the oil company (or landman) is trying to tie up the various lands without leasing 100% (or even 15%) of the mineral rights. When questioned about the other mineral owners, the landman gives vague answers about dealing separately with each separate owner. Has anyone experienced anything like this? We want each family member to get their fair share and feel like we are being manipulated.
I would first be curious to know if the % of mineral rights for each individual is different for the total acreage. This is a very large total area and possibly the areas of interest does not cover the entire +/- 4,000 acres. Also, the landman could be dealing serperately in order to lease for cheaper bonuses and % royalties. Is this toal acreage an undivided interest?
Thanks for the reply Charles. My family’s mineral ownership varies by the parcel between 25% and 50%. There are three generations of owners so my great aunt has an undivided 1/6th interest while I have an undivided 1/36th. Initially my uncle with roughly a 1/10th interest negotiated an offer for a 5 year paid up lease on all of the land at $100/acre with 1/6th royalties. He is the only one with a fully executed lease, all other offers for the entire acreage were rescinded. Other family members with a total of approximately 1/6th ownership then received an offer to lease one section with the same terms and we are in the process of signing lease documents right now. However it sounds like the rest of the heirs will not receive any offer to lease any lands. Can the oil company refuse to lease the balance of the mineral rights on a property? This seems very unethical and shady. I am now doubting the reputation of these companies.
The oil company can lease the portion that they want and forget the rest. Just remember, these minerals belong to your family and the final decision and terms is a family decision. If this area is "active" ; drilling and production, your family could shop around to find an operator who might lease the entire amount of acreage. Again, these are you're minerals and you (or your family) lease when you feel ready. DK said:
Thanks for the reply Charles. My family's mineral ownership varies by the parcel between 25% and 50%. There are three generations of owners so my great aunt has an undivided 1/6th interest while I have an undivided 1/36th. Initially my uncle with roughly a 1/10th interest negotiated an offer for a 5 year paid up lease on all of the land at $100/acre with 1/6th royalties. He is the only one with a fully executed lease, all other offers for the entire acreage were rescinded. Other family members with a total of approximately 1/6th ownership then received an offer to lease one section with the same terms and we are in the process of signing lease documents right now. However it sounds like the rest of the heirs will not receive any offer to lease any lands. Can the oil company refuse to lease the balance of the mineral rights on a property? This seems very unethical and shady. I am now doubting the reputation of these companies.
4k gross acres is a lot. Does your family have 4k net mineral acres as well? If only one of you signs a lease for your portion, then you will get a sign-up bonus plus whatever negotiated % of royalty for your portion from the lessee. That can be 13% to 25% depending on how hot the play is. The same with the sign-up bonus, which could be $50 per net acre or $1,000 or more per net mineral acre.
If no one else leases, then the net mineral acres remaining un-leased could go into a "forced pool" where future royalty type of payments would be banked by the oil driller for a future split after all expenses and profits were taken. The % might be set by statue or be more or less than what a pre-negotiated lessee would pay. Without a lease, you would get your money much later than the drilling and you would have no lease sign-up bonus. A huge potential financial gain or loss, depending on your decision to lease or not to lease.
This course of procedures was designed to go forward with one mineral owner if the others are uncooperative or do nothing. Talk to an mineral attorney for more details. With as large holding as your family has, I would flee to an attorney for protection in the decisions you need to make. Good luck....Thomas
Hi Thomas, thanks for your response. My family has roughly 1600 net mineral acres of the 4k gross. The problem we have is that not enough of the mineral owners have been offered leases. All family members are interested in leasing the land but the oil company is not willing to offer leases to everyone. Is this legal? We will definitely be pursuing this with our attorney, I am just curious if others have had similar experiences.
Thomas Mullins said:
4k gross acres is a lot. Does your family have 4k net mineral acres as well? If only one of you signs a lease for your portion, then you will get a sign-up bonus plus whatever negotiated % of royalty for your portion from the lessee. That can be 13% to 25% depending on how hot the play is. The same with the sign-up bonus, which could be $50 per net acre or $1,000 or more per net mineral acre.
If no one else leases, then the net mineral acres remaining un-leased could go into a "forced pool" where future royalty type of payments would be banked by the oil driller for a future split after all expenses and profits were taken. The % might be set by statue or be more or less than what a pre-negotiated lessee would pay. Without a lease, you would get your money much later than the drilling and you would have no lease sign-up bonus. A huge potential financial gain or loss, depending on your decision to lease or not to lease.
This course of procedures was designed to go forward with one mineral owner if the others are uncooperative or do nothing. Talk to an mineral attorney for more details. With as large holding as your family has, I would flee to an attorney for protection in the decisions you need to make. Good luck....Thomas
A mineral estate of 1600 nma is not only huge in size but a huge liability as well. My experience is that fractured minerals owned by families become the cause of permanent family fractures. Probably not what the matriarch(s) intended.
If enough of your family members agree to wanting a "fair share" and will consolidate your interests into a manageable entity with a concise mission statement, you will be able to keep the operators that want to spend their risk money in the area from picking you off one at a time; an expensive proposition for both sides but most profitable for the land companies. Moreover, an operator or group of operators will jump at the chance to deal with this much acreage in your area. Perhaps they will redirect the expenditure of their limited high risk funds to your land; a situation all of you would prefer.
I can think of many reasons why legitimate operators would behave in the manner you describe. The most obvious to me is that someone now has a position in 1600 acres that was obtained very cheaply. They can now spend some money on enhancing their geologic knowledge with, perhaps, geophysical data collection and/or raise money for a project, (to pay the principles salaries?) You are in a frontier area right now and will attract bigger lease bonuses and better leases if you have more to offer the big risk takers. Otherwise, you make it too expensive for companies to take a position. To them it is like buying 100 shares of stock one share at a time. The commissions and transaction costs are prohibitive. Fairness to you has little to do with it.
Thanks for your insight Gary. I would like to discuss this with you further. I will try to give you a call on Friday.
Gary L. Hutchinson said:
DK,
A mineral estate of 1600 nma is not only huge in size but a huge liability as well. My experience is that fractured minerals owned by families become the cause of permanent family fractures. Probably not what the matriarch(s) intended.
If enough of your family members agree to wanting a "fair share" and will consolidate your interests into a manageable entity with a concise mission statement, you will be able to keep the operators that want to spend their risk money in the area from picking you off one at a time; an expensive proposition for both sides but most profitable for the land companies. Moreover, an operator or group of operators will jump at the chance to deal with this much acreage in your area. Perhaps they will redirect the expenditure of their limited high risk funds to your land; a situation all of you would prefer.
I can think of many reasons why legitimate operators would behave in the manner you describe. The most obvious to me is that someone now has a position in 1600 acres that was obtained very cheaply. They can now spend some money on enhancing their geologic knowledge with, perhaps, geophysical data collection and/or raise money for a project, (to pay the principles salaries?) You are in a frontier area right now and will attract bigger lease bonuses and better leases if you have more to offer the big risk takers. Otherwise, you make it too expensive for companies to take a position. To them it is like buying 100 shares of stock one share at a time. The commissions and transaction costs are prohibitive. Fairness to you has little to do with it.