I am trying to help my elderly aunt, who has 1 acre of mineral rights which is in an undivided interest of a 40 acre tract in Texas within the Haynesville shale. All the other relatives who have mineral rights in the 40 acres have signed the lease, but as she is out of state the lease was mailed to her to sign.
However, when I looked over the lease one thing that caught my attention is that in the main body of the lease the amount of royatly to be paid states only 1/8 several times.
Then in the Exhibit "A" attached to the lease it states this: It is understood and agreed that wherever "one-eighth" (1/8th) appears in Paragraph 5 of this lease "one-fourth" (1/4) shall be and is hereby substituted therefor.
I guess my question is, with conflicitng statements will this be a problem? In the end, what royalty will be paid to all who signed this lease. Will they get the 1/4 (25%) they think they are getting OR will they get the 1/8 (12.5%)?
Also, any advice as to if this is a a good "Cost Free Royalty" Clause which is in Exhibit "A" as provsion 2 below. Will all my relatives who signed this lease really get a cost free royalty they think they are getting or are there other hidden expense cost that will be deducted besides severance tax & production tax (what would the production tax relate to in Texas?)
There are only 6 provisions in Exhibit "A". They are below. How do they look? Any problems?
Exhibit "A" Provisions read:
1. It is understood and agreed that wherever "one-eighth" (1/8th) appears in Paragraph 5 of this lease "one-fourth" (1/4) shall be and is hereby substituted therefor.
(what royalty % will end up being paid?)
2. Lessor's royalty provided for herein shall be calculated on the gross proceeds from the sale of production at the point of sale, and not withstanding anything to the contrary contained herein, it is provided that payments to Lessor for Lessor's royalty share provided herein shall never be charged directly or indirectly with any ofthe expenses of producing, storing, separating, dehydrating, compressing, transporting or otherwise making oil, gas, liquid hydrocarbons, condensate or other fluids produced ready for sale. Notwithstanding the foregoing, Lessor's royalty will bear its share of all severance and production taxes. It is intended that the terms of this section or paragraph of this lease be controlling, and not merely surplusage under the principles set forth in Heritage Resources, Inc. v. Nations Bank, 939 S.W.2d 118 (Tex. 1996). Lessee or its assigns shall immediately reimburse Lessor for any charges as mentioned above that may have been charged in error. This paragraph will hold precedence over any Division Order executed on this lease.
(Is this really a cost free royalty or not?)
3. It is understood and agreed that this lease covers only oil, gas and associated hydrocarbons and does not cover iron ore, coal, lignite and gravel.
4. At the expiration of the Primary Term, or upon the cessation of continuous operations as provided for herein, whichever is the later date, this lease will terminate as to all depths below 100 feet below the stratigraphic equivalent of the deepest depth drilled in a vertical well drilled on the leased premises or on lands pooled therewith, or it will terminate as to all depths below the base of the deepest formation penetrated by a horizontal well drilled on the leased premises or on lands pooled therewith.
( Does this serve as a good Pugh Clause?)
5. At the expiration of the Primary Term, or upon the cessation of continuous operations as provided for herein, whichever is the later date, this lease will terminate as to all of the land lying outside the snrface perimeter of a pooled unit or units.
6. It is understood and agreed that Lessor warrants to defend title to said land against persons lawfully claiming same or any part thereof, by, through, or under Lessors, but not otherwise.
(I was a little concerned about this one ... should I be?)
Of course, the oil company has 20 provisons in the main body of the lease. And, I know the lease is always written to protect the oil company. But, will these 6 added provisions override any contray statements in the main body of the lease?
This is all new to me and I am just trying to help my aunt as she can hardly read the lease, much understand it all.
I know it would be best to have an attorney look it over, but with only 1 acre of minearl rights I hate to advise my aunt to seek a lawyer.
The oil company has called her a couple times wanting to know when they will get the signed lease? Should I tell her to sign the lease with the 7 provisions in Exhibit " A" or not?
Or, are there any changes which should be made, if even possible at this point? I know it is too late for all the other relatives, but for my aunt are there any suggestions?
Thank you in advance for any advice I can share with her.
Frankly, with only 1 net mineral acre and the fact that the owners of the other 39 acres have already signed, your aunt does not have much leverage or negotiating power. Having said that, the 6 or 7 clauses in the Addendum will control over the clauses in the main body of the lease as long as at the top of the Addendum it states that the Addendum will control in the event of conflict. The Addendum clauses are pretty good. Para. 2 is a good cost-free royalty clause. Para 4 is a depth severance clause and is good. Para 5 is a traditional "Pugh clause" that is different than what I usually see, but it will suffice. It is likely if your 40 acres is included in a unit, they will include all of it since it is a small tract anyway. I would refuse to warrant title, so she should at least request they strike Para. 6. If they will not strike it, given that she only owns 1 mineral acre, it is probably not something to refuse to sign over.
Hope this helps.
Ben, thank you very much for your input. One of my concerns is the point you raise over the rider controls. There is no rider control statement at the top of the Addendum. So, it made me wonder with the conflict of the 1/8 in the main body and the 1/4 in the addendum which would be paid on royalties.
So, I will ask that a rider control clause be added to the top to address this issue, and we will ask to strike # 6.
Thank you so much for you input.
I agree that you should do that. There is no reason they should refuse to put the rider controls language at the top. Good luck!