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Permalink Reply by Dion Warr, CPL on July 28, 2009 at 11:44

Mac:

IANAL; IMO, you can lease the minerals and collect the bonus, but the minerals will prescribe to the current surface owner if good-faith attempt to secure production has not commenced by the date of prescription, and the leasehold rights are not applicable to new mineral interest owner, because the new mineral owner would have become vested in his minerals by prescription, and not from you ie., by deed. (Why the O&G company would take a five-year lease from you and would want to pay you a full bonus in this situation, I have no idea. Maybe they have a well ready to spud within the month.)

This is how this could work, according to the statute:

Alpha deeds subject lands to Mac on 5/1/99, reserving minerals. Mac signs a lease in favor of XYZ Oil Co. on 2/1/2009 for a five-year term, paid up, no extensions, and the lease contains a clause which states that the lease "without further evidence thereof, shall immediately attach to and affect any and all rights, titles, and interests in the described land, including reversionary rights, hereinafter acquired by or inuring to Lessor and Lessor's successors and assigns." XYZ duly and timely records its lease. Mac then sells his mineral rights to Charlie for a tidy sum, 'subject to all leases, agreements, and servitudes of record". Mac gets his bonus money. No operations take place from 2/1/2009 through 5/1/2009.

On 5/2/2009, Mac owns the surface and Charlie owns the minerals, subject to the lease executed by Mac. Charlie is entitled to any royalties arising from production from the lease. The minerals prescribed to Mac, who then had to immediate fulfill the terms of the mineral sale to Charlie, however, the lease instantly attached to the rights of Mac, and his successor in title, Charlie. Mac gets no royalty, but collected a bonus from the lease and the proceeds from the mineral sale, Charlie gets no other payments from the lease save the royalty and any other payments (Pugh payments, shut-ins, etc.), and owns the minerals (which he may be able to lease again at some point during his ownership).

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Permalink Reply by Mac Davis on July 28, 2009 at 15:20

OK, I think I was reading it "backwards."

I first read this section as "Someone who owns mineral rights that are about to revert to the surface owner can lease the mineral rights and the lease will be binding on the surface owner after the rights revert to the surface owner." That really didn't seem to make sense, and would provide a big loophole in the 10 year limit on prescription.

Now I see that isn't correct. It's talking about mineral rights that "become owned by the lessor" during the term of the lease. This wouldn't apply to the current owner of mineral rights that are about to revert to the surface owner.

This seems to be leading back to the idea that the surface owner can lease "forward looking" mineral rights for which a prescription is about to expire. I'm not sure I want to jump back into that vortex right without some further reading and a few stiff drinks.

BTW, I don't hold any such mineral rights about to expire, and I'd like to think I'm not immoral enough to try to do such a thing even if it were legal.


Gee, I STILL have to look up "lessor" every time I use the term. I guess I should try to remember that it's like the guy renting out cotton farming land, he's the lessor of two weevils.

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Permalink Reply by Dion Warr, CPL on July 28, 2009 at 15:52

Mac:

Look at it like this:

If you own surface and minerals, you can do whatever you want, and if you sign an OGML, it will inure to your interest, and any successor in title, until the lease runs it course.

If you own only the surface, signing an OGML does not much of anything, and does not attach to the minerals, unless at some point during the term of the lease you become possessed of the minerals (through sale or prescription), at which point your minerals are immediately subject to the lease.

If you own only the minerals (by virtue of a mineral servitude), you can only encumber your minerals to the extent that you own them, for as long as you own them. If production is sought or obtained during the existence of the servitude, your servitude is extended (prescription is interrupted), your lease is golden, and you reap the benefits of the lease. If production is neither sought nor obtained prior to the extinguishment of the servitude, you own no minerals, your lease does not attach to the prescribed mineral interest, neither lessor nor lessee has anything.

If you own the surface, and convey or encumber mineral rights to which you may become vested in the future (conditional owner), any agreement that you make to do so will go into effect (or 'made good') the instant at which you become vested with the minerals. If you never become vested with mineral title, your agreements are never fulfilled, never burden the mineral title, and never become binding to or inure to subsequent mineral owners.

For most purposes of interpreting the applicable sections of the Mineral Code, "successor in title" as to minerals refers to those parties who receive mineral or leasehold title by deed, assignment, or other conveyance, and is inapplicable to those who receive mineral title by function of law (ie. prescription).

IANAL, and is time for go to bed...

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Permalink Reply by Mac Davis on July 28, 2009 at 15:59

Dion.

I think what you just said agrees with how I understand it and what I meant with the previous post.

Most importantly, if your mineral rights expire, any mineral rights lease you made dies with your mineral rights.

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