Foreclosure on Louisiana building with leased minerals, no bank subrogation (bank didn’t sign off on oil and gas lease). I purchased the minerals from the bank, so I now have an unleased mineral interest (UMI). At the time of drilling and for a few years after the minerals were under a lease executed by the borrower.
Do I have to wait for payout on the well before I start receiving a royalty payment? Or was my portion of the payout covered because it was leased at the time of the drilling expense?
I appreciate any help/advice.
Ron, have you tried to contact the well operator to confirm your status? Without further detail it is hard to give a substantive answer. Considering that there was a lease in place prior to your acquisition, you may only need to provide proof of ownership and ratify the existing lease. Have you checked to see if there is a 'release" filed in the public record for that existing lease? What does the bank say regarding the existing lease? Before we go into the regulations and options of being a UMI, I think you should first seek to determine for sure if the lease is no longer in effect.
If I am reading this correctly, the mortgage was executed prior to the execution of the OGML - the prior owner executed the OGML subject to the mortgage and no subordination was obtained. Then, the bank foreclosed. Being that the mortgage primed the lease, the bank is not subject to the lease, its terms or provisions. Please confirm.
Question: Did the bank ever ratify the lease, or execute a lease on their own after the subject foreclosure? If not, and then title passed to you unencumbered, you should be correct in concluding that you own UMI in the tract and the unit to the extent said tract contributes to the unit.
Payout for the UMI is defined by statute (R.S. 30:10). Under the terms by which the property was force pooled, you are an owner of an interest subject to its provisions. You may speak to the operator to obtain payout information, but statutorily (R.S. 30:103.1) you should make formal request for this information by registered or certified mail (return receipt requested) - alternatively you may use a courier so long as you can confirm receipt for basis of calculating the number of days for determination of timely response, but the statute states "mail". Be sure to provide information required to send to the operator as specified in the statute.
You may wish to contract to lease this interest (the operator may wish to make a similar arrangement as well). You will only receive monies as specified by the lease effective the date that you became owner of the property (remember, from the point that the bank foreclosed, given the assumptions above, the tract has been unleased and no one is due shares in the revenue attributable to this interest until payout. Additionally, if no one has provided notice of the foreclosure to the operator, the operator may be unaware of the change in ownership (payments made in error are not your problem) and therefore if payout has occurred, they are under no obligation to run title to discover your ownership and make payment to you (again, as an unleased owner it is your obligation to notify them as to your claim of interest).
Generally I would recommend requesting the statement in writing, (2) possibly contacting the operator indicating your potential willingness to lease this property but your preference to receive and review the statement first. This way you are not creating a distraction in fulfilling your written request, and you can make a proper financial decision before continuing any possible lease negotiation.
IANAL (I am not a lawyer), but I am a landman and the above is based upon my experience in the oil and gas industry.
Thank you so much for the information.
Yes, The prior owner executed the OGML subject to the mortgage and no subordination was obtained.
The bank never ratified the lease or execute a lease after the foreclosure.
I did notify the operator and they send me well information quarterly. they do not want a lease with me because the well might not ever payout/payoff. Have you ever seen operators want to sign a new lease in this situation? (the new operator is BPx)
Wouldn't he need to check to see if the Lessor or holder of the OGML received Menonite notice of the Foreclosure sale. If not, wouldn't the title obtained by the Mortgage Company not be perfected.
IANAL (I AM NOT A LAWYER) EITHER
if the prior owner brought action for lack of Mennonite notice, you would have a possible means for attack on the foreclosure action and to seek constitutional relief, as you state. To the best of my (non-lawyerly) knowledge, the standard is “reasonably ascertainable” as to identity and location of owners and “diligent effort” as to providing notice both as to the former and to those to whom the above are not immediately ascertainable. In other words, one may not be able to “live under a rock” or actively avoid personal service, and then merely sprout to the fore at the opportune moment. Post-Mennonite procedures for notice particular to owners subject to the debt as well as third-party possessors and those availing themselves of statutory notice of seizure have been improved dramatically such that the chances of not properly providing notice have been greatly minimized, but it can still happen. Finally, diligence procedures in place for quite title actions have similarly been bolstered to further ensure safeguards against possible Mennonite actions.
Per the above, the assumption would be here that foreclosure occurred under contemporary procedures and post-foreclosure quiet title action has been pursued, procedure followed and properly adjudicated prior to the sale of the interest by the former creditor to a third party. Those assumptions are not always evidenced in findings of fact however.
If a sheriff's sale occurs as part of a foreclosure by a bank against the mortgagor, it will typically be done by executory process and the borrower is already subject to the court's jurisdiction. Notice is not usually an issue in typical bank foreclosures like it would be for a partition by licitation or tax against absentee owners. The foreclosing bank agreed to sell Ron the minerals presumably in conjunction with a new mortgage on the property, so the bank at least has pretty good confidence in the title.
It’s a calculation for the Lessee as well. In a probable non-payout situation, there would be little economic benefit in making a lease offer. However, if it is posited that new development (using newer drilling and completion techniques)may result in higher profitability, a lease offer may make better sense, particularly as the initial well edges closer to payout.
I have several UMI interests with various operators, and once a well is completed and the pay deck is set up, they're almost never willing to accept further leases. Especially if your interest in an older well that will never pay out, it makes no sense from BPX's perspective to agree to start paying you royalties instead of keeping 100%. Your opportunity to grant a new lease will come when the next wells are planned.
I had hoped the law would be on my side because they hadn't gotten the bank to sign off. Thank you, I appreciate it.