Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on September 30, 2011 at 4:25

Get professional help.  An independent landman or an experienced O&G attorney.  Interview several.    Pay an hourly rate, not a percentage of bonus and certainly not royalty.  Limit the group membership to those in the same section with the same basic circumstances.  Owners of residential lots and homes.  Do not add members outside the definition you set.  And don't add anyone outside your section.   As quickly as possible discuss and decide on the lease language your situation requires.  Don't get focused on the bonus amount, negotiate that last.  When you have an agreement on the lease terms, execute the lease.  Don't delay.  Trying to time the height of bonus offers is like trying to time the stock market.  No one can do it.  There are numerous GHS discussions in the archives that relate what happened in the Haynesville Shale Play regarding neighborhood lease groups.  Quite a few are testaments to how not to negotiate a group lease however.

• ▶ Reply

Permalink Reply by The_Baron on September 30, 2011 at 4:25

1) First it is nessesary to determine if you own your minerals. It is very possible you do not, it is common for developers to reserve minerals, or transfer them out prior to selling lots, or you may be in a larger mineral servitude.

 

You may also already be in a lease that is HBP, even if you do own minerals. This was a common occurance in the HA.

 

2) You need to get as many Homeowners commited as possible. Most companies will try to divide and conquer by leaseing as much as they can first, then you lose bargining power. You would need one voice for as many homeowners as possible. Preferbly have a list of desired languge and acceptable terms prepared ahead of time.

• ▶ Reply

Permalink Reply by Steve on September 30, 2011 at 4:43

Thanks  a lot. I am putting together a list of things to do. Your suggestions are appreciated and I put them on the top of the list. Any more suggestions will be  greatly appreciated.

• ▶ Reply

Permalink Reply by Skip Peel - Mineral Consultant on September 30, 2011 at 4:54

Steve, put Baron's 1 and 1a at the top and don't spend time on any of the others until you know those answers.  Many developers of residential properties do reserve the minerals.  However they are subject to the 10 year prescription provision in the Mineral Code. 

• ▶ Reply

Permalink Reply by Steve on September 30, 2011 at 5:23

I have investigated this somewhat but not as to every lot. The original owner of the tract held all the mineral rights from the developers when the subdivision was formed 25 years ago. He has since died and I don't think there was ever any production. I don't think there is any held by production since I leased for a 3 year term back in 1996 when a well was drilled but was unsuccessful - or at least they pulled out and left nothing on the site and no one around here ever heard another word about it - we assume they were unsuccessful - they didn't renew my lease in 1999. I guess we are safe - except for recent home buyers who may be under the 10 year prescription provision. I guess we could each find out by having someone do a search at the courthouse - this wouldn' tell us about any property held by production though would it ?

• ▶ Reply

Permalink Reply by Skip Peel - Mineral Consultant on September 30, 2011 at 10:14

Steve, you need to get professional help.  Here's an example:  There is nothing definitive regarding your ownership interest associated with you getting a lease on that unsuccessful well.  The level of due diligence for leasing can be and often is cursory by design.  And short of a full title review lessees will often take "protection" leases on anyone that might conceivably have an ownership interest.  There is no good business reason to go to the time and significant expense of a full title review for a well that has not been drilled and therefore is unknown as to it's ultimate outcome.  Since the well was not productive, the lessee never performed the type of exhaustive title review that is required for a Division Order to pay royalty interests.  And if the lessee's Division Order title opinion determined that you did not actually own a mineral interest in the unit, they wouldn't have paid a dime of royalty.  They would simply be out the bonus paid to you.  Often times that dollar amount is a lot less than what the title work would run.

• ▶ Reply

Permalink Reply by Steve on September 30, 2011 at 10:44

I agree - we need help!

• ▶ Reply

Permalink Reply by Hopeful About Natural Gas on September 30, 2011 at 11:06

Steve,  when they did my division order (after the well was drilled) they went back to 1847 to look for ANY interruption in mineral rights.

 

1847.  I am glad I did not know that or else it would have caused me many sleepless nights!

 

So, spend a little money upfront to get at least an independent landman do a curusory search of the records.  Better yet is an O&G lawyer.  This is very specialzied and complicated law and a general practice lawyer usually does not have the background knowledge needed.

 

• ▶ Reply

Permalink Reply by The_Baron on October 3, 2011 at 3:24

They would need to go al lthe way back to patent. Depending on your parish (when it is created) is how far back the records go. It is possible that minerals were not transfered in the patent, espesially if it was given at a later date like in the 1920's.

 

There are some servitudes in this state that contain thousands of acres, and a well many miles away, even in another parish, can interupt prescription. the old IP tracts are famous for this. The title on these tracts can be quite difficult even for an experianced abstractor.

• ▶ Reply

Permalink Reply by Gail Brewer on September 30, 2011 at 12:58

Baron~please help me understand what HBP is and how this ties up the minerals~Thank you Gail

• ▶ Reply

Permalink Reply by Skip Peel - Mineral Consultant on September 30, 2011 at 13:50

Gail, since The Baron isn't on site.  I'll offer my response.  Held By Production (HBP) is the term for minerals which are subject to an existing lease.  Historically Oil & Gas Mineral leases were predominantly "all depths".  Therefore any production regardless of depth or formation held the lease in force.  There is a tremendous amount of HBP minerals in the state.  And production, even marginal production, can maintain the old leases in force for years, even decades.  The adoption of "depth limiting" lease clauses came along in about the 1970's.  They were used by those with large mineral estates and experienced professional assistance.  Over the years the use of the vertical "Pugh" clause has become more wide spread and now appears in many leases including some standard lease forms.  The standard version gives the lessee the development rights to all depths and formations above the deepest depth drilled or produced plus 100' at the expiration of the primary term of the lease.  All formations and depths below that depth are automatically released from the lease and become eligible to be covered under a new lease.

There is an additional element of some importance regarding the condition of minerals being Held By Production.  Especially so in the case of residential subdivisions.  The original "Pugh" clause was created to release any acreage covered by a lease that did not end up in a drilling unit.  Let's say a mineral lessor leased 80 contiguous acres back in the 1960's but only 40 acres are ultimately included in a drilling unit.  Prior to the advent of horizontal Pugh clauses, the lessor would have 80 acres tied up in the lease even though they were receiving royalty income on the production from only 40 acres.  The production on the 40 would HBP the entire 80.  The horizontal Pugh is widely used today and included in many standard form leases.

Now let's say a farmer leased 300 contiguous acres back in the 1960's and production on a portion of the tract held that old lease in force for the entire tract.  Now let's imagine that the farmer sells  40 acres to a developer in the 1980's for a subdivision.  The subdivision is built out and all the homes are sold.  Now you have residential lots still covered by that old lease even though the home owners have never signed a lease or received a royalty check.  They all feel sure they are unleased and enter into negotiations to lease their land.  The leasing company performs some perfunctory title review, finds the old lease and tells the homeowners they can not enter into a lease because their minerals are Held By Production.  This is an abbreviated description of a real instance that occurred in the earl days of the Haynesville Shale to Kassi Fitzgerald and the Rambin Farms home owner group.  It was discussed at length here on GHS and is featured prominently in the documentary film, Haynesville: A Nation's Hunt For An Energy Future, by Gregory Kallenberg who is a member of GHS.

 

• ▶ Reply

Permalink Reply by Gail Brewer on October 1, 2011 at 4:22

Mr. Peel~

Thank you for the insight. Also I will looking for the documentary film and viewing it. Thank you again. Appreciate all you do. Gail

• ▶ Reply

• ‹ Previous
• 1
• 2
• Next ›
• Page