One of our ancestors reserved one-half interest in oil, gas and minerals on a tract he sold decades ago in Nacogdoches County, Texas, which is now in the heart of the Carthage (Haynesville Shale) play.  The deed describes this interest as non-participating and explicitly states it is not required to join in a lease and is excluded from receiving bonus or delay rental.  This tract was subsequently bundled with other tracts and ownership has passed through various hands.  About 5 years ago, the current owner leased acreage including this tract at 18.75% royalty.  The two-year extension expires in April.

This lease is now assigned to a large O&G company that recently obtained drilling permits on two units, and work is in progress on pad preparation.  A portion of the reservation tract is included in one unit.  The rest of the reservation tract is included the other unit.  In both cases, the surface location, penetration point and a portion of the horizontal bore hole for the unit well are on / under the reservation tract.

The consensus of opinion from attorneys and landmen consulted so far is that this is a non-participating MINERAL interest, not a royalty interest.  But what that actually means and what are our options is not very clear.  True NPMI is rare.  It is treated differently in Texas from any other state. And the Texas case law is still not settled on a number of points.  There are not many experts around.

From all we’ve read it appears that, in Texas, this means we own one-half of the minerals in and under the reservation tract – i.e. mineral fee – before and after production without having to sign anything.  We cannot be forced to ratify the lease and we cannot be pooled without our consent.  As it stands, absent any action on our part or that of the company, it seems we are unleased co-tenants with the company and are due our share of production.

Factoring in all of the heirs, as unleased co-tenants, our share of production from the reservation tract works out to be just shy of 3%.  Of course, that would be applied first to our share of the well cost but; after payout, we would be entitled to 100% of our 3% share – tens of thousands of dollar a month.

If we ratify the lease, we are reduced to 3% of the 18.75% royalty from our portion of each unit – a few hundred dollars a month.

Our options appear to be to (1) ratify the lease; (2) take our chances as unleased co-tenants; (3) negotiate some sort of buy-down from the company.  Our preference would be a negotiated buy-down that provides a lump sum payment up front in return for accepting some lesser share of the production.

To successfully negotiate the best practical deal, we need to understand (1) what it is we actually have; (2) how much leverage that gives us in negotiation; (3) the range of options the company would likely entertain (4) how to structure an offer the company and we could both accept.

Is there anyone out there who has experience or knowledge with NPMI in Texas?  Do you know anyone who does?