Replies to This Discussion

Permalink Reply by Mac Davis on July 26, 2009 at 18:34

Thanks for the opinion on how it works. You obviously know a lot more about it than I do.

As for "Sound legal or fair? IMHO, it sounds like 'an absurd result'," I may be missing something, but sounds entirely fair and in agreement with the way the law works in general.

We do often make contracts for our rights to something that may pay off in the future. If I have a bond that pays a certain amount of money at a certain time in the future, I can sell that. I can sell a stock option that allows someone to buy my stock shares at a certain price in the future.

As a buyer of the surface property, you may or may not get mineral rights. I don't see any real difference if the previous owner signed one 3 year lease in 2007 that encumbers the mineral rights until 2010 and another lease in 2008 that encumbers the minerals from 2010 until 2013. As long as I know as a buyer that the minerals are encumbered for a certain time under certain terms, I should be able to make an informed decision as to whether to buy and for how much money.

I don't see the distinction between one (as an independent landman) could make a small to moderate sized fortune buying leases from surface owners looking to sell their surface interests in tracts in which the servitude would be about to expire. One wouldn't have to deal with a single mineral owner. and one (as an independent landman) could make a small to moderate sized fortune buying leases from surface owners looking to sell their surface interests in tracts in which the servitude has already expired. . A landman may be able to find unleased land where he can rip off the surface landowner, or he may find "about to expire" surface landowners who he can rip off. The current owner is selling some of his rights to the use of the property, encumbering the property for anyone who buys it later. If I'm the surface owner who will probably get my mineral rights back 2 months from now, I'd be a fool to sell the "future" rights for $100 an acres, if I can wait 2 months and probably sell it for $10,000 an acre.

If I'm a leased or "mineral rights sold" landowner, I have certain interests or "rights" in the future use of the property. One of these "rights" is regaining ownership of the minerals if the current lease or mineral servitude expires without production. Many "rights" such as this can be sold separately from the "ownership" of the land. I'm thinking of the "bundle of sticks" principle.

"Oh, I'm sorry, you bought your property subject to an OGML signed by someone who had no mineral lease, but you took it subject to 'all leases, rights-of-way, servitudes of record, etc.', so you're stuck". doesn't sound a lot different to me from "Oh, I'm sorry, you bought your property subject to an OGML signed by the previous owner of the property, but you took it subject to 'all leases, rights-of-way, servitudes of record, etc.', so you're stuck". You can get screwed either way if you don't check the records.

I think you're saying that Louisiana law doesn't allow the owner of a piece of land to enter into a "forward looking" lease of whatever interests the surface owner gets when/if the current lease/servitude expires. I can believe that. I see no general legal principles preventing such a "forward looking" lease, but if the state doesn't allow it, that's that.

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Permalink Reply by Henry on July 27, 2009 at 7:28

I think of it this way.... Let's take the person who currently has the mineral rights that that will prescribe to the surface owner in the near future. No one doubts that he has the right to lease them, and that the gas company has the right to drill, if all this gets done before the prescription.

Now, what about the person to whom the rights will prescribe? If the first person has leased them already (and they won't prescribe if drilling ensues), then how can this person who doesn't currently own the rights also lease them for the future?

Two people cannot have the right to lease the same thing at the same time (I would hope), and it seems like the guy who has the mineral rights is the one who has the right to lease.

But... IANAL.

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Permalink Reply by Mac Davis on July 27, 2009 at 9:54

IANAL

I don't see two people having the simultaneous right to lease in this case.

Once again, assume Louisiana, and no production.

Mr. Able sells the land to Mr. Baker in 1999 reserving mineral rights.

Able owns the mineral rights from 1999 to 2009. He can use, sell or lease those rights as he pleases, but he can only use, sell, or lease those rights up to 2009. For instance, Able can't sell a 3 year lease in 2008.

Mr. Baker will own the mineral rights after 2009. Able has no rights after 2009. In 2008, Baker could execute a contract with Mr. Charlie that says, "I hereby convey all my mineral interests to Mr. Charlie beginning in April 2009." It seems this contract would be binding on Baker beginning in 2009 after Able's rights expire.

Able controls the minerals from 1999 to 2009. Baker controls these interests from 2009 on. There's no conflict.

Anyone who acquires the property from Baker acquires only the rights Baker holds, and acquires all liabilities that Baker has. For instance. Valid contracts entered into by Baker are binding on anyone he sells the property to.

Assume proper procedures are followed, the contracts have the right wording, etc.

Suppose in 2008, Baker signs a lease which says, "This lease becomes effective in April 2009, when and if Mr. Able's mineral interests expire." Wouldn't this lease be binding on Baker?

IANAL

Permalink Reply by Dion Warr, CPL on July 27, 2009 at 10:56

Mac: (Sorry Henry, no reply button for Mac's post ca. 4:00 pm 7/27).

You're killing me. You're just killing me.

You cannot encumber what you never own. (At least, not having it applicable to any third parties.)

One cannot treat a surface owner as a 'future mineral owner' (or if one does, one does so at their own peril, should the surface owner divest themselves of the property prior to coming into the mineral title).

Should a surface owner come into the mineral title (by prescription or by acquisition), all OGMLs applicable to the property attach (by after-acquired title), all conveyances of his mineral interest inure to the beneficiaries of his conveyance(s) (aka mineral purchasers). In essence, to the extent that he can make good on his future promises, he can (and by deeds of record, he will).

Permalink Reply by Dion Warr, CPL on July 27, 2009 at 8:29

Mac:

Apparently my post didn't hit. I think I got interrupted and closed out before I posted.

The way I look at it (IANAL, I am liking this abbreviation) is that if you sign a ROW, a surface lease, an easement, these documents would pass to the successor in title (as the predecessor in title did control the surface, and these are encumbrances which affect the surface.

A valid oil, gas and mineral lease (OGML) can only be executed by the mineral owner, or a party that has executive rights (which, according to the mineral code, is recognized as a mineral right). It can attach to any interest that one may acquire after the date of such a lease to the extent that the OGML is in force to the extent that existing statutes and/or the contract between the parties will allow.

While the OGML does contain certain provisions to allow for use of the surface (including rights necessary to explore and to develop), these provisions are only applicable to the extent that lessor possesses them (hence, taking an OGML from a mineral owner who has sold the surface and waived their rights to use the surface to explore for oil, gas, or other minerals does NOT give the lessee the rights to use the surface), it is a contract to lease minerals. If the surface owner has no mineral rights to lease (or executive rights), and divests himself of the property prior to ever receiving mineral rights (thus the lease could never attach to the minerals), he has no ability to encumber the mineral rights, IMO, unless he were to reacquire mineral rights during the term of the lease.

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Permalink Reply by Henry on July 27, 2009 at 13:11

Dion,
May I change the subject.... What if a surface owner signed a lease, in which he leased his oil/gas and the surface rights to the gas company to come and drill. Now, let's say the surface owner (and oil/gas company) later find that the surface rights were leased already for some other reason, and that lessee will not allow the gas company onto the land to drill. Does the gas company have the right to demand the lease be invalidated and get their money back? Assume the surface owner (lessor) warrantied title.

Permalink Reply by Dion Warr, CPL on July 27, 2009 at 13:24

Henry: (again, no spot to post under your post)

With lessor's warranty of title, yes, I would believe so. If there was no warranty of title, the lease was paid for at Lessee's peril, unless some intent of fraud or deception on the part of Lessor was involved.

Functionally, lessee would have to weigh their options as far as cost analysis (direct costs, such as legal fees, as well as indirect costs, including, but not limited to, damage to public relations, perception and other negotiations, etc ). Lessee would have to consider that being a sophisticated party and filing suit in a local jurisdiction that there would be a great probability for necessity of following up with appeals from the district level. In other words, sometimes it's just better for a lessee to eat a bad lease rather than pursue legal remedies. With enough money and other issues at stake, (as well as some companies just on basis of principle), some companies will pursue such legal action in situations with lands leased of any size.

Hope this answers your question.

Permalink Reply by Brian on July 27, 2009 at 14:58

As the initiator of this thread and the owner of the mineral rights being debated I personally have appreciated the time everyone has spent on this thread. The argument made by Dion was identical to the one laid out in a formal letter to Twin Cities by my attorney and cited the same mineral codes. The difference of course was his hourly rate was much higher. That said would any one like to opine on why the attorney representing Twin Cities would continue to refuse to release me from this lease. I now refer to the title of this thread.

Not that it is relevant to the legal debate, but I thought I would add that the sellers of the property to me, who signed the lease in question, I believe they truly believed they owed the mineral rights to their property because Twin Cities told them they did. Also it is interesting to know that the other adjacent 30 acres (all in the same section) of the 40 acre mineral servitude that expired in April 2009 received no offers from Twin Cities for the entire year between April 2008 (date when my lease was signed) until April 2009. As of this past April they are now being offered the standard $1000 an acre. I believe this area actually got up to $16,000 an acre in the frenzy, but no offers for those 5 and 10 acre tracts. I realize this is not relevant to the legal debate may be relevant to the title of the thread.

Thanks again for your time and interest.

Permalink Reply by Mac Davis on July 27, 2009 at 15:27

"That said would any one like to opine on why the attorney representing Twin Cities would continue to refuse to release me from this lease"

What does it gain or cost him to release you from the lease?

What does it gain or cost him if he refuses to release you from the lease?

If you take Twin Cities to court, is the court likely to do anything more than release you from the lease?

Does it cost Twin Cities anything more than legal fees to make you take them to court? Are fines or penalties likely?

If you take them to court and win, does the attorney in question end up with more money in his pocket than if he releases the lease?

Did the lease with the previous owner require him to "defend the lease?" (or however it's worded?) Does the previous owner end up paying the legal costs, further reducing Twin Cities incentive to not release the lease?

Permalink Reply by Mac Davis on July 28, 2009 at 18:10

How'd we get Chesapeake dragged into this?

Permalink Reply by Mac Davis on July 29, 2009 at 0:11

Good answer.

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Permalink Reply by Mac Davis on July 29, 2009 at 0:29

"§144. After-acquired title clause may bind lessor and successors in title

A mineral lease may provide that a mineral right that terminates during the existence of the lease and becomes owned by the lessor or his successor in title shall be subject to the lease. If the lease is filed for registry, the provision is binding on all subsequent owners of the land or mineral rights leased."

Isn't this describing a lease where the lessor does not currently own the mineral rights, but expects to gain ownership at a later date?

What situation would this section apply, other than when mineral rights revert to the surface owner or his successor after prescription? Why is this even in the mineral code?

However, does the lease "provide that a mineral right that terminates, etc.?"

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