Replies to This Discussion

Permalink Reply by Bobi Carr ("parker") on July 14, 2008 at 19:43

Yes. Do not sell your rights. They know that it will be worth 10 - 100 times what they are offering.

Permalink Reply by Marvin Garcie on July 15, 2008 at 10:01

Thanks. I spoke to someone last night and they told me a lot of people that leased their land a yr ago are being contacted now by other oil and gas companys offering to purchase 1/2 of the rights. They are kinda jumping on board like piggy back, free ride. Some of the people are taking the deal, you know cash up front but in the end you will lose sooo much money.

Permalink Reply by po boy on August 14, 2008 at 12:19

I have to back Parker on this, do not sell your half of a potential long term income.
The Sligo area was a desired area, and your area will be among the first to actually see any Royality checks.
But do you know that the Original leasee has not merged or sold?

Permalink Reply by Liz Cb2 on July 15, 2008 at 2:47

DO NOT sell your mineral rights. The draft is a way to suck you in. If you read the mineral deed you'll probably find that it says that you're signing away all your rights forever to them. I know because I received something like that a year ago. I shredded it and never looked back. It is a mere pitance of what you'll get through your lease.

Not only that if there has been no production at the expiration of your lease you'll lose a lot of $$$$ to re-lease because you would have sold that option.

Permalink Reply by Dion Warr, CPL on August 14, 2008 at 3:20

Marvin:

I would not say DO NOT sell your mineral rights, but go into this with your eyes wide open.

The tactic that many of these companies are likely to use is "you might have received less than you should have for your lease; let us buy your minerals at present market values, so you don't completely miss out on the big payday."

In LA, mineral rights transfers are NOT forever, but they can be for a long time, particularly if production is obtained on all or portion of your acreage.

You may wish to consider a royalty deed, in which you would sell your right to receive royalties, which would still allow you to execute leases, receive all of your lease bonus and non-production related monies (rentals, shut-in payments, etc.). If you would sell your minerals, you would not be entitled to these. However, make sure that if you choose to sell royalty, sell only royalty that you are due to receive from the particular lease that is in effect (royalty tied to the lease) rather than royalty that runs as a covenant to your land (royalty tied to the land). If the royalty deed is tied to your land, the rules of prescription apply to the deed, regardless of whether your property is under lease or not, and intermittent production could end up tying up your royalty for a long time, even though the property is not under lease over the whole time (just like the mineral deed).

If you were to sell royalty, if your financial conditions allow, use the sale as a "hedge" against future revenue, and sell no more than 1/2 of your available royalty. This way, if the HS turns out gangbusters, you haven't completely sold out, and if the HS proves out minimal in your area, you still received some upfront money. Also, if you can, have the royalty purchaser buy only limited rights (e.g. Haynesville Shale strata), as further protection that you don't deal away other possibly valuable rights.

Some of the contracts (particularly TX forms) refer to "mineral royalty", and are worded so ambiguously that it is hard to tell whether you are selling minerals or royalty. The differences are important, so I would tell you if you want to go through with this sort of thing, insist that the following be added to their form:

"Notwithstanding anything to the contrary herein, it is expressly understood by the parties herein that this is a conveyance of royalties due vendor under the terms of, and subject to that certain Oil, Gas and Mineral Lease dated ______________ executed by vendor as Lessor in favor of _________________, as Lessee, said Lease, or evidence of said Lease being recorded as Registry / Entry No. _________ in the official records of the Clerk and Recorder of ____________ Parish, Lousiana. Vendor hereby reserves all of his rights to (1) execute future leases, (2) receive all bonuses, rents, shut-in payments due under the terms and provisions of such leases, and (3) encumber such rights as Vendor (Seller) may see fit without joinder of Vendee (Purchaser), to the extent that such encumbrance(s) do(es) not infringe upon the rights of Vendee (Purchaser) herein conveyed. It is expressly understood that this conveyance shall not constitute a covenant running with the land, and said right(s) conveyed herein shall revert to the Vendor (Seller) upon the expiration of the above referenced Oil, Gas and Mineral Lease."

If you and the royalty buyer would agree as to certain strata being part of the sale, excluding all other strata, you would want to mention that in this passage as well.

One further point, FYI: Out of state forms will refer to the term "royalty acres", which term has no real meaning in Louisiana, as you don't actually own minerals, you own the right to explore for and capture minerals (kind of like deer hunting; you don't 'own' the deer until you shoot him on your property or lease and take possession of him). The term royalty acre actually refers to buying the first 1/8 of 1 acre's worth of production.

Permalink Reply by BMP on August 14, 2008 at 10:45

Has your current lease expired? Usually companies will top lease your current lease, meaning the new lease will begin on the expiration date of your current lease.