Replies to This Discussion

Permalink Reply by Ben Elmore on June 12, 2011 at 5:32

As to your first question, there are a lot of variables to the answer, but in short, if you don't agree to lease to a company, yes they can leave you out of a unit subject to meeting the spacing requirements.  Even if you are right in the middle of the unit, you can be left out if you are a not a drillsite tract.  However, companies prefer to have your acreage leased.  Yes, competition is a main driver for them to negotiate with you on lease terms, but their own desire to drill on your land will cause them to negotiate even if they are the only ones trying to lease your land.  They can't drill on your land without a lease.  Sure, they could lease your neighbor and drill on his land and drain your acreage, but not if there is a fault or some other geological restraint against that.

 

As to your second question, no they can't cut the unleased interest owner out of the unit if the tract in which that owner owns his interest is a drillsite tract.  In that situation, the unleased interest owner receives his proportionate share as a co-tenant without dilution from the unit.  If, however, the tract is a not a drillsite tract, then the unleased owner will be cut out if he refuses to ratify the lease and unit.

Permalink Reply by Big Dave on June 12, 2011 at 6:32

Ben - in Texas can they "cut you out" if you have non-participating royalties if your minerals are within the boundaries of the "pooled unit"

Permalink Reply by Ben Elmore on June 13, 2011 at 2:36

No.  You have to ratify the unit, but they cannot prevent you from ratifying the unit. 

Permalink Reply by adubu on June 12, 2011 at 7:14

Ben-- you only have to own the minerals in the drillsite tract not necessary to own the surface also--correct ?

Permalink Reply by Ben Elmore on June 13, 2011 at 2:37

Correct

Permalink Reply by Hale Yayuh on June 13, 2011 at 3:25

As to your second question, no they can't cut the unleased interest owner out of the unit if the tract in which that owner owns his interest is a drillsite tract.  In that situation, the unleased interest owner receives his proportionate share as a co-tenant without dilutionfrom the unit. 

 

Could you explain that more? Exactly what occurs?

 

If, however, the tract is a not a drillsite tract, then the unleased owner will be cut out if he refuses to ratify the lease and unit.

 

So, what happens here? They form and unit and notify people they have negotiated with but who failed to lease? And ask them to ratify? Do they get bonus? What royalty do they receive? What is the process here?

 

Thanks for info.

Permalink Reply by Ben Elmore on June 13, 2011 at 4:50

Undivided mineral interest owners in a tract are considered "co-tenants" under the law.  This means they are each entitled to reap the benefits of the minerals in the tract to the extent of their proportionate share.  If one co-tenant drills a well on the tract, he can recoup his costs to drill and complete the well, but after such costs are recouped (i.e., the well is considered to have reached "pay-out"), he must account to his co-tenants for their proportionate share of production less costs to operate and produce the well and post-production costs.  In a situation where some co-tenants leased to a company, the company steps into the shoes of its lessors.  As such, when the company drills a well on the tract, it must account to the unleased co-tenants just as its lessor would.  If that company decides to include the tract in a larger unit, it can only bind the interest of its lessors to the unit since pooling is a matter of contract under Texas law (i.e., a company has no right to pool a mineral interest into a unit without the contractual right to do so, which is typically provided under a lease).  Thus, the unleased co-tenant's interest will not be bound to the unit, meaning his interest is not diluted by the unit.  If the company drills a well on the tract, the leased co-tenants receive their royalty based on their unit share, whereas the unleased co-tenant receives his full share without dilution from the unit.  Of course, the unleased co-tenant will not begin to receive his share until the well pays out, and after that, he will receive his share net his proportianate share of operating and production and post-production costs (the leased co-tenants are only burdened with post-production costs).

 

In the non-drillsite tract situation, again, pooling is a matter of contract.  Without a lease authorizing the company to pool his interest into the unit, the unleased co-tenant has no right to a proportion of production from some third party tract.  In this instance, the unleased co-tenant will be notified that their tract has been included in a unit (but sometimes the company will fail to notify you, which is why it is important to stay on top of what is going on with your interest).  The unleased co-tenant can then ratify the lease and unit.  In doing so, the co-tenant will receive his share of bonus for ratifying the lease and his share of royalty on a unit basis. 

Permalink Reply by Hale Yayuh on June 13, 2011 at 6:00

In the non-drillsite tract situation, again, pooling is a matter of contract.  Without a lease authorizing the company to pool his interest into the unit, the unleased co-tenant has no right to a proportion of production from some third party tract.  In this instance, the unleased co-tenant will be notified that their tract has been included in a unit (but sometimes the company will fail to notify you, which is why it is important to stay on top of what is going on with your interest).  The unleased co-tenant can then ratify the lease and unit.  In doing so, the co-tenant will receive his share of bonus for ratifying the lease and his share of royalty on a unit basis.

 

Ben, he can ratify WHO'S lease? In any given unit, usually, there would be several leases and perhaps different bonus / royalty amounts. Thanks.

Permalink Reply by Big Dave on June 13, 2011 at 7:03

Hale - thanks for all the input - here is my situation. We have one lease in the unit that we received bonuses on and three non-participating (pooling agreements). Once the well on the unit was completed we received our division orders on the leased portion only. It appears that we were "cut out" of our royalties on the three pooling agreements. It appears as you stated above that the Owner failed to notify us. If I read you right we should stay on top of this and get the correction made. I am a complete Newbie on the situation and really appreciate your help.

Permalink Reply by Ben Elmore on June 13, 2011 at 7:38

If you entered pooling agreements with the company, whereby you authorized the company to include your NPRIs in the unit, then yes, they have made a mistake and need to correct your DO to account to you for your NPRI share of unit production.

Permalink Reply by Ben Elmore on June 13, 2011 at 7:36

Sorry for the confusion.  If you are a co-tenant who owns a full mineral interest, but not the right to lease a/k/a "the executive right", then you would ratify the lease the executive executed.  If you own the executive right, you would execute your own separate lease, and by doing so, ratify the unit. 

Permalink Reply by adubu on June 13, 2011 at 8:14

Ben--- along this same line of question-- mineral owner is included in the original unit plat when well was permitted but not under drillsite-- can the operator cut you out when final plat with P-12 list before DO sent out? Would your minerals have to correlate with surface land cut out of plat?  Can they cut you out if minerals are undivided within land surface included in the Plat?

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