Replies to This Discussion

Permalink Reply by The_Baron on October 26, 2010 at 10:53

If the language in the Buy Sell agreement bothers you, just strike it out.


Down the road, the only things that matter are:

1) the sale and reservation will be subject to the lease, since the lease is in the public record first.

2) The language in the agreement is really not too important, as the language in the actual deed will be what is in the Courthouse.

3) You can say whatever you want in your conveyance, but you can not modify a previous conveyance, therefore if your lease grants surface access, the lessee will retain surface access until the lease expires.


Personally, I would just strike the language in the Buy/Sell agreement and be done with it. That way the buyers are totally aware of what the potentials are.

Permalink Reply by Two Dogs, Pirate on October 26, 2010 at 14:43

The OGML rules if it is recorded first. Louisiana is a "Race to the courthouse state". I am not an attorney but you may need to have an O&G attorney to look over all the particulars of all the dealings that have been done in the past on any lands and minerals in question. You may find that your lease is invalid. I have seen so called landmen buy leases off the tax assessors information, without running title or just running title for 10 years. If lands are severed from the State of Louisiana from 1/1/1921, the minerals are reserved to the State of Louisiana, forever. You need to put the title run to a solid deed before 1921.

Permalink Reply by P.G. on October 27, 2010 at 4:05

Baron wrote:
However, should that lease expire, but I still owned the minerals, I would have given up my rights to use the surface, therefore any future lease would be subject to that stipulation.

Exactly my point!

Permalink Reply by Mac Davis on October 30, 2010 at 18:24

Whatever happens first is what counts, everything after a transaction is subject to the previous transactions.

True in terms of a property owner A who makes a transaction with party B and then makes another transaction with party C. B's rights under his agreement trump C's rights. i.e. Party A and C cannot negotiate away party B's rights without his consent.

However, if property owner A makes another transaction with party B, the LAST transaction would usually take precedence over the first transaction. i.e. Party A and B can renegotiate the rights they own.

Or if party A, B, and C all sign a new transaction, the last agreement would supersede any previous agreement between A and B.

Permalink Reply by HMI on October 26, 2010 at 15:43

Something came up tonight on my deal. The buyer wants to change some terms on the deal and offered up as incentive the notion that he'd convey back to me 50% of the mineral interest in the acreage for zero dollars if by chance it rolled over to him by him prescription. He said if there's a way to put it in a contract he'd agree to it. Can a guy even do that? And if he sells it can it be mandated that this contract be carried forward with the property and the future owners? With a producing well in the next section over I have to believe we'll be drilled long before 10 years is up. BUT I could be wrong. NG was what, $3.35 and change today +/-? That's not helping things. I believe it'll rebound though.

• ▶ Reply

Permalink Reply by Skip Peel - Mineral Consultant on October 26, 2010 at 15:49

HMI, this is not a mineral code issue. You need to discuss this with a qualified attorney.

• ▶ Reply

Permalink Reply by Dion Warr, CPL on October 30, 2010 at 16:14

HMI:

As long as the two parties are wont to do so, they may contract to do whatever they wish. Parties may elect to reserve minerals, or not, or even contractually reduce the prescription period in the conveyance that created the reservation. A surface owner and owner of a mineral servitude may elect to interrupt prescription by acknowledgement prior to the extinguishment of a servitude. For that matter, parties may voluntary convey a mineral or royalty interest to any third party. As far as creating a covenant that would serve to extend the duration of a mineral servitude beyond ten years of nonuse, and contemplating that such a covenant or restriction would be binding upon other future third parties, according to my non-lawyerly review of the available caselaw, such a covenant or restriction would be unenforceable.

I'd defer to the legal eagles of our community to cite all of the proper case law (most all of them have access to Westlaw or Lexis, which I don't), but one particular recent ruling came to mind which was available on PDF, here. I don't believe it to be completely on point, but it cites many of the statutes which regulate one's ability to contract re: the mineral servitude, as well as the regulation of such servitudes.

• ▶ Reply

Permalink Reply by HMI on October 26, 2010 at 15:54

Got an 11:00 a.m. meeting with one tomorrow. Thought I'd ask though to see if there's something in the mineral code that would prevent that.

• ▶ Reply

Permalink Reply by Dion Warr, CPL on October 26, 2010 at 17:33

HMI:

Ok, here we go... A couple of important questions to answer:

1) Is the purchaser willing to buy the property subject to the rights conveyed in the prior existing lease, including lessee's rights to the surface?

2) Have you disclosed, or is Buyer and/or the closing attorney aware of the existence of this OGML?

The results of the title update (by the closing attorney) would normally indicate an uncancelled mineral lease encumbering the property that is currently in its primary term. Normally, this will generate a title exception which would have to be waived, which no reasonably diligent attorney is going to allow without a conversation with buyer. Even then, a surface release would be pursued by either the Buyer, his attorney, or the title attorney. If one is not forthcoming, and the Buyer is not willing to purchase the property with the encumbrance, the sale will fall through.

Why could this happen? Because the lease primes the proposed sale, Buyer would have to purchase and accept the property subject to all encumbrances (including leases and servitudes), along with any conditions or exceptions stipulated by Seller and accepted by Purchaser. Short of that, you have no deal. Thus, it would behoove you to disclose the lease as soon as possible in this process, as Skip states. You can choose to provide a copy of the lease and/or the book/page/entry no. for title research purposes, but it is not required that you attach a copy of the lease to your sale. Additionally, if there are any unrecorded agreements between 'you' and the Lessee, you should supply copies of those to the Purchaser or his attorney, since otherwise all he/they would be able to examine would be record title.

Remember, unless contracted by Seller and Buyer at the time of sale (should Buyer accept the property subject to the rights, terms and provisions of the prior existing lease particular as to surface rights), the holder of the surface rights would be in the position to receive any future benefits previously negotiated between you and the Lessee (including the rights to enter into future agreements as to surface use, prenegotiated damage settlements for such use, surface rental payments, etc.), since presumably after the sale (if you choose to accept the mineral reservation / surface release language submitted above), you will have no further rights to convey or accept future consideration for Lessee to use the surface; all of those rights will inure to the Purchaser. You will retain the right to receive OGML bonuses, rentals, royalties, and proceeds derived from the exploration for and/or production of minerals (including that from any possible future leases until the mineral servitude prescribes), however.

OK, a couple of scenarios:

If Purchaser agrees to buy your property subject to the mineral reservation and language contemplated above, if your lease (lease existing prior to the proposed sale) has an automatic extension provision, Lessee shall have the right to maintain that lease by extension, and can maintain all of the terms and conditions of that lease (including the previously negotiated rights to the surface), and there's nothing that the Buyer can do about it (since the sale was subject to the prior existing lease). Again, being that in such a transfer you would have waived all further rights to the surface, any consideration to be paid to the surface owner would go to the Purchaser (being the instant owner) of the surface at the point of the sale.

Could you contract to retain the rights to receive such proceeds in such an event? You could, but honestly what Purchaser would want to agree to that, being that Purchaser would already be agreeing to deal with the prospect of purchasing property which Lessee could step onto the next day and set up a wellpad to drill and produce your minerals? Seems like a stretch to me, unless you're dealing with family or a really, REALLY good friend. Besides that, if the Purchaser is financing this transaction, you're also having to convince Purchaser's lender to sign off on all of your conditions of sale and still be willing to lend Purchaser the necessary funds to complete the sale. Unless you are willing to provide owner-financing, that may be a taller order in itself.

Next: If your lease is near its expiration date, and Lessee or his agent contacts you to extend your lease, you can do so - however, the surface uses negotiated under said lease are no longer of any effect as of the date of the expiration of the primary term of the original lease. Since you would no longer own any surface rights (as you would have dealt said rights away in the sale), you would not be in a position to extend these rights and privileges by contract. The extension would constitute a new contract which would have been entered into by the owner of the mineral servitude after the date of the sale and waiver of surface rights, and the Purchaser would not be bound by the provisions of such a contract. If lessee were able to maintain its lease through the terms and provisions of the prior existing lease, the surface owner would be on notice of this by virtue of the original agreement.

• ▶ Reply

Permalink Reply by Mac Davis on October 30, 2010 at 18:08

There are a number of "mandatory" forms at the Louisiana Real Estate Commission's web site.

A lot of this is covered in the standard agreements. It's important to read them carefully. In particular, the "Residential Agreement to Buy or Sell." Even if you have a lawyer, a lot of the lawyers don't really look at "small potatoes" agreements and take the time to explain things to you and ask questions. They tend to take their fees, sign the forms, and assume you're OK with the "standard" terms in the agreements, unless you specifically ask them. You need to know what to ask.

The standard agreement says,

"LEASES/SPECIAL ASSESSMENTS: The sale is conditioned upon BUYER'S receipt of a copy of all written leases, excluding mineral leases, and unpaid special assessments from SELLER within five (5) calendar days of acceptance of the Agreement."

It's interesting that it excludes mineral leases. Of course, that doesn't mean you can't disclose them or that you shouldn't disclose them. There are some items in the required disclosure forms that may apply.

Be careful with the "________% mineral rights owned by SELLER are to be reserved by SELLER and the SELLER shall waive any right to use the surface for any such reserved mineral activity or use." You're specifying how much of the rights you RESERVE, not what you SELL. i.e. You want this to be 100% if you are keeping the mineral rights. It's easy to read this backwards. (Or attempt to deliberately trick the other party in the sale.)

Don't misread the surface rights part. The seller gives up his surface use rights. If there is a lease in effect, the driller will still have any rights, including surface use rights, as specified in the lease.

It also says,

"The Property will be sold and purchased subject to title and zoning restrictions, servitudes of record, and law or ordinances affecting the Property."

I presume that the "servitudes of record" covers any leases that have been officially recorded.

The deed will probably say something like, "subject to any restrictions, easements or servitudes of record and any mineral grants, leases or reservations of record," which will also cover terms of any leases.

There are also a number of mandatory disclosure forms where you can disclose other information to CYA.

• ▶ Reply

Permalink Reply by HMI on October 31, 2010 at 3:26

Thank you to all for the most recent posts. The sale on my property has been slowed down some due to one of the buyers having a change of circumstances. The remaining buyer appears to be stretched financially and is asking for a concession in the sales price which I'm not really inclined to grant. This has definitely been an interesting discussion thus far. It's prompted me to consider most every possible scenario I can think of regarding the development of our minerals. The sale of the surface is substantial on it's own, but the minerals beneath it (being a fairly good size piece of property could significantly outway the proceeds of the surface in the long term. I'm not really in a hurry to sell it. Love the property, love the potential of the property and the proximity of the property.

Looking at the Barnett Shale and how many wells have been drilled there and over the what, 8-10 year span of time I have to ask myself what the likely hood of the HS being drawn out for many years beyond the next 10 ( time period where I'd lose my minerals via prescription ) could be a possibility. I have several friends that lease for CHK and they have told me that there are individuals they have leased 3 times since the beginning of the Barnett Shale and these individuals are yet to be drilled. This considering the Barnett is what, one quarter of the size of the HS? Granted, those indiviuals made some good money off lease bonuses in that time period, but for us here in LA where we can't sever mineral rights from our properties, we run the risk of losing them due to prescription.

This morning I was reading about a class action lawsuit potentially involving 50,000 HS landowners centered around what they are saying is a violation of the Louisiana Mineral Code and it's requirements for creating a "unit" and language that stipulates that a "unit" must be capable of being drained by "one" well. If it has any teeth at all it could potentially cause delays in the development of certain areas. It also could affect whether or not landowners minerals are HBP'd via the drilling of one stem in a 640 section/unit. There appears to be the potential for much smaller units, capable of being drained by one well in order to be HBP. Have any of you seen this discussion and determined its validity?

http://www.fairdrilling.com/

Read the minutes of this meeting ...:
http://www.fairdrilling.com/index.php?p=1_8_Caddo-Commission-Meeting

It makes a seller re-think the future of their mineral development.

Thanks again for all comments.


I think over the next 10 or 15 years we'll see all kinds of crazy scenarios present themselves. Where there is a lot of money flowing litigants and their attoneys are likely to appear.

• ▶ Reply

Permalink Reply by Skip Peel - Mineral Consultant on October 31, 2010 at 3:35

http://www.gohaynesvilleshale.com/forum/topics/class-action-suit-ma...

• ▶ Reply

• ‹ Previous
• 1
• 2
• 3
• 4
• 5
• Next ›
• Page