Replies to This Discussion

Permalink Reply by DO Analyst on November 17, 2011 at 8:55

It has been pretty well established to ignore these offers.  I get calls daily from people who have accepted these offers or signed the checks.  Once that is done there is not much we can do.  Everytime I get one of these come across my desk, i send a letter to the owner that signed away their interest so they are aware of what has been done, and I have only had a couple instances where the individual meant to do it. 

If you are looking to sell, there are reputable companies.  I think there may be some listed on the NADOA (National Association of Division Order Analysts).  Always do research before you sell or sign anything, even if it looks legitimate, it only takes a few minutes to pick up the phone and make a call, if you can't get ahold of the company sending the letter, call the company who is paying you royalties, trust me, we know all of the questionable things going on.

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Permalink Reply by VSC DeSoto South on November 17, 2011 at 10:04

There is a brochure on fractionalization on the site you cited. I read it. The brochure states that the O&G companies may decide not to approach a property because it is 'too fractionalized. Is this true? In the Haynesville, is this true.

 

What is considered too fractionalized? How many is too many owners or heirs, or what percent of fractionalization?

 

Another question about DO matters I have wondered about. How many is too many missing heirs, and too many generations of no wills? What happens with that property? With no wills are census records the only way a DO can determine who is an heir if presents themselves as one. If the heirs are scattered and don't eve know who each are or who exists and who does not, how is that resolved?

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Permalink Reply by DO Analyst on November 17, 2011 at 10:24

Some companies may avoid the fractionalized areas, but generally that is not the case, I would imagine the only time that would be the case is if the entire section were subdivided and there was no viable drilling location.

When it comes to heirship it can be extremely difficult.  While it may not be your responsibility to provide heirship information for your entire family, you would probably inadvertently do so by providing enough information to get yourself paid.  For the question how many is too many.  There is no limit, we just continue to divide up the interest.  For the portions that are not paid, generally after a period of time, usually 3-7 years depending on your location (not property location) the money will be escheated to the last known state of residence.  In the case of heirship, it will typically go to the state where the property is located.  But one of the common questions is "do i have to know all of the information to get my interest?"  The answer is no, but you have to be able to provide all of the information to show your legal claim.

I hope that answers your question, I tend to get a little wordy with some explanations.

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Permalink Reply by VSC DeSoto South on November 18, 2011 at 4:30

If a property were not leased because the O&G knew it was going to be a long drawn out process to find the heirs, does it sound reasonable that they would say, they would start searching for them when the well pays out? Or are they trying to run out the 7 year clock?

(In the section I am referring their is a producing and paying RI well. THe 40 acres I am referring to was not leased because the current people on the land have noidea where or how many heirs there are. I know they were contacted by the O&G but the O&G decided not to try to find the heirs during the leasing period. SO now they are 'UMI'.)

 

Will they ever get paid?

 

Obviously I am asking because I 'think' I am a small fractional owner of that 40 acres, less than 1 acre, if that much. (I own a part of another plot in the same section where I am a 'RI' owner, and realized I probably have a peice of the unaccounted after the fact.)I sent what I had for my lineage, I checked that the ownership was still in place and it is. The O&G said they would hold the information until after the well pays for itself. I am skeptical that they will ever come back around and do the digging to resolve the matter. Is my skepticism out of line?

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Permalink Reply by Skip Peel - Mineral Consultant on November 18, 2011 at 4:43

Probably.  Energy companies want every acre leased that they can acquire under terms they find acceptable.  And they tend to rely more upon the public record for documents regarding the conveyance of land and minerals than the memories of land owners.  Many energy companies go to great lengths to perfect the title on minerals they wish to lease.  And they are quite experienced a deciphering the chain of title and performing any curative required to make the mineral ownership clear.  That process can be long and complicate and in some cases it may turn out that it can not be done.  It is not uncommon that when a well is successful and capable of paying royalties those that feel they have an ownership interest will have an incentive to take the matter before a court and seek a judgement that establishes them as  legal owners.  If the chain of title can not be perfected otherwise having a court arbitrarily rule on ownership is the last resort.

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Permalink Reply by VSC DeSoto South on November 18, 2011 at 8:58

Is there a statute of limitations on that last option in LA? i.e. after x number of years your time to go before the court elapses?

 

 

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Permalink Reply by Skip Peel - Mineral Consultant on November 18, 2011 at 9:11

I am not familiar with a statute of limitations for that option.  That would be a question for an experienced O&G attorney.  LA mineral law limits liability by an operator for past royalty payments to three years so obviously there is a need to address the ownership issue as early as possible.

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Permalink Reply by VSC DeSoto South on November 18, 2011 at 9:01

In general, after the well has paid for itself, how long on average does it take for O&G to begin looking into the records for the UMI properties in a section? (not the time it takes for them to research the title, just the time to even begin looking into it after the well costs have been paid.)

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Permalink Reply by Skip Peel - Mineral Consultant on November 18, 2011 at 9:14

As far as I am aware all title due diligence is performed in the Division Order process including that for UMI.  There are several members who are more familiar with the process than myself.  You might try Dion Warr or DO Analyst.

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Permalink Reply by Dion Warr, CPL on November 18, 2011 at 13:02

Group:

Generally the determination of ownership process begins at some degree when attempting to ascertain the mineral owners in those tracts in a prospect in order to take a lease.  Make no mistake, however, this research is not a substitute for the process that is undertaken when the drilling of a well is being contemplated and/or the likelihood of production is reasonable and/or imminent.  At that time, title clearance procedures, including the ordering of abstracts on the drillsite and other properties begins.

The procedure sometimes varies depending upon the lessee / operator, but generally abstracts are ordered as follows:

Drillsite

Wellbore tracts (applicable with directional or horizontal wells)

Large Tracts

Tracts owned by large individual, company, or institutional landowners

Moderate sized tracts

Smaller tracts / subdivision lots / town lots

Abstracts are assembled and submitted to the examining title attorney(s), who then render title opinions as to the ownership interests pertaining to the property (surface, mineral, royalty, leasehold, leasehold burdens). 

Certain lessees / operators do not elect to commission full abstracts on every tract in the unit, as the costs of such a proposition has become increasingly expensive.  Subject to acceptable business risks, title may be run in accordance to a set of guidelines approved by the lessee / operator and their mineral law counsel, with the subsequent research examined by the land group and vetted by the legal department in order to determine ownership (such reporting is usually in the form of memoranda of title).

When this information is compared against title survey information, the net contribution of this property (tract participation)  to the unit, etc., division order analysts set up the interests in a report known as a unit division of interest (DOI) report.  In years past, companies used to circulate a formal Division Order document which stipulated the payment of interests to all parties having interests in a unit, which was then filed in the public record.  In more recent times, operators / lessees, have elected to handle these matters and notice in the form of division order / DOI letters.

In either event, each tract is vetted, irrespective of lease status, although leased tracts may be placed ahead of unleased tracts if all other things are equal (a 0.5 acre leased tract is generally done before the 0.5 acre unleased tract, for example, as the payment of royalties always precedes the declaration of payout, as royalties are due from first production).

If there are clear issues which need to be resolved as to ownership, a cloud on the title, or descent and distribution (or death and heirship), these interest(s) will be placed into suspense until the title issues are resolved.

To those that wonder (aloud) why the companies 'run the title twice', keep in mind that the initial goal is to obtain leasehold - to provide adequate coverage, the companies need only make sure that they have reasonably contacted and/or leased everyone who may claim an interest in the property.  Even if the landmen and abstractors don't get the title perfectly correct, if the land is leased, then operations may proceed on the property without the risk of being in danger of trespass.  Think about it - when the lease brokers were all receiving authority to lease tens of thousands of acres at once, and the first one to the courthouse has the lease, it behooved them to first establish contact and lease, and lease everybody.  The earlier birds were coming away with the worms, as it were.  When it comes to production, who to pay and how much, and those associated liabilities, come to the fore, and not before.  At that point, paying the wrong people, or the right people but in the wrong amounts, can result in serious consequences.

To your question, VSC: I know of no company that "blows off the UMI" until payout.  They may elect not to pursue leasing after preliminary examination of the title, which may reveal extensive title defects or highly fractionalized interests, perhaps residing in far flung places, which would require such high brokerage acquisition costs that it would not be worth it to pursue leasing, but this is the exception, not the rule.  By way of example, I had not too long ago assisted in the acquisition of an OGML from 140 various individual and corporate undivided interest owners in a single tract.  Had we not received favorable response and broad consensus and support from the larger interest owners and family factions, I doubt we would have undertaken such an operation.

Something else to consider, for those who cannot fathom why this process is taking so long in some of your units: there are scores of rigs being run by a plethora of operators in NW LA and E TX whose operations affect thousands (if not tens of thousands) of acres concurrently.  While it may be true that they were plenty of warm bodies available knocking on doors and ringing telephones to obtain leases, there are comparatively few quality landmen, mineral abstractors, and title attorneys versed in mineral law to prepare quality abstracts, title memoranda, and title opinions, and/or obtain appropriate title curative to keep up with the immense amount of drilling and production activity that has occurred in the last three years.  And although it is becoming more common to outsource division order analysis (particularly initial setups of pay decks), almost all DOs are still in-house analysts or established personnel contracted directly to clients.  That framework can support 'normal' to 'above-normal' levels of activity, but can (and more than likely in the HS area has) become overrun comparatively to the normal course and speed of such processes.  Look at it this way: would you rather wait a little longer and get paid properly, or get put in pay faster with numerous adjustments and withholdings to accommodate for the inevitable overpayments and underpayments so that you're never quite sure qhat you might get paid from month to month?

Just my thoughts.

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Permalink Reply by Skip Peel - Mineral Consultant on November 18, 2011 at 13:19

Best explanation to date.  Thank you, Dion.  I suggest you cut and paste it into a blog so in the future we can post a link whenever the subject comes up again.  And you know it will.  LOL!

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Permalink Reply by elizabeth person on November 18, 2011 at 13:36

This great explanation made me feel very comfortable. Thank

you very much.

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