This week I received a call from Chesapeake (a landman’s secretary) saying there was an error and we are not royalty holders after they had already paid us many thousands of dollars. They provided no detail and as far as I know they are incorrect. They said we need to repay all of the money.
Has anyone else had this situation?
Before you received any royalties from Chesaeake, there were several tings done to insure the proper payment of royalties.
1. Cheaseape hired a landman and/or an attorney to prepare a runsheet on your title. This runsheet cover the period from the sovereignty of the soil or shorter period of time usaully some point before 1900 to past the date of first production. This runsheet should have every instrument that would be associated with your property.
2. After the runsheet is completed, it is turned over to an attorney who who write a Title Opinion on the property. This opinion will state the surace, mineral, royalty, overring royalty and working interest ownership of the property.
Chesapeake does need to show you proof that you are not an owner. Most all the companies I have worked for would not make you repay, if they or their people made the mistake.
I would repay nothing without proof of an error.
Charles Cunningham
I would ignore a phone call from a secretary or land tech. I would only move if I received some written communication. You can pretty much bet that they will suspend your royalty payments until you prove your title, or they disprove your title.
The first place that I would go is the lease that you signed to see if you had a broad disclaimer of warranty, with no funds paid to be repaid. If you did not have representation, then I can pretty much guarantee that the disclaimer language is not in the lease.
The division order will say that you warrant, etc., that the interest is correct, but if the lease provides otherwise, the lease trumps in Texas.
I really appreciate your comments, we will wait and see what happens! It all has seemed very odd to me, to just get a phone call and tell me they are working on the documentation. It has always been difficult to call them and I wasn’t given the landman phone number.
Like Buddy stated, you always need an attached Exhibit A stating, among other things, you not warrant the title.
I was down this road with Continental a couple of years back regarding a large lease bonus. I told their land person it was already leased to them, yet they insisted on leasing it again. I was overseas and my wife leased it attaching Exhibit A with all clauses.
She purchased our son a nice one owner Mercedes. Case closed.
Tom
NOT LEGAL ADVICE
If you are a mineral owner and signed a Lease, look either for a clause called "No Warranty of Title" OR wording to that effect somewhere in the Lease. Like somebody here wrote, if you don't remember asking for it to be inserted into the Lease, then the chances are very high that it does not exist.
If you are a royalty owner only, look for that clause in the Lease signed by whoever has the "executive rights" for the minerals to which your royalties are attached. The "executive rights" are the rights to "execute" legal instruments affecting the minerals, including Oil and Gas Leases. The Operator who contacted you would have a copy of that Lease, and it's worth your asking them for a copy of it, but they are not required to show it to you. If they don't, it should be filed in the County Clerk's Office for the county where the minerals are located.
Either way, regardless of whether you are a mineral owner or a royalty owner, if that clause IS there then you have no legal or contractual obligation to return the money, you can keep it or return it, your choice. If that clause is NOT there, then you very likely would not have a legal obligation to return the money (it would depend upon the state where the minerals are located, but I doubt any state would have codified such a requirement in statute). However, you WOULD have a contractual obligation to return the money, meaning that if you do not do so then technically you could face a civil lawsuit.
I recall only two instances in which somebody from my crew leased the wrong person, in neither case did the money involved exceed $2,500, in neither case did the incorrect recipient return the money, and in both cases either the broker or the client "ate" the cost rather than pursue legal action. However, it all depends upon the amount of money involved and how badly they want it back. I'm sure that in the two cases I mentioned, if the amounts had been $25,000 or $50,000 or more our clients would have been more insistent on enforcing the Warranty Clause in the Lease (and more justified in retaining legal counsel to do so).
My personal opinion is that the best course of action is to return the money (1) IF you receive a formal, written request to do so, especially if it's from an attorney, and (2) IF they prove to you through the Title Runsheet or some other means that you are not in fact the owner. Also, if you already have paid income taxes on this money (hopefully not), I would ask that the amount you return to them be reduced by whatever taxes you paid. If they do not agree to that, then I would speak to an attorney before returning any of the money.
I am just a royalty holder.
OK, you're a royalty owner and not a mineral owner. Did the Company send you a Ratification to sign before you received any royalty payments? It would have been one, or probably no more than two, pages long, and you would not have received any "bonus consideration" for signing it since you do not own the executive rights and since a Ratification is not a Lease. Having said that, a Ratification does "ratify" the Lease in all respects, hence the name "Ratification."
And that's why I believe that even if you are a royalty owner only and not a mineral owner with executive rights who signed the Lease, you could still be contractually obligated to return the royalties, because you basically said "I agree to what the Lease said." In my personal opinion, it's definitely worth discussing with a qualified oil-and-gas attorney for a short while, especially if there is alot of money at stake here.
did they offer a division order for you to sign before payment? I receive royalties from CHK and had to jump through hoops with the division order dept. to get my first and consequent payments. I was told numerous times by clerks and other incompetent employees that I own nothing. There is an extensive system in place with CHK as mentioned here by other members. Most of the time the company has it right, the clerks don't know what they are doing since they are overwhelmed with too much paperwork. Don't frett. Very few things happen by "mistake" that are advantageous to the mineral owner, so you probably are due the money and someone has it confused. Ask them for a copy of the title opinion from their inhouse attorneys. Do you have your deeds at the courthouse in order?
Pete, I am a mineral owner with no executive rights, had to sign rat papers and received bonus money for sure.
It sounds like to me that the lease broker that represents Chesapeake made mistakes. I don't see how you could be getting royalty payments if Chesapeake's attorneys had not approved the title and had sent you division orders. Are you sure this was royalty payments or was this "bonus money" for signing a lease?
At any rate since it is Chesapeake I would not pay them a "dime" back. They would have to take me to court!
I know of several instances where Chesapeake paid the bonus money two times! Also many, many times that they would not pay their "drafts". They are "known" far and wide for this. Drafts should be "outlawed" in the oil and gas leasing business. Get them to send you are "certified letter" with all the details. I'll bet if this is from a lease broker about "bonus money" you will never get a letter from them If it is a royalty payment, then you need to get someone to represent you that knows what they are doing. There are not many who really do though. Talking on the phone with them is basically a waste of time. They will try to cover their mistakes from their superiors.
If inhouse clerks keep calling you making financial demands by phone, just tell them that you want EVERYTHING in writing on the company's letterhead, you will not talk on the phone. I had trouble with CHK for years. I think it is a good company. I think they have inexperienced and untrained clerks and landmen who are overrun with clerical issues. I finally lost my cool. I told the clerks that I want the name and address and phone number of the CEO of the company. I got it. I called the CEO of the company and told them I would hold for the rest of the day to speak to him there, if necessary. I talked to a lovely secretary in corporate, she kicked my complaints downstairs to area managers, they kicked it a very competent trouble shooter and my problems were solved in 3 weeks with my first check included. There was communication by email. They called me! A month later this secretary gave me her name and asked if my matter had been taken care of. This ended my 3 1/2 year fiascos and I am a happy camper with royalty payments on the dot monthly.
I am not an executor. I am a small royalty recipient / mineral owner in Texas.
If you have any of the money left, I would hire an oil and gas attorney to see what you should do with it for now. This is not legal advice. Just School of Hard Knocks with the Big Boys in O&G.
Charles, a bit of caution may be in order. The runsheet applies to that information that is recorded at the county. On many of these old properties, there were often side deals (usually for water) that were never recorded.
Landmen only do a cursory review of the title history (I cannot tell you how many times some critical detail was overlooked because the deeds are handwritten on microfiche--but the landman is not required to be 100% accurate.) The controlling document is the DOTO which is prepared by an attorney. It is not unusual to find that grandpa assigned the rights to the bank for a loan, that was paid off, but never released.
However, Chesapeake, as you say may not have any recourse for the amounts they paid as they are responsible for the title opinion. If I was the lessee it may make sense to spend a few $ on an O&G attorney to review the agreement, as it may have a clause in the agreement that states the lessee will reimburse fees paid if the DOTO shows they do not own the rights (I cannot say from here.)
Charles Cunningham said:
Before you received any royalties from Chesaeake, there were several tings done to insure the proper payment of royalties.
1. Cheaseape hired a landman and/or an attorney to prepare a runsheet on your title. This runsheet cover the period from the sovereignty of the soil or shorter period of time usaully some point before 1900 to past the date of first production. This runsheet should have every instrument that would be associated with your property.
2. After the runsheet is completed, it is turned over to an attorney who who write a Title Opinion on the property. This opinion will state the surace, mineral, royalty, overring royalty and working interest ownership of the property.
Chesapeake does need to show you proof that you are not an owner. Most all the companies I have worked for would not make you repay, if they or their people made the mistake.
I would repay nothing without proof of an error.
Charles Cunningham
I’ve had this happen, if we are talking about royalties. The declaration of pooled units changed after drilling was complete. The unit shifted west. My lease had an early payment clause. Which Chesapeake stated they don’t like because of this scenario. Which forced early payment before they re-evaluated or whatever. You’ll pay it back if you have nothing in the pooled unit, which you can haggle and get a ridiculously long payback period if you try hard enough. Or if still in the unit but with less acreage, they will just deduct your new royalties from the amount owed until its paid back.
Diane,
I work in a land department in the industry, and have for many years. Yes, I have seen this happen to owners, but never on a scale of "many thousands of dollars," but knowing that Chesapeake is involved, I can certainly understand how it could have happened. I assume your land is in Texas? First, it sounds like you signed an oil and gas lease, so the first thing you need to do is read the warranty clause in it. It should be the last or next-to-the-last paragraph in your lease. The language in that clause will determine whether Chesapeake can get a judgment against you if you don't pay the money back--so I strongly recommend you talk to a lawyer who has experience in oil and gas law. The warranty clause in the lease is your promise to pay all legal fees to defend your mineral rights ownership, but how to apply it to your case only a competent attorney can advise.
That said, I would be more worried about who is claiming to own your mineral rights. Does the deed under which you own your minerals (even if the deed is 50+ years old and you inherited your rights) state in it that it is for a definite period of time only? It's tragic when I see this, but a deed can be a "term deed" and if most often if the land isn't producing on the end date, the rights automatically revert to the deed Grantor or his heirs. Another possibility is that someone in your family may have owned only life estate rights (a grandmother perhaps?) and she sold her life estate rights to another company and the landman running title doesn't realize that the "fork" in the title caused by her sale abruptly ended upon her death, and therefore you really DO own your mineral rights. Or is a title attorney who reviewed all the records advising Chesapeake that you don't own any mineral rights? And here's another question: who signed a lease covering the rights you claim? Chesapeake will have taken a lease from THEM, and it (or memorandum of it) will be filed in the courthouse of the county where your land is located.
I'm just trying to show you that you really need to see a competent oil and gas attorney to help you sort this out. And if Chesapeake has already filed a release of your lease to "keep title clean", if I were you I would demand a whole new bonus payment to sign a new lease when you prove you really do own your mineral rights, and not let them tell me they've already paid me. Hogwash. Good luck!
Thank you for all of the comments. We are just royalty owners and we had to find Chesapeake in the beginning. I have all of the documentation and even went to the court house in Corrizo Springs. Just can’t believe a secretary would call me, but there is nothing in the main file, I called. They refused to give me any details as to why there is a problem or question of ownership.
Yes, just hope it doesn’t come to getting an oil and gas attorney involved, but if anyone has suggestions for one in south Texas that would be great, I live in Austin.
Please stop referring to yourself as "just a royalty owner". That is a huge benefit. Landowners and executors sometimes own zip or very little of what is being produced. You have rights because by contract you are also bound by CHK and they to you. They have obligations. What is a main file?
I can recommend an attorney. He is in San Antonio. Befriend me and I will give you his name. (not permitted here on the forum)
I would not get an attorney until they send you a demand letter in writing. I just don't believe the secretary / clerk is correct and why would they ask for money back by phone?
Marsha's scenarios are correct for the most part but it would not explain the title opinion done by CHK attorneys , the P-12's, the ratification papers and the DO's. You are entitled to all copies. If you do not have them, call the number listed on www.chesapeake.com It just doesn't pass the smell test. Wait before spending any money. I have posted here that CHK told us that we own nothing, 3 weeks before I received a check for almost 6 figures. They will not admit they are wrong but it will be corrected if you keep asking for proof.
Diane,
From what i understand your situation to be, Chesapeake wants you to repay money they paid you for production royalties, as opposed to a signing bonus for a lease or other contract. I think all of the discussion of warranty of title provisions and other contract-related matters are red herrings if I’m correct about your situation. CHK’s demand for reimbursement of erroneous royalty payments wouldn’t be based on a contract (and it seems you don’t have a contract with them anyway). Instead, there is probably a law in the property’s state entitling a company to recover royalty paid in error, or at least the common law theory of unjust enrichment. Depending on what state your property is in, there will be a statute of limitations on what CHK can recover based on how long ago the royalty payments were made.
Hi Andrew,
You are correct. I am in Texas and they say they made a mistake, it has to do with directional drilling and the well head is on the property we have the interest in, but they say we are not entitled because of the perforations are not on our tract.
So complex, not sure how to proceed.
Thanks for any help people may provide!
Diane
I'll bet no one else will lease your interest from here on out in the future. Any idiot would know that the drillsite is going to be in a unit. Do you think that another company thinks you are not.
I'll also bet that Chesapeake will not provide you the royalty interest you own and who might own the rest own the rest on your tracks of land. They also want give you a release of your lease which might give someone else the chance to lease it for a lot better deal. Crizzio Springs is one of the "hottest" plays in Texas in the Eagle Ford Shale. You can almost set your price.
Get them to email you all the details and tell you whom to contact. "Make them responsible". Make them "prove it". I would not send them one red cent!