Hello Everyone,
I have a question. What is the difference of the grantor of the lease and a mineral rights owner?
Thank you
Typically the owner of mineral rights is the "Grantor" on an oil & gas lease.
In the Oil & Gas Lease...
A Grantor (owner) is giving a "Grantee" (oil co. or individual) the right to explore for oil and gas during a specified length of time (typically 2, 3, or 5 years).
If oil or gas if found, then the Grantee has the additional right to produce it beyond that initial 2, 3, or 5 years term.
The Grantor (Lessor) of an oil and gas lease is the person who is possessed with the Executive Rights under the mineral estate.
The elements of the Mineral Estate are comprised of:
1. Executive Rights (the right to execute and oil and gas lease)
2. Right of Ingress and Egress (the right to come and remove and explore)
3. Right to receive Bonus (Consideration paid at the time of execution of the lease)
4. Right to receive Rental (Consideration paid to defer the priviledge of drilling)
5. Right to a cost free share of production (royalty).
At the time the lease is granted, the Lessee is then the owner of the mineral rights in the nature of a determinable fee, subject to the payment of royalties. The grantor owns a share of production and the possibility of revereter.
Easy, right?
So, then what happens is the Grantor (me, I am also the heir) give a lease, receives the bonus money and then is informed that there are other possible persons involved? Does the bonus then become an item of contention?
Dear Ms. Davis,
You are free to do with your property as you wish. If you were acting as an agent or in a position of trust for another, that is a horse of a different color.
Did you warrant title to the property?
There are way too many unanswered questions for anybody to give you relevant advice.
Sharon Davis said:
So, then what happens is the Grantor (me, I am also the heir) give a lease, receives the bonus money and then is informed that there are other possible persons involved? Does the bonus then become an item of contention?
If, in the lease that I signed, did I accept any responsibility for clear title, then no, I did not. The personal representative of the will, apparently, recorded the will with McKenzie County (I'm in Oregon). I did not know the personal rep and since it has been many years, I'm not certain that I can locate her to find out what she knows. I know that there are probably many complications here. I am sort of at a loss of where to start to gather or if there is anything that I should be doing myself to expedite the probate.
Thank you for taking the time to send me an answer to a question that has many unknowns.
Sharon
Buddy Cotten said:
Dear Ms. Davis,
You are free to do with your property as you wish. If you were acting as an agent or in a position of trust for another, that is a horse of a different color.
Did you warrant title to the property?
There are way too many unanswered questions for anybody to give you relevant advice.
Best,
Buddy Cotten
Sharon Davis said:So, then what happens is the Grantor (me, I am also the heir) give a lease, receives the bonus money and then is informed that there are other possible persons involved? Does the bonus then become an item of contention?
Hi, Alex -
The Grantor of a lease ("Lessor", actually, since we're talking about a lease), holds or possesses the Executive Rights to the subject mineral interests, which includes the right to negotiate leases, etc.
Mineral Rights that to not include or possess the Executive Rights are known as Non-Participating Mineral Interests (NPMI). The owners of such rights do not have the right to participate in the negotiations of a lease, but do have the rights to their share of any Lease Bonus Payments, Annual Rentals and production Royalties paid.
This would be as opposed to Non-Participating Royalty Interests (NPRI), which only have the rights to their share of production Royalties paid.
See the attached -
It is unusual for the Executive Rights to be separate from the Mineral Rights, but not entirely unheard of. I once researched the title to a piece of land in either Oklahoma or Arkansas that had the Executive Rights, Mineral Rights, Royalty Interests and even the Surface Rights all completely owned by different people or groups of people who didn't even know one another. It was a real mess.
Hope this helps -
Charles
Charles Emery Tooke III
Certified Professional Landman
Fort Worth, Texas
713-408-2850 Cell
2994-NPRIvsNPMI.pdf (1.72 MB)
Dear Charles,
Many, many, many years ago, I was taught that a Non Participating Mineral Interest was vastly different than a non-executive mineral interest. My recollection was that the NPMI was first defined in the French v Chevron case, which stated that a NPMI was a mineral interest stripped of everything except the royalty.
Can you expound on your statement for the edification of us all?
Also, I read your attachment, though nicely written, only distinguished between a NPRI and a non-executive mineral interest.
Sharon -
See the attached - I just sent the same to Alex a few moments ago.
Whoever holds the Executive Rights has a fiduciary reponsibility under the law to properly distribute any Bonus Payments and Rental Payments received to the rightful parties and to report the same to the Lessee.
I would need to consult an Attorney for the specifics in a given state, but it is my understanding that a Fiduciary Responsibility is a very real responsibility under the law and a violation of it does allow for recourse.
I can tell you from experience that, while they are not required to, it is most advisable for the Lessee to distribute the Bonus and Rentals directly to the various Mineral Owners (Participating and Non-Participating), so as to have evidence that said payments were made to all of the proper parties (or the lease is invalid).
It also helps for end of the year: The Lessee will be sending 1099's to all of the various minerals owners and if the holder of the Executive Rights has not properly distributed the monies... Well, you get the picture.
If you have received Bonus and Rental Payments that are due to others, either properly distribute the monies and prepare 1099's for them, etc., and submit all of that to the Lessee OR contact the Lessee and return the funds in question for them to properly distribute.
Hope this helps -
Charles
Charles Emery Tooke III
Certified Professional Landman
Fort Worth, Texas
713-408-2850 Cell
Charles
Sharon Davis said:
2993-NPRIvsNPMI.pdf (1.72 MB)So, then what happens is the Grantor (me, I am also the heir) give a lease, receives the bonus money and then is informed that there are other possible persons involved? Does the bonus then become an item of contention?
Dear Charles,
I also note that the reference material is one in antiquity. It makes reference to the executive right being a power coupled with an interest terminating at the death of the holder.
In Pan American Petroleum Corp. v. Cain, the Supreme Court of Texas classified the executive right as an agency power given as security. The Pan American court defined the executive right as a power and not as property right; this power was revocable upon death of the principal.
More than thirty years after Pan American, the court of appeals in Elick v. Champlin Petroleum Co. held that a non-mineral interest owner could hold the executive right.
In Day & Co. v. Texland Petroleum (1990), the Texas Supreme Court confirmed Elick’s holding and reclassified the executive right as a separate property right that, like a royalty interest, does not terminate upon death of the holder. (Personally, I really like the dissenting opinion.)
Finally, the question of duty looms over executive rights. Texas courts have struggled with the duty owed by an executive to a non-executive. The duty was originally one of “utmost good faith and fair dealing”, but recent decisions suggest that the duty is fiduciary in nature.
The recent Texas Supreme Court opinion, In re Bass 113 S.W.3d 735 (Tex. 2003), adds turmoil to the duty question because that court stated that a duty is not owed by an executive to a non-executive if the executive does not first enter into an oil and gas lease.
This is kind of a hobby of mine. I am speaking strictly from the standpoint of current Texas law, since that is where the property is located.
Thanks, Charles, for providing another piece of the puzzle so that I am getting a picture of what kinds of issues that I will need to delve into.
Sharon
Charles Emery Tooke III said:
Sharon -
See the attached - I just sent the same to Alex a few moments ago.
Whoever holds the Executive Rights has a fiduciary reponsibility under the law to properly distribute any Bonus Payments and Rental Payments received to the rightful parties and to report the same to the Lessee.
I would need to consult an Attorney for the specifics in a given state, but it is my understanding that a Fiduciary Responsibility is a very real responsibility under the law and a violation of it does allow for recourse.
I can tell you from experience that, while they are not required to, it is most advisable for the Lessee to distribute the Bonus and Rentals directly to the various Mineral Owners (Participating and Non-Participating), so as to have evidence that said payments were made to all of the proper parties (or the lease is invalid).
It also helps for end of the year: The Lessee will be sending 1099's to all of the various minerals owners and if the holder of the Executive Rights has not properly distributed the monies... Well, you get the picture.
If you have received Bonus and Rental Payments that are due to others, either properly distribute the monies and prepare 1099's for them, etc., and submit all of that to the Lessee OR contact the Lessee and return the funds in question for them to properly distribute.
Hope this helps -
Charles
Charles Emery Tooke III
Certified Professional Landman
Fort Worth, Texas
713-408-2850 Cell
Charles
Sharon Davis said:So, then what happens is the Grantor (me, I am also the heir) give a lease, receives the bonus money and then is informed that there are other possible persons involved? Does the bonus then become an item of contention?
Buddy and Charles,
Thank you guys for answering my question that really helped. I have one more question for you guys. I am a member of Drillinginfo.com you may have heard of them before. With that tool I can look up grantors for each individual lease and expiration date. I do not currently own any mineral rights anywhere but really want to buy and invest into them. I was thinking of asking people whose lease has expired to see if they would be interested in selling their rights. My question to you would be have you come across this before and do you think its doable and possible?
Thank you very much.
Alex
Hi, Buddy -
I am not familiar with the French v. Chevron case, nor have I ever heard of Non-Participating Mineral Interests being merely Mineral Interests stripped of everything except royalty.
If you have any information you could share on the subject, I sure we would all love to see it.
Charles
Buddy Cotten said:
Dear Charles,
Many, many, many years ago, I was taught that a Non Participating Mineral Interest was vastly different than a non-executive mineral interest. My recollection was that the NPMI was first defined in the French v Chevron case, which stated that a NPMI was a mineral interest stripped of everything except the royalty.
Can you expound on your statement for the edification of us all?
Also, I read your attachment, though nicely written, only distinguished between a NPRI and a non-executive mineral interest.
Thanks,
Buddy
Dear Alex,
If you ask 1000 women coming out of a bar if she will spend the night with you, you might be slapped 999 times. But you are not looking for those, you are looking for one to say yes. Same in buying minerals and royalty.
You get to set your own value for time and expertise.
Sharon -
Buddy and I both live in Texas. You may need to contact an Attorney in the state where the subject properties are located for answers to your questions.
Charles
Sharon Davis said:
Thanks, Charles, for providing another piece of the puzzle so that I am getting a picture of what kinds of issues that I will need to delve into.
Sharon
Charles Emery Tooke III said:Sharon -
See the attached - I just sent the same to Alex a few moments ago.
Whoever holds the Executive Rights has a fiduciary reponsibility under the law to properly distribute any Bonus Payments and Rental Payments received to the rightful parties and to report the same to the Lessee.
I would need to consult an Attorney for the specifics in a given state, but it is my understanding that a Fiduciary Responsibility is a very real responsibility under the law and a violation of it does allow for recourse.
I can tell you from experience that, while they are not required to, it is most advisable for the Lessee to distribute the Bonus and Rentals directly to the various Mineral Owners (Participating and Non-Participating), so as to have evidence that said payments were made to all of the proper parties (or the lease is invalid).
It also helps for end of the year: The Lessee will be sending 1099's to all of the various minerals owners and if the holder of the Executive Rights has not properly distributed the monies... Well, you get the picture.
If you have received Bonus and Rental Payments that are due to others, either properly distribute the monies and prepare 1099's for them, etc., and submit all of that to the Lessee OR contact the Lessee and return the funds in question for them to properly distribute.
Hope this helps -
Charles
Charles Emery Tooke III
Certified Professional Landman
Fort Worth, Texas
713-408-2850 Cell
Charles
Sharon Davis said:So, then what happens is the Grantor (me, I am also the heir) give a lease, receives the bonus money and then is informed that there are other possible persons involved? Does the bonus then become an item of contention?
Buddy -
All very interesting! And you are right, my reference material is somewhat dated.
I'll take a look at the cases you cited and update my act. Have you thought of writing a paper on the subject? I'm always looking for reference materials.
Happy Mardi Gras -
Charles
Buddy Cotten said:
Dear Charles,
I also note that the reference material is one in antiquity. It makes reference to the executive right being a power coupled with an interest terminating at the death of the holder.
In Pan American Petroleum Corp. v. Cain, the Supreme Court of Texas classified the executive right as an agency power given as security. The Pan American court defined the executive right as a power and not as property right; this power was revocable upon death of the principal.
More than thirty years after Pan American, the court of appeals in Elick v. Champlin Petroleum Co. held that a non-mineral interest owner could hold the executive right.
In Day & Co. v. Texland Petroleum (1990), the Texas Supreme Court confirmed Elick’s holding and reclassified the executive right as a separate property right that, like a royalty interest, does not terminate upon death of the holder. (Personally, I really like the dissenting opinion.)
Finally, the question of duty looms over executive rights. Texas courts have struggled with the duty owed by an executive to a non-executive. The duty was originally one of “utmost good faith and fair dealing”, but recent decisions suggest that the duty is fiduciary in nature.
The recent Texas Supreme Court opinion, In re Bass 113 S.W.3d 735 (Tex. 2003), adds turmoil to the duty question because that court stated that a duty is not owed by an executive to a non-executive if the executive does not first enter into an oil and gas lease.This is kind of a hobby of mine. I am speaking strictly from the standpoint of current Texas law, since that is where the property is located.
Best,
Buddy Cotten
Dear Alex,
I do not like your methodology.
Alex Gitman said:
Buddy and Charles,
Thank you guys for answering my question that really helped. I have one more question for you guys. I am a member of Drillinginfo.com you may have heard of them before. With that tool I can look up grantors for each individual lease and expiration date. I do not currently own any mineral rights anywhere but really want to buy and invest into them. I was thinking of asking people whose lease has expired to see if they would be interested in selling their rights. My question to you would be have you come across this before and do you think its doable and possible?
Thank you very much.
Alex
Alex -
I always advise landowners (mineral owners) to never sell their minerals. That is not to say, however, that no one ever does.
There are any number of very experienced individuals and companies out there that buy minerals to sell (or "flip") them for a profit. I have several friends, clients and client companies in the business and would imagine Mr. Cotten does as well.
If your ultimate goal is to purchase minerals, I am sure either one of us could put you in touch with a few. That way, you could spend your time and money focusing on determining where you want to invest instead of competing from scratch against more experienced mineral buyers.
Call if you want more information -
Charles
Alex Gitman said:
Buddy and Charles,
Thank you guys for answering my question that really helped. I have one more question for you guys. I am a member of Drillinginfo.com you may have heard of them before. With that tool I can look up grantors for each individual lease and expiration date. I do not currently own any mineral rights anywhere but really want to buy and invest into them. I was thinking of asking people whose lease has expired to see if they would be interested in selling their rights. My question to you would be have you come across this before and do you think its doable and possible?
Thank you very much.
Alex
I have already written a paper.
Charles Emery Tooke III said:
Buddy -
All very interesting! And you are right, my reference material is somewhat dated.
I'll take a look at the cases you cited and update my act. Have you thought of writing a paper on the subject? I'm always looking for reference materials.
Happy Mardi Gras -
Charles
Buddy Cotten said:Dear Charles,
I also note that the reference material is one in antiquity. It makes reference to the executive right being a power coupled with an interest terminating at the death of the holder.
In Pan American Petroleum Corp. v. Cain, the Supreme Court of Texas classified the executive right as an agency power given as security. The Pan American court defined the executive right as a power and not as property right; this power was revocable upon death of the principal.
More than thirty years after Pan American, the court of appeals in Elick v. Champlin Petroleum Co. held that a non-mineral interest owner could hold the executive right.
In Day & Co. v. Texland Petroleum (1990), the Texas Supreme Court confirmed Elick’s holding and reclassified the executive right as a separate property right that, like a royalty interest, does not terminate upon death of the holder. (Personally, I really like the dissenting opinion.)
Finally, the question of duty looms over executive rights. Texas courts have struggled with the duty owed by an executive to a non-executive. The duty was originally one of “utmost good faith and fair dealing”, but recent decisions suggest that the duty is fiduciary in nature.
The recent Texas Supreme Court opinion, In re Bass 113 S.W.3d 735 (Tex. 2003), adds turmoil to the duty question because that court stated that a duty is not owed by an executive to a non-executive if the executive does not first enter into an oil and gas lease.This is kind of a hobby of mine. I am speaking strictly from the standpoint of current Texas law, since that is where the property is located.
Best,
Buddy Cotten
Super! And how does one go about obtaining a copy of your paper?
Buddy Cotten said:
I have already written a paper.
Buddy
Charles Emery Tooke III said:
Buddy -
All very interesting! And you are right, my reference material is somewhat dated.
I'll take a look at the cases you cited and update my act. Have you thought of writing a paper on the subject? I'm always looking for reference materials.
Happy Mardi Gras -
Charles
Buddy Cotten said:Dear Charles,
I also note that the reference material is one in antiquity. It makes reference to the executive right being a power coupled with an interest terminating at the death of the holder.
In Pan American Petroleum Corp. v. Cain, the Supreme Court of Texas classified the executive right as an agency power given as security. The Pan American court defined the executive right as a power and not as property right; this power was revocable upon death of the principal.
More than thirty years after Pan American, the court of appeals in Elick v. Champlin Petroleum Co. held that a non-mineral interest owner could hold the executive right.
In Day & Co. v. Texland Petroleum (1990), the Texas Supreme Court confirmed Elick’s holding and reclassified the executive right as a separate property right that, like a royalty interest, does not terminate upon death of the holder. (Personally, I really like the dissenting opinion.)
Finally, the question of duty looms over executive rights. Texas courts have struggled with the duty owed by an executive to a non-executive. The duty was originally one of “utmost good faith and fair dealing”, but recent decisions suggest that the duty is fiduciary in nature.
The recent Texas Supreme Court opinion, In re Bass 113 S.W.3d 735 (Tex. 2003), adds turmoil to the duty question because that court stated that a duty is not owed by an executive to a non-executive if the executive does not first enter into an oil and gas lease.This is kind of a hobby of mine. I am speaking strictly from the standpoint of current Texas law, since that is where the property is located.
Best,
Buddy Cotten