Received and Oil and Gas Lease with terms as follows: 1/4 Royalty, 5 Year Paid up lease, No Bonus Consideration. In other words, Lessee wants a free lease for 5 years with no incentive to drill or consideration of signing the lease. My first thought, would this be a valid lease if no Bonus Consideration is paid in lie of a Royalty? A lease is a temporary contract or deed for ownership of your minerals. Is it considered under Texas Contract Law, that if NO consideration is offerred then the contract is invalid. If an Oil and Gas Lease is NOT paid consideration then the lease is not binding. I would think that the royalty terms of what ever percentage being 1/8, 3/16ths, 1/5th, or 1/4 does not bind the lease and considered a legal obligation and in the legal sense cannot be rendered as a payment or consideration of payment. Is the Bonus payment make the oil and gas lease valid?
Clearly consideration must pass in some sort of fashion. Consideration could be “the love and affection that I have for my children” so consideration does not have to be measured in dollars and cents.
When I take “free leases” I change the granting clause to read in part “For and in consideration of ten dollars and other valuable consideration, the agreements and covenants contained herein, the receipt and sufficiency of which are acknowledged and professed by Lessor, does hereby…”
I also get a cash receipt for the ten dollars.
NOT LEGAL ADVICE
Dear Ms. Rankin,
What Buddy said is right. There MUST be some “consideration” given in exchange for the lease to make it valid. So as long as they pay you something, even if it’s ten dollars, that makes the lease valid. And whatever you do, NEVER sign a lease without getting the consideration beforehand, no matter how small.
I have read horror stories about unscrupulous “lease flippers” getting leases signed and then not paying the mineral owners for their bonus considerations, but filing the leases of record in the County Clerk’s Office anyway. That way, they could give their bogus leases the appearance of legitimacy, string along the mineral owners, and not pay them until they had found a buyer to whom to assign the leases.
Sincerely,
Philip Wynne
Buddy and Philip, thank you for both of your responses.
The wording in the lease are as follow: “Lessor in consideration of the royalties herein provided, does hereby grant, lease and let unto Lessee for the purpose of exploring, prospecting, drilling andmining for and producing oil and gas and all other hydrocarbons, laying pipelines, building roads, tanks, power stations, telephone lines and other structures theron to produce, save, take care of, treat, transport and own said products, and housing its employees, and without additional consideration, does hereby authorize Lessee to enter upon the lands covered hereby to accomplish said purposes, the following land described…” and further “Lease shall be for a term of five years from this date and as long after as oil and gas or other…produced from said land is pooled hereunder.”
I have not signed the lease. What bothers me with this lease is that the Royalties and all kinds of rights to the property are being used as Lieu of Bonus Consideration and that no consideration is really being exchanged which seems to me an invalid lease.
NOT LEGAL ADVICE
Dear Ms. Rankin,
Well, I hear new things in this business almost every day. I have NEVER heard of a lease’s being proffered by an operator to a Lessor with the royalties used as consideration instead of an up-front, one-time cash payment. Since the royalties are to be paid at an unspecified time in the future, and might not be paid at all if the exploration is unsuccessful, my guess is that the possible future payment of royalties could not be categorized as “consideration” for a legal contract such as an Oil, Gas and Mineral Lease to be valid. Please consult a qualified oil-and-gas or contract attorney.
Sincerely,
Philip Wynne
Philip, thank you for noticing the awkwardness of how this lease is profferred by the operator. I did contact the Counsel of the Texas Railroad Commission and they said in their “opinion” that some sort of consideration should be made, but not as royalty, rather "with "a royalty for the fact of having the oil and gas lease notarized.
I would think the payment of royalties are the legal obligation and in the legal sense cannot be rendered as a payment or substituted for consideration of payment. And I would further add, should some sort of consideration be made “with” the royalty “an obligation” for the fact of having the oil and gas lease notarized. It just seems that this is an inconsiderate offer for the efforts of the Lessor to sign the lease and gives me pause before signing the lease and question if this is even a valid lease. I do not feel the “love and affection” for consderation is appropriate wording in this instance towards the Operator.
I will take your advice and consult with an attorney, I still seem to think that there is something written in Texas Contract law. If no valuable consideration, be it love and affection or a dollar amount (not royalties - the legal obligation) then no contract is formed and invalid.
On the otherhand, Buddy, suggested getting a cash receipt, but how can one measure a receipt of royalty payment that may or maynot be paid?
Philip Wynne said:
NOT LEGAL ADVICE
Dear Ms. Rankin,
Well, I hear new things in this business almost every day. I have NEVER heard of a lease’s being proffered by an operator to a Lessor with the royalties used as consideration instead of an up-front, one-time cash payment. Since the royalties are to be paid at an unspecified time in the future, and might not be paid at all if the exploration is unsuccessful, my guess is that the possible future payment of royalties could not be categorized as “consideration” for a legal contract such as an Oil, Gas and Mineral Lease to be valid. Please consult a qualified oil-and-gas or contract attorney.
Sincerely,
Philip Wynne
Ms. Rankin,
You may do what you wish, but I personally would never give a free 5 year lease. I have granted short term leases with no or token bonus and a liquidated damage provision should the Lessee not drill a well.
You have no advantage to giving a free lease that I can see.
Sharon Rankin said:
Philip, thank you for noticing the awkwardness of how this lease is profferred by the operator. I did contact the Counsel of the Texas Railroad Commission and they said in their “opinion” that some sort of consideration should be made, but not as royalty, rather "with "a royalty for the fact of having the oil and gas lease notarized.
I would think the payment of royalties are the legal obligation and in the legal sense cannot be rendered as a payment or substituted for consideration of payment. And I would further add, should some sort of consideration be made “with” the royalty “an obligation” for the fact of having the oil and gas lease notarized. It just seems that this is an inconsiderate offer for the efforts of the Lessor to sign the lease and gives me pause before signing the lease and question if this is even a valid lease. I do not feel the “love and affection” for consderation is appropriate wording in this instance towards the Operator.
I will take your advice and consult with an attorney, I still seem to think that there is something written in Texas Contract law. If no valuable consideration, be it love and affection or a dollar amount (not royalties - the legal obligation) then no contract is formed and invalid.
On the otherhand, Buddy, suggested getting a cash receipt, but how can one measure a receipt of royalty payment that may or maynot be paid?
Philip Wynne said:NOT LEGAL ADVICE
Dear Ms. Rankin,
Well, I hear new things in this business almost every day. I have NEVER heard of a lease’s being proffered by an operator to a Lessor with the royalties used as consideration instead of an up-front, one-time cash payment. Since the royalties are to be paid at an unspecified time in the future, and might not be paid at all if the exploration is unsuccessful, my guess is that the possible future payment of royalties could not be categorized as “consideration” for a legal contract such as an Oil, Gas and Mineral Lease to be valid. Please consult a qualified oil-and-gas or contract attorney.
Sincerely,
Philip Wynne
Dear Mr. Cotton,
Thank you for your advice. The free 5 year lease is precisely what bothered me about this offer. I tried to negotiate for a shorter primary term with a fair and small amount for a bonus consideration. The landman is adament about his offer and will not budge. So the other alternative is to not sign and join in later, or be persistant with better terms. I like your suggestion of a liquidated damage provision in regards to your comment about the Lessee not drilling a well. I am still reading through the 20 page lease. What gets me is that this is the same company that leased with my grandmother 30 years ago and her father prior to that; and they had simpler terms and a bonus.
I respect your comments and suggestions, again many thanks,
Sharon Rankin
Buddy Cotten said:
Ms. Rankin,
You may do what you wish, but I personally would never give a free 5 year lease. I have granted short term leases with no or token bonus and a liquidated damage provision should the Lessee not drill a well.
You have no advantage to giving a free lease that I can see.
Buddy Cotten
www.cottenoilproperties.com
Sharon Rankin said:Philip, thank you for noticing the awkwardness of how this lease is profferred by the operator. I did contact the Counsel of the Texas Railroad Commission and they said in their “opinion” that some sort of consideration should be made, but not as royalty, rather "with "a royalty for the fact of having the oil and gas lease notarized.
I would think the payment of royalties are the legal obligation and in the legal sense cannot be rendered as a payment or substituted for consideration of payment. And I would further add, should some sort of consideration be made “with” the royalty “an obligation” for the fact of having the oil and gas lease notarized. It just seems that this is an inconsiderate offer for the efforts of the Lessor to sign the lease and gives me pause before signing the lease and question if this is even a valid lease. I do not feel the “love and affection” for consderation is appropriate wording in this instance towards the Operator.
I will take your advice and consult with an attorney, I still seem to think that there is something written in Texas Contract law. If no valuable consideration, be it love and affection or a dollar amount (not royalties - the legal obligation) then no contract is formed and invalid.
On the otherhand, Buddy, suggested getting a cash receipt, but how can one measure a receipt of royalty payment that may or maynot be paid?
Philip Wynne said:NOT LEGAL ADVICE
Dear Ms. Rankin,
Well, I hear new things in this business almost every day. I have NEVER heard of a lease’s being proffered by an operator to a Lessor with the royalties used as consideration instead of an up-front, one-time cash payment. Since the royalties are to be paid at an unspecified time in the future, and might not be paid at all if the exploration is unsuccessful, my guess is that the possible future payment of royalties could not be categorized as “consideration” for a legal contract such as an Oil, Gas and Mineral Lease to be valid. Please consult a qualified oil-and-gas or contract attorney.
Sincerely,
Philip Wynne
I have a lease that was signed in April of 2015 and filed of record in Jun 2015 and have still not been paid a lease bonus and just keep being told that they will send a check. Can I file an affidavit of Non-Payment of record to make this lease not valid?