Hello to all. Lately my family has had some dealings with a oil company that makes me wonder how they manage to stay in business and with out going into a lot of boring details I will state the main points.
A well was spud and a year later began producing oil & gas. Due to the mentioned time span and lack of a division order our lease was nullified and the company raised our royalty rate from 16% to 20% and included retro payments back to the spud date. The oil company failed to have the lease ratified by my brother & I who are the secondary mineral rights owners. Now the oil company wants to give the two of us x amount of dollars per acre to ratify things. By doing this we would agree not to seek better royalty rates once the primary mineral rights owner has passed away. As of now there is one producing well in the spacing unit with 3 more on the way. I am still contemplating their offer but feel that it is a low ball one. After all, these companies always hope you will accept the first offer.
I just wanted to share this with the group and wonder if anyone else has been through a mess like this.
MKB, it sounds like something more incompetent than usual is going on. I also believe that you left something out, like there was a trust and the lease would not be binding on you if they do not have ratification by the remaindermen, or something of that sort. I don't think the division order had anything to do with it, people go years without the division order. They only raised the royalty in my opinion because the lease had expired.
With the lease expired, there were some choices. They needed to lease you again, or send you an AFE packet to offer you participation in the well, which after receiving the Authorization For Expenditure you would have 30 days to elect to participate or not. The third choice if you did neither would be to force pool you as non-consent in which case you would receive the weighted average of whatever royalty everyone else in the spacing received or 16% whichever the operator elects. These days you can just say 16%. Then the 84% of the production from your minerals goes to pay for your part of the well plus a 50% actual cost of drilling risk penalty, after which is is paid off you become a working interest owner and receive 100% of the proceeds from your acres less the cost of production.
In my opinion and experience, the asking for a ratification could actually just be a convenience as some landmen have told me it is, but I think if it's just a convenience they don't offer you money to sign it. If they offer you money to sign the ratification, to me that means they actually need it.
With as little as you have given me to go on, I would speculate that if the well/s are productive enough that you could be better off not signing a ratification. The effect of a valid lease by the primary mineral owner that does not outlive them, I believe, would result in a working interest and 100% proceeds less the cost of production in the well/s without a risk penalty. Consult your trusted lawyer who specializes in oil and gas. I will send you a friend request in case you would care to give a little more information. The garbage in garbage out rule applies. The more information you give the more accurate the information you get back. Good luck.
As I mentioned in my initial post I left out most of the details to allow myself to give a brief summary of the situation. Yes, there is a trust and yes my brother and I are the remaindermen. The original lease terminated because the oil company exceeded a time frame(150 days?)from spud date to production(11 months). In the mean time the oil company had one of it’s local employees call my mother multiple times to try and buddy up to her and get things smoothed out. I knew right there that something was up. Once our lawyer got involved the phone calls ended. From what we were told the oil company was very eager to get things taken care. Shortly there after a revised lease with the new royalty rate was sent to my mother, she signed and returned it. At that point in time my brother and I were not required to ratify this new agreement, there was no mention of it in the new lease. My brother and I had ratified the previous lease with this same oil company. Six months after production began and with the lawyers help we received a division order. Earlier this month(December)our lawyer stated that due to the trust issue our signatures were also needed. The oil company knew this but once again dropped the ball. The bottom line here is the oil company has a lease with my mother but not my brother or I.
I hesitate to give more details due to the fact that you never know who may be reading this. The additional money that my brother and I could get is tempting but an oil company will never offer you top dollar in it’s initial offer,it’s business and a one time shot. I feel that with one well pumping and three more to be drilled this next year their offer is far to low. I am still thinking it over and have not agreed to sign anything.
Most of what I know about the oil business I have learned through the internet, my level of knowledge is low at best. Most times common sense can be a great tool and right now it is on high alert. I would never do anything to effect my mother’s lease agreement and hope that my actions will not do so. She has said to get as much as we can.
So that is my story. I am sure we are not the first to go through something like this. Thanks for your help.
The time frame would be the continuing operations grace period. The operator started the well but let too much time elapse with no work so the primary term of the lease expired and the secondary term never started because of no production. Spud date to production in itself would have no bearing on the lease.
I don't think there is anything you could do to hurt your moms lease because you aren't a party to it.
About what I thought. I sent you a friend request so we could private message because I didn't think you just came here to announce the situation you vaguely described. Good luck.