READ THE FINE PRINT, DO YOUR HOMEWORK AND GET PROFESSIONAL ADVICE
A highly suspicious offer crossed my desk a few weeks ago. The title at the top of the document read “ONE YEAR TERM ASSIGNMENT”, but the various clauses in the document would most likely extend the term well beyond a “single year” potentially robbing a mineral owner of valuable future royalties. The low monetary offer (for the area) and the one-year assignment were red flags even before a read of the clauses.
The first paragraph described the location and a well bore that would have been excepted from the assignment. The next paragraph includes royalties from the excepted well bore. The top of the page says “ONE year term assignment”. Never trust the title at the top of a contract. Read the fine print and terms inside the body of the document.
“This grant shall run, and the rights titles and privileges hereby granted shall extend to grantee herein, and to grantee’s heirs, administrators, executors and assigns, for the period on ONE Year(s) from the date hereof, and as long thereafter as oil, gas or other minerals or either of them, is produced or mined from the lands leased, or wells described herein, including the excepted well bore, or from adjacent lands with which said lands, or on land pooled or unitized therewith, in an effort to produce{d} oil, gas, or other minerals and if said operations results in the production of said minerals, then for as long as oil, gas or other minerals are produced from said lands, adjacent lands, leases, or from lands pooled or unitized therewith.” Definitely not for one year for that particular parcel! The current well bore for this lease had many more years of production left. Note the “adjacent lands” wording that might try include more tracts than what was listed.
Since the exempted well was fairly old and shallow, it made me wonder what “they” were up to. A rig was actually already onsite drilling for a deeper prolific reservoir with FIVE HORIZONTAL WELLS planned. For the sum offered to the mineral owner/grantor, the mineral owner/grantor would have lost out on the revenue of their first well for the remainder of its production and the very significant new revenue from five new horizontal wells in a very productive zone. The new wells could last for decades. A quick back of the envelope calculation for the new wells indicated that the Grantee would have walked away with 90% of the upcoming royalties by only offering 10% of the value.
The warranty paragraph would bind the grantor “to warrant and forever defend all and singular the said property” which could have resulted in some significant attorney fees paid by the grantor at some point. Title is complex, so warranting title could be costly if you actually do not own what you thought you owned.
The third paragraph tried to prevent any future claims against any disputes. “Grantor agrees to indemnify and hold Grantee harmless against all claims, causes of action, demands, liabilities, damages, fines penalties, obligations, litigation, including all causes of action asserted or that could be asserted by Grantor. Grantor further agrees he will have no rights to any claim or can dispute any part of this assignment, including but not limited to, all claims and disputes that could arise from this assignment. No amendment, mediation, or alteration of the terms hereof shall be binding unless it is in writing, dated subsequent to the date hereof, and duly executed by the parties.“ My read as a non-attorney was “Sorry, If you find out you lost a lot of money, you can’t come back and try to get your royalties returned.”
I am not an attorney, but would never sign a contract such as this. Do your homework on the activity in your area when you get an assignment, purchase or lease offer! The message is to never sign a document that you do not fully understand. Get professional legal advice for any contract that could potentially cost you money or make you lose money because you did not know what the terms and clauses mean!
This “offer” has been circulating in TX, OK and NM in the last few months. The NARO chapters in the states affected are working to notify mineral owners to be cautious.
One of the other offers from the same agent was for multiple sections so the mineral owner would have lost out on all revenue from current and future wells in multiple sections. In that case, it might have been millions of dollars since those sections had multiple reservoirs and multiple horizontal wells pending.