Greetings, My Sibs and I have small mineral rights in this tract. We received a lease offer from Rockcliff. The offer is a “Top” Lease. New to me, there appears to be valid underlying leases?? Not sure how to respond. Has anyone dealt with this before? Offer is $200 bonus, 1/5th. Thanks, WSD 80.00 acres, more or less, situated in the M. V. Mann Survey, A-486, Panola County, Texas, and being the same land described as “SECOND TRACT” in that certain Mineral Deed dated January 14, 1936, from J. B. Bond to Smith Price, and recorded in Volume 109, Page 237 of the Deed Records of Panola County, Texas.
Many of us are not fans of top leases as they can get very sticky. Here is an article regarding issues with top leases. An Overview of Recurring and Related Issues Involving Top Leasing.pdf (210.2 KB)
Hello,
Hopefully I can give you some insight as to what is going on in the M V Mann Survey. Yes, all of the acreage in the Mann Survey and Bissell Survey, as well as, several other surveys adjoining are being held by old Marshall Exploration leases that are owned by Brammer Petroleum. The old leases in affect right now are holding your minerals in perpetuity whether they are producing in payable quantities or not. Brammer is doing nothing with them, except holding them. Rockcliff is putting together the Top Leases to take them to court, and have the old leases terminated. Their case is really strong, considering a group of land owners a few years back just to north of you took Brammer to court and got their minerals released. I have already negotiated and signed Top Leases for my grandmother in the Bissell Survey and have no worries about doing so. Rockcliff will go higher on the Lease Bonus as well as the Royalty Interest. Best thing to do is work with an oil & gas attorney that is familiar with the operators and the area and can give you good legal advice.
Greetings Chris, We have a new offer, 1/5 w $1000 per acre bonus, (however, only 30% now, remainder conditioned on top lease being successful). Can you or anyone else share what you were able to negotiate? Many Thanks, WSD
30% upfront on the Top Lease is about as good as you’re going to do. Keep pushing them. You can get $1,000/acre lease bonus (like they’ve offered) with a 22.5% RI, as well as, a true Cost Free Royalty Clause. Basically that means the only thing coming out of your royalty check each month is taxes and a small environmental fee, but nothing else for compression, transportation, treatment, etc… But you better make sure the wording states so. Also, If you’d rather have a 25% RI, they’re willing to do it, but not with a Cost Free Royalty. You’ll end up paying for your portion of post production costs and taxes. This can add up to 15-30% of your royalty check (dependent on prices). You’ll make more money in the long run with a 22.5% Cost Free Royalty.
Thank you! I will find wording for Cost Free Royalty Clause.
See below the language that was accepted:
Notwithstanding anything herein to the contrary, it is expressly agreed and understood that the royalty reserved to lessor herein shall be absolutely free and clear of all costs and expenses of every kind or character except lessor’s part of ad valorem and production, severance or excise taxes. By way of explanation, but not limitation, Lessor shall not be required to pay any part of expenses of separation, dehydration, compression, marketing, transportation, treating, manufacturing, or any other deduction or charge whatsoever and all such costs, charges and expenses shall be borne and/or paid by Lessee and shall not be deducted from royalty to be paid to Lessor. Lessee shall pay Lessor royalties at the same price Lessee realizes from the first off unit sale of oil, gas and other hydrocarbons which is made to an unaffiliated third party.
Dear Mr. Graham,
With respect, I can see why they accepted this language. In my opinion, this language does not satisfy the law created in the 1996 Heritage Res., Inc. v. NationsBank 939 S.W.2d 118, 121 (Tex. 1996) case. What I am trying to say, is that your Lessee may have wiggle room to go ahead and charge the royalty owner(s) deductions anyway and if you wanted to litigate the case, you would likely lose because of the law created in the Heritage v NationsBank case.
Deductions and prohibitions to deductions have been the subject complex legal commentary over the years following the Heritage v NationsBank case…
In the Heritage case, the court really knocked over the apple cart in its decision.
I would recommend to all that the royalty clause be entirely rewritten to avoid the burdens created by the 1996 Heritage Res., Inc. v. NationsBank 939 S.W.2d 118, 121 (Tex. 1996) case.
Best regards,
Buddy Cotten
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Thank you for your post. Do you have an example of a clause that would avoid issues described in the Heritage Res case? Thanks, WSD
Hi, WSD.
I have great royalty clauses in multiple, very comprehensive lease forms that I have developed. The problem is that the clauses are inextricably linked to the form to which they are a part of.
I really don’t want to encourage people (not necessarily you, but any old Joe that might read this) to cut and past a great clause into a form that it really does not fit. You end up sometimes with what I call a Frankenstein lease form created by just adding clauses from where they might find them. Having a form that is poorly drafted is not a good idea. Drafting agreements is a peculiar form of art (IMHO).
Best regards,
Buddy Cotten
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I understand your propitiatory financial interests as a retired trial/appellate attorney. (with no oil/gas expertise) Perhaps you should let folks know on this site you are advertising for employment, as opposed to offering advice. Skol
Buddy,
I appreciate and respect your input and opinion on my above response. I believe that something (big or small) can be learned from every bit of information that others provide. I see the point of what you’re saying based on the case you referenced. The language that Rockcliff accepted was not written by myself or another old Joe that had no legal experience. The language was written by a very reputable oil & gas attorney that has decades of experience writing oil & gas leases in the East Texas Haynesville/Cotton Valley Plays. I counseled in length with him on the language to ensure and confirm that Rockcliff, or any future operators of the lease, could twist the language to deduct post production costs with no repercussions or legal action against them. The mineral owners I have spoken with who have the same language have been treated right and seen only taxes taken out. I’m not saying that another operator couldn’t deduct post-production costs based on the language Rockcliff accepted. The major operators/producers in Panola County honor the language as read. I feel it’s a case by case basis as to the language structure of the clause based on the strength/reputation of the operator/producer and the foundation and background of the field/play being leased in question. Having multiple tracts of mineral acreage in Texas and North Louisiana that are open, it gives me something to take into consideration if/when said acreage receives lease offers.
Thanks, Chris
Dear Chris,
Thank you very much for your thoughtful reply.
Out of idle curiosity, does the lease form provide for a floor for gas prices, i.e., being tied to a benchmark natural gas price (such as not less than the Henry Hub or Houston Ship Channel price), or provide that the Operator can not sell to a subsidiary at less than an arms-length transaction?
Also, the provision makes reference only to the royalty paid on gas sold. What about lease use gas or gas flared? In my opinion, there needs to be compensation for that gas as well. This language might be contained in another provision of the lease form.
There have been many cases (Chesapeake comes to mind) where the first sale was to a subsidiary (Iike Chesapeake MidStream Operating, LLC) at a highly discounted price, which in the language that I saw, would be what the royalty was tied to (point of first sale). This is a common way for a less than fair dealing Operator to limit their royalty exposure.
I am not trying to stir anything up. There are a lot of moving pieces in a well-written royalty provision. Comprehensive and not open to interpretation is the goal.
I am glad that you are well satisfied with your attorney. All attornies want their clients to have faith and trust in their work.
Warmest regards,
Buddy Cotten
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Buddy,
The lease form from my reading and reviewing does not put a floor for gas prices. Also, while provision references royalty paid on gas sold, I need to look back to see as to whether lessor is paid on gas use or gas flared.
And yes, you’re absolutely correct as to the provision language stating that lessor’s royalty received would not be less than the price on gas received by lessee at first off unit point of sale. I believe the language specifies that first off unit point of sale received by non-affiliated third party. In other words, Rockcliff’s first point of sale could not be the price observed at Gemini (third-party0, since Gemini is tied to Rockcliff.
I did have a Records Review Provision added to the lease in the event that I noticed any suspicious price differences on the royalty statement versus the going rates, allowing my attorney and I to review any and all financial records tied to our minerals.
As I was once told by a mentor of mine whom has negotiated numerous leases over the years, there’s always something you can think of later down the road or learn about that would’ve been beneficial language to have in the lease that was signed. So, instead of living in the past, I’ll take these tidbits and forward with me and incorporate them in future leases. And you’re absolutely correct, there are many many moving pieces to a well written lease. And just when you think you have a lease that has no flaws, you realize something that could’ve been tweaked just a bit to your advantage.
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Dear Chris,
Right you are. Most of the provisions come about because of a problem that needed solving. So much of the language comes about because of a court case that provided bright line language that solved the problem.
The OGML is the fundamental instrument for exploration and production to begin. It is also the least understood by the Landowner and, sadly, by so many landmen.
Best of wishes. I hope that someone hits a bonafide barnburner on your minerals!
Buddy Cotten