I am a landman who has been tasked with ratifying a NEMI non-executive mineral owner (not a NPRI) who owns minerals under a producing, drillsite tract in a frac unit. I have read that owners of NPRIs can take the entire royalty if they are approached to ratify after the well has been drilled. What is the worst case scenario for the oil co if the owner of the NEMI in this producing drillsite tract refuses to sign and lawyers up? This was an oversight by oil co by the way. Thanks for your help.
State?
TX
r w kennedy said:
State?
By searching this site, it seems that the mineral owner will own a proportionate working interest in the well after payout.
The unratified non executive does not wait until payout, since he is already leased by the actions of the executive.
Incidentally, was the non executive paid his share of lease bonus?
The worse case scenario for the oil company is that the non-executive shares in production as if all the production came from his tract. This is a very grey area of the law and to my knowledge has not been litigated. Two bills came up in the legislature in the past two years to deal with this issue and never came to the floor for a vote. Right now the legislature is out, so next year it will be argued again.
Best
Buddy Cotten
Buddy, I am missing something here. If the NEMI is already leased by the executive, I don't see where the operators problem comes from as there should be a lease in place stipulating a royalty that the executive was empowered to execute. If the executive did not have the right to lease the NEMI's minerals and the NEMI must ratify, then is the executive right truly meanigful?
I am in process of ratifying the NEMI and the oil co has royalty $ in suspense plus bonus $ ready to be paid once the owner signs. Mr. Cotten's comment was what I was afraid of although I had read about that being applied to NPRIs in particular, hence my question. I find it unbelievable that the unleased non-exec owner could possibly get to benefit so greatly. Now I'm wondering if it would be at the expense of other owners getting reduced (that wouldn't seem fair) or would it be a matter of oil co paying double? Good point Mr. Kennedy. Thank you and Mr. Cotten for helping all of us out on these boards.
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Actually, I think what y'all are telling me is that the NEMI owner would get 100% times (X) the # of nma that NEMI owns instead of the royalty (20% - 25% for example) times (X) the # of nma. In such a scenario, no other owners would be affected. Is my understanding correct?
Bob,
The problem is that the pooling transaction is created by a cross conveyance of minerals. The executive has no right to convey the non-executives minerals, so the pooling provision does not apply to him unless he ratifies the lease or the pooling provosion.
Buddy
r w kennedy said:
Buddy, I am missing something here. If the NEMI is already leased by the executive, I don't see where the operators problem comes from as there should be a lease in place stipulating a royalty that the executive was empowered to execute. If the executive did not have the right to lease the NEMI's minerals and the NEMI must ratify, then is the executive right truly meanigful?
Let us say that the NEMI owned 1/2 of the minerals and the lease provided for a royalty of 20%; Then the unpooled drill site NEMI owner would be entitled to a royalty of 10% royalty in the well. That is their worse case scenario.
Buddy Cotten
John Goode said:Actually, I think what y'all are telling me is that the NEMI owner would get 100% times (X) the # of nma that NEMI owns instead of the royalty (20% - 25% for example) times (X) the # of nma. In such a scenario, no other owners would be affected. Is my understanding correct?
What if unleased NEMI owned 1/2 minerals in 40 ac drillsite tract in 640 ac producing fracing unit and the 40 ac tract, leased to owner with executive rights, was given 20% royalty. Is the worst case scenario for oil co that it would have to pay the NEMI 10% of the ENTIRE production out of the well or would NEMI be proportionately reduced to 10% of 40 / 640 ? Hard to believe that it would be entire production. Makes more sense to me if worst case is that NEMI would get 100% of the 20 ac. Your feedback is greatly appreciated.
Nope. Worse case scenario is the NEMI owns 10% of the well production.
You keep saying that the NEMI is unleased. I think that you mean un-ratified.
Remember, he is likely leased, just not ratified. Only thing the ratification does is agree to the pooling provision of the lease. Depending on the terms of the reservation, typically the NEMI has to do nothing to have his interest bound to the actions of the executive.
NOW, the NEMI should be pitching a holy fit for withholding the bonus pending a ratification of the lease. That is ridiculous and he will be able to cut a fat deal for himself if that were the case.
I had a client in that exact situation. No money without the ratification. I threw a fit and she got her money. Now they want to talk ratification. I told them that we would ratify only if the lease terms were changed to suit our needs, like no deducts, continuous drilling, etc. They caved. They had no choice. It was a 600 plus acre tract that they needed to drill and perf through.
Buddy
John Goode said:
What if unleased NEMI owned 1/2 minerals in 40 ac drillsite tract in 640 ac producing fracing unit and the 40 ac tract, leased to owner with executive rights, was given 20% royalty. Is the worst case scenario for oil co that it would have to pay the NEMI 10% of the ENTIRE production out of the well or would NEMI be proportionately reduced to 10% of 40 / 640 ? Hard to believe that it would be entire production. Makes more sense to me if worst case is that NEMI would get 100% of the 20 ac. Your feedback is greatly appreciated.
Buddy you just answered my next question, which was - what is the value of being an un-ratified NEMI in this scenario. It sounds like the power is really in the hands of the NEMI in some cases. Either way, the operator should not be withholding the bonus money, ratified or not! Every scenario is different, but this is exactly why having proper consulting and evaluation of your minerals can mean the difference between wasted postage and a new truck.
Yessir. And Mr. Cotten you are right, I meant to say un-ratified. I'm severely overloaded on curative issues right now. That's my excuse and I'm sticking to it. hahaha Thanks again for your help! Can't tell you enough how valuable your feedback is to all of us.