Mineral Rights HBP...options?

Family has been approached on leasing a tract and we also have a tract leased. The mineral rights to these tracts were obtained through father-in laws estate.  We had no contact with the lease owner and the well that is on the one tract is 1920's and from what little paperwork we received it was plugged in mid 90's.  We still get a small royality check from it.  The well was sold and was surveyed in the 90's and from what i can tell from the papers, it was a 2900 ft deep well.  

Ok, now there you have a little bit about the tract.   What i would like to know is there any type of clause that can be added to a lease for Shale drilling?  Also from what we can tell, my father in-law had leases for 1 1/2,  2 and 3 years back in the 80's.  Did companies do leases that way back then?  Now days i here about 5 year 7 year leases and as long as the company makes an effort at the site it carries on with the lease.   We have never saw the lease contract and plan on getting in touch with the lease Co.  Is it possible the lease could be outdated or not current and could be redone?  Just asking some questions to get a feel of what to expect when we talk to them.  Thanks so much from some greenhorns LOL.

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Permalink Reply by Finnbear on December 3, 2012 at 4:56am

If you still receive a small royalty check then it was not plugged and that lease/tract is still HBP or held By Production. You need to get a copy of the lease from the producer who still sends you royalty checks to determine what the terms of that lease are. You should get copies of all those leases that were on the properties so you have proof that they have either expired or are still in force. Sometimes old leases that are still in force are very loosely held by the producers and can be cancelled by a savvy attorney who can study the lease language closely and find some minor thing where the producer has not held up his end of the deal. Back in the 80's lots of small producers would lease parcels for a pittance for a year or a few and maybe drill/maybe not drill. If they didn't drill, they were only out  hundreds of dollars, and not hundreds of thousands of dollars like with today's shale leases. You really need to have a title abstract done on the properties so you know exactly what you are dealing with and have available for lease. Only then can you move forward with even thinking about leasing with someone new.

Permalink Reply by D L T on December 3, 2012 at 1:34pm

Something must be out of sync on this lease.  I have paperwork from where the plat was surveyed and it states the well was plugged.  I know it was sold and companies changed hands.  May be that the current lease holder went and opened it back up to comply with the lease.  We still get a small royality ever so often.  I need to do some leg work and find out if we are being used and abused.  Thanks so much Finnbear for your reply.

Permalink Reply by Billy Park Whyde on December 3, 2012 at 4:12pm

A Royalty would be drawn upon the account of a oil purchaser for an example Valvoline, Quaker State  ect. What I think you might be getting is a rental fee . But if your in Ohio  the Ohio ODNR and a bit of looking at BICs KMZ files attached to Google Earth might give you a better idea. Might be also that the property was unitized with a neighbor  where your getting a royalty from another well or here is something I have not seen mentioned. Year ago if a landowner farmer back then would get a neighbor or friend to lease as a bonus they would get a overriding royalty of a 1/64th that might be where the money is coming from.  

Permalink Reply by Finnbear on December 3, 2012 at 4:46pm

A royalty would be paid to the landowner by the leaseholder/producer. They pay the landowner a % (whatever the lease specifies) of what they produce from the well, less deductions.

The oil purchaser is who the leaseholder/producer sells the oil to and they would not normally have any dealings with a landowner.

Permalink Reply by Billy Park Whyde on December 3, 2012 at 5:38pm

Finn  all my Royalty Checks have been by the purchaser through division orders be it Quaker State, Valvoline or Enron . They produce upon the check the amount of oil taken from that date, my 1/8 share and the price at the time. It also shows the wells owner on the check stub as well. At least here in Ohio has been the practice on my wells since 1980. 

  My reply to DL was a few ideas as this came down from an estate where a royalty could be made out to another besides a land owner. I myself have a over riding royalty in a property that I do not own myself. That's been a while ago as the well has dropped off but it was 1/64 over ridding royalty. I was letter informed I was taken off the division orders as the well had dropped off and the amount was trivial. But the lease still shows my 1/64 and is HBP if it gets pooled into or unitized into a larger drilling unit hello!  If my family knew nothing of that they would probably think it was from the well upon my property current. 

  Seems as if nothing is really clear cut in this business IMHO.  

Permalink Reply by Billy Park Whyde on December 3, 2012 at 5:54pm

DL  I have had two wells that were pulled and plugged in both cases the wells was sold for salvage with buyer paying for plugging. This is probably the chain of event that took place. But the Royalty as I stated could be from another source a over ride as a landsman fee, it could be possible he invested in a well  he was a part owner in a well other than one connected to the property as well. A check stub should show the origination of the source.   

Permalink Reply by D L T on December 3, 2012 at 7:10pm

The well that is on this Wv. tract was drilled back in early 1900's and was sold in the late 80's.  The company who bought the well was dispersing checks at one time.  I don't think they had the lease from reading the oil company owners letters. One letter i read said the well was full of water and not doing much and one letter said it was plugged.  Energy Co. of America ended up sending out small checks about the year 2000. I am going to get in touch with and find out what they have as far as a lease goes. We had not really researched the rights and leases and only found out recently that there was a tract that had not been leased that is beside this one. I know that nowadays the mineral rights and leasing is bigger news than when no one talked drilling back several years ago.  We were offered 1500. an acre and 12.5% for a 5 year lease on the other tract but, nobody in the family has said they would take that.  This tract has no well and i believe someone wants it to tie in with rest of the properties there. I am not concerned about that tract so much. I would like to find out if ECOA is in so-called production on the other tract or did they abandon the well and are sitting on the lease.  It would be easy for them to sit back and do nothing if no one came calling.  If needed, i am sure they could run out there and make a weak effort to say they were in production.  Time will tell.

Permalink Reply by Jack Straw on December 4, 2012 at 4:50am

RE: "Energy Co. of America ended up sending out small checks about the year 2000. I am going to get in touch with and find out what they have as far as a lease goes."

Prior to contacting ECA, it might be to your ultimate benefit to first invest a couple hundred dollars in discussing your situation with an Attorney who has O&G experience. Any lease associated with your property should be associated with the property deed and available at the appropriate County Courthouse.

Premature contact with ECA might encourage them to take preemptive actions that could “muddy the waters” in a manner that could work against your interests.

 

All IMHO, nothing stated above should substitute for advice from a qualified attorney,

 

JS

Permalink Reply by Finnbear on December 4, 2012 at 5:06am

Excellent advice from Jack Straw. The oil and gas business is a high stakes poker game. Don't show your hand until you absolutely have to.

Permalink Reply by Billy Park Whyde on December 4, 2012 at 5:46am

I'll go along with that as a fact Jack lol!  and with Finn! By the way I start to work in the oil patch this Thursday myself!  

Permalink Reply by D L T on December 4, 2012 at 10:36am

Well i found out today most of what info i was lacking on our mineral rights.  ECOA. has the lease on our 20 A. and they have a well on it in "production".  When they sent the copy and a map i could see that the tract was not the one i had read about in other old letters.  The one that i am referring to is 40 A. and we were not paying the taxes on this tract and as of this month thought the two were the same.  I contacted the Assesors office and a nice lady found out the info after giving her the names of my wifes ancestors.  Come to find out one of my wifes cousins pays the taxes and has never contacted anyone on the matter.  My wife has been paying taxes on the other tracts.  I would say that we will have to get with the families who are heirs of these rights.  Man that is like pulling teeth, but it will eventually have to be done. This is what happens when some of the older generation never kept their children informed on things like mineral rights and property and who owns them.

Permalink Reply by D L T on December 6, 2012 at 6:17am

We finally figured out what tracts we have and the mineral rights owned by our family.  It took several phone calls and asked questions and a few headaches.  We had a meeting again with a land agent and he was wanting us to sign a lease for our percentage of the mineral rights.  There are 4 other family members that have a percentage also on this tract.  What are the pros and cons with just one or two members signing a lease and how does that work?  Good or bad?   Thanks with all your help

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