Replies to This Discussion

Permalink Reply by Jim Litwinowicz on September 19, 2011 at 3:24pm

Depends on whether or not the gas and oil rights were included in the sale of the 5 acres. If the rights were reserved prior to the sale, then you can include them in the lease. If they were part of the sale, it is up to the new owners to lease or not to lease. And whomever owns the rights gets the bonus and the royalties.

The gas company will notify them if the rights get included into a unit.  I don't think you have an obligation to notify them but I am not an attorney don't take my word for it.

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Permalink Reply by Tom F on September 19, 2011 at 3:31pm

Thanks Jim.  This raises a new question.  If there is nothing on the deeds that states the oil/gas rights have been reserved by the previous owners is it then assumed that the new owners have these rights?  In other words, do the rights automatically transfer with the sale of the land?

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Permalink Reply by Jim Litwinowicz on September 19, 2011 at 3:35pm

Yes; unless stated otherwise, the rights transfer with the surface rights.

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Permalink Reply by Tom F on September 19, 2011 at 3:47pm

Your replies confirm what I thought.  I will take your advise and consult an attorney at an upcoming seminar.  It's always nice to have additional opinions.  Thanks again.

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Permalink Reply by Jim Litwinowicz on September 21, 2011 at 3:56am

Finnbear;  In most other states, reserving the mineral rights includes oil and gas but not in Pa. In Pa the reservation must state "Oil" and/or "gas" to reserve the oil and/or gas rights.

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Permalink Reply by Finnbear on September 21, 2011 at 4:07am

The rights stay with the land unless you specifically reserve them. This would be noted on the deed for the 5 acres at the time it was split off the larger parcel.

If you reserved the oil & gas rights prior to selling the 5 acres, then, yes, you can include them in your lease. In this case, you would not need to notify the owner of the 5 acres, but the lessee would IF they wanted to do any surface operations on those 5 acres. In general, they won't do any surface operations on a small parcel or on a parcel where the oil & gas rights holder and surface owner are not one in the same.

If you did not reserve them, then you could contact the new owner and give them the contact info for the lease agent you are dealing with to see if they are interested. Sometimes, getting your neighbors to all sign with the same company can be financially advantageous because it allows the lessee to build a drilling unit easier and faster. The signing bonus and royalties go to whoever owns the oil & gas rights.

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Permalink Reply by BICS on September 23, 2011 at 1:32pm

I am aware of a slightly different land sale situation which might be of interest; a land owner sold their land which had an active-HBP oil and gas lease. The new owner got the mineral rights but allowed the original owner to keep the future royalties of the existing lease as long as it remains active…   As we who have old leases know, this lease could last forever - as long as the oil and gas lessee keeps finding and producing oil the lease remains active.

Can the old lease lessee drill new wells on/under this land; if they find oil does the new land owner lose out because the well is bound to the old oil lease, even though they own the mineral rights?   Was this a mistake by the new owner or is there a way out?  

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Permalink Reply by Jim Litwinowicz on September 23, 2011 at 4:02pm

From what you described, the royalty goes to the prior owner. But it depends on just how the deed was written and what state your in. In Pa, if the prior owner reserved the "mineral rights" then the new owner gets the royalty as oil and gas is not covered by "mineral rights"...at least for now(see Dunham's Rule discussion). If the sales agreement stated that the prior owner received all royalties from the existing lease then the prior owner gets them.

 

And to muddy it further, it depends on the lease language.  If the lease specified what strata were leased, the shale play may not be covered by that lease.

 

Additionally, you didn't give the acreage of the parcel in question. If the acreage is larger than the unit size of the existing lease, than partial royalties could go to the new owner. Further, if there is a Pugh clause in the existing lease, than again partial royalties may go to the new owner.

 

In short, have a O & G attorney review all relevant documents.

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Permalink Reply by Finnbear on September 23, 2011 at 5:13pm

And don't use the "attorneys are too expensive" excuse because those fees are a dollar for dollar tax deductible expense in relation to oil and gas leases and the income associated with them. You can pay it to the attorney in fees or you can pay it to the IRS in taxes - either way, you will pay it out. Where would you rather send your money, a local businessman or that black hole we call Washington?

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Permalink Reply by BICS on September 25, 2011 at 3:17pm

Jim, thanks for the info…the sale was Ohio land, I got a copy of the deed online and found the clause:  “Grantors convey to Grantee all mineral rights and royalties that are owned by Grantors excepting therefrom all royalties from the presently existing oil and gas leases which are retained and reserved to Grantors, their successors and assigns. “.  There was nothing in the lease limiting oil gas exploration, operations, strata etc so it looks like it could be perpetual. 

 I saw on another thread on his forum where someone stated there are folks who are offering to buy the mineral rights for land that is currently leased.   If the above clause is solid then getting the mineral/Oil Gas rights has little value as long as the lease is active - they really need to purchase both the mineral rights and the current lease(s).   

Regarding paying for attorney services, we already scheduled a consultation but I posted to gain some knowledge, I find I get much more out of a meeting when I have some knowledge of the subject beforehand.  The Internet is a Gutenberg Press on steroids - anyone and everyone can now publish and share information and this forum is a great example!

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