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Message
Mineral Rights vs. Royaly Interest Question
Posted on 3/26/15 at 2:09 pm
Posted on 3/26/15 at 2:09 pm
I had an interesting scenario pop up on a property deal and I wanted to get your opinions on.
Person A buys a piece of property that comes with 100% mineral rights. While owning the property, they lease those rights to a company who later completes a producing well unit that the property is included in. Royalty checks start coming to the person A.
A few years later person A decides to sell the surface to person B. The deed has a clause saying specifically "person A conveys mineral rights they may own".
The royalty checks continue to come to person A. Person B questions why the royalty checks have not started coming to them.
Person A's attorney claims that at the time of the sale, person A did not own any "mineral rights". All rights were leased to the oil company and person A only has a "royalty interest". Person A can not convey the "mineral rights" now held by production by the oil company.
Person B is upset.
I know where I stand on the issue, but to the great minds of the Money Talk. Is there a difference in mineral rights vs. royalty interest?
Person A buys a piece of property that comes with 100% mineral rights. While owning the property, they lease those rights to a company who later completes a producing well unit that the property is included in. Royalty checks start coming to the person A.
A few years later person A decides to sell the surface to person B. The deed has a clause saying specifically "person A conveys mineral rights they may own".
The royalty checks continue to come to person A. Person B questions why the royalty checks have not started coming to them.
Person A's attorney claims that at the time of the sale, person A did not own any "mineral rights". All rights were leased to the oil company and person A only has a "royalty interest". Person A can not convey the "mineral rights" now held by production by the oil company.
Person B is upset.
I know where I stand on the issue, but to the great minds of the Money Talk. Is there a difference in mineral rights vs. royalty interest?
11
Posted on 3/26/15 at 2:14 pm to Clyde Tipton
Yes. Contact a lawyer.
Posted on 3/26/15 at 2:21 pm to lighter345
quote:
Yes. Contact a lawyer.
Yes what?
Which pony are you picking? Person A or person B? Who is correct?
Posted on 3/26/15 at 2:26 pm to Clyde Tipton
quote:
All rights were leased to the oil company and person A only has a "royalty interest". Person A can not convey the "mineral rights" now held by production by the oil company.
So Person A owns the rights and leased them to an oil producer in return for royalties.
I'm certainly no expert on the matter, but how would this be any different than subdividing a lot and leasing the half that Owner B did not get to a renter? Only difference is your slicing horizontally instead of vertically. Like I said, I'm not an expert, but owner B sounds like they didn't understand the terms of the sale.
Posted on 3/26/15 at 2:33 pm to Clyde Tipton
Person A
Posted on 3/26/15 at 2:48 pm to Clyde Tipton
You asked is there a difference between a mineral and royalty interest and I said, yes.
Posted on 3/26/15 at 2:54 pm to lighter345
quote:
You asked is there a difference between a mineral and royalty interest and I said, yes.
I got you.
So the current tally is 4 to 0 (including me) in favor of person A...
I don't want to call it this early, but I agree it's not looking good for person B.
My best explanation/consolation prize is that when the well goes dry, if no other wells are in the unit the minerals will revert to the surface owner since no mineral reservation was made by person A.
Posted on 3/26/15 at 3:01 pm to Clyde Tipton
DISCLAIMER - not legal advice, you should hire an oil and gas attorney
IF the previous landowner is receiving royalties it sounds a lot like a standard mineral lease. Typically if you create a mineral servitude (sell mineral rights), you get an upfront cash payment and that is it. Check the parish records to see if a lease is recorded or a mineral deed.
Technically speaking:
IF the previous landowner is receiving royalties it sounds a lot like a standard mineral lease. Typically if you create a mineral servitude (sell mineral rights), you get an upfront cash payment and that is it. Check the parish records to see if a lease is recorded or a mineral deed.
Technically speaking:
quote:
A landowner may convey, reserve, or lease his right to explore and develop his land for production of minerals and to reduce them to possession.
quote:
The basic mineral rights that may be created by a landowner are the mineral servitude, the mineral royalty, and the mineral lease.
quote:
A mineral servitude is the right of enjoyment of land belonging to another for the purpose of exploring for and producing minerals and reducing them to possession and ownership.
quote:
A mineral royalty is the right to participate in production of minerals from land owned by another or land subject to a mineral servitude owned by another.
quote:
A mineral lease is a contract by which the lessee is granted the right to explore for and produce minerals.
Posted on 3/26/15 at 3:03 pm to Clyde Tipton
quote:
My best explanation/consolation prize is that when the well goes dry, if no other wells are in the unit the minerals will revert to the surface owner since no mineral reservation was made by person A.
After 10 years of nonuse.
Posted on 3/26/15 at 3:03 pm to Clyde Tipton
Deed needed to specify a retention of mineral rights for a period of years or forever, depending on the state.
Person A is trying to cover their arse but it won't work in court. A judge will consider the mineral right conveyance to be all rights to the minerals. The oil company isn't going to spend time keeping up with conveyances so they will keep sending checks to Person A until notified of the change.
Person A is trying to cover their arse but it won't work in court. A judge will consider the mineral right conveyance to be all rights to the minerals. The oil company isn't going to spend time keeping up with conveyances so they will keep sending checks to Person A until notified of the change.
Posted on 3/26/15 at 3:12 pm to NOFOX
quote:
Check the parish records to see if a lease is recorded or a mineral deed.
Lease.
quote:
Technically speaking:
Okay here we go. It's all in the details...
Is a "royalty interest" a "mineral right"?
After person A leased the rights, person A does not have the right to lease to another company, or hire a drilling rig themselves to drill their own well. At that point I would say the oil company owns the "mineral rights".
quote:
The basic mineral rights that may be created by a landowner are the mineral servitude, the mineral royalty, and the mineral lease.
However, if you say that a "royalty interest" is a type of "mineral right", then that would have been conveyed with the sale of the property.
I go back to the deed and always consider what a judge once told me, "Read the deed. What does it say? I can only interpret what is there in black and white". The deed has a generic clause that states "Person A conveys mineral rights they may own whether known or not"
That leads us back to the original question. Is there a difference in mineral rights and royalty interest? Or is a royalty interest considered a type of mineral right?
This post was edited on 3/26/15 at 3:14 pm
Posted on 3/26/15 at 3:24 pm to Clyde Tipton
Did Person B know that royalty payments were being made before the sale?
If so, then shame on Person B for not getting the issue resolved before the sale. Person B should have hired an attorney to straighten this all out ahead of time.
Mineral rights are very confusing.
If so, then shame on Person B for not getting the issue resolved before the sale. Person B should have hired an attorney to straighten this all out ahead of time.
Mineral rights are very confusing.
Posted on 3/26/15 at 3:28 pm to Clyde Tipton
Person A is full of shite and so is his attorney.
Get your hands on a copy of the lease between person A and the o&g company and the deed from Person A to Person B. They're on file at the parish/county courthouse.
If Person A conveys "any mineral rights he owns" he is selling all his mineral rights whether they are leased or unleased. If person A's intent was to reserve any royalty interests or only convey unleased mineral interests, he would have said so in the deed. Obviously check for any depth restrictions or royalty reservations in the deed.
Lawyer up and good luck.
Get your hands on a copy of the lease between person A and the o&g company and the deed from Person A to Person B. They're on file at the parish/county courthouse.
If Person A conveys "any mineral rights he owns" he is selling all his mineral rights whether they are leased or unleased. If person A's intent was to reserve any royalty interests or only convey unleased mineral interests, he would have said so in the deed. Obviously check for any depth restrictions or royalty reservations in the deed.
Lawyer up and good luck.
This post was edited on 3/26/15 at 3:29 pm
Posted on 3/26/15 at 3:38 pm to Clyde Tipton
Short answer:
Person A's attorney is full of shite.
Longer answer (in Texas):
When a lease is signed, the Lessor gives to the Lessee a fee simple determinable estate in the minerals, giving the Lessee exclusive ownership and developmental rights over the mineral estate for the duration of the lease, and the Lessor gets a royalty, bonus and delay rentals, and the possibility of reverter in the mineral estate. All of these things would certainly fall under "mineral rights" owned by the landowner.
Person A's attorney is full of shite.
Longer answer (in Texas):
When a lease is signed, the Lessor gives to the Lessee a fee simple determinable estate in the minerals, giving the Lessee exclusive ownership and developmental rights over the mineral estate for the duration of the lease, and the Lessor gets a royalty, bonus and delay rentals, and the possibility of reverter in the mineral estate. All of these things would certainly fall under "mineral rights" owned by the landowner.
Posted on 3/26/15 at 5:03 pm to studentsect
In order to continue recieving the royalty checks, person A should have reserved the minerals, unless they conveyed the minerals with the surface and specifically reserved the royalty paid from the proceeds of Well XYZ and or XYZ Gas Unit, then Person B has the full rights to the royalty payments from the time of the sale.
Person A is full of shite, and person B should sue their asses off.
The oil & gas company does not "own" anything, they merely have the right of ingress & egress to the subject property to explore and develop oil & gas production, per the terms of the lease.
Person A is full of shite, and person B should sue their asses off.
The oil & gas company does not "own" anything, they merely have the right of ingress & egress to the subject property to explore and develop oil & gas production, per the terms of the lease.
Posted on 3/26/15 at 8:57 pm to Clyde Tipton
You can sell surface rights yet still maintain mineral rights. I've done it on property I've sold.
Posted on 3/26/15 at 9:30 pm to Clyde Tipton
Who drew up the act of sale? It will probably be interpreted against that party.
It really depends on what is meant by "right." Person A has no right to explore for or develop the property for minerals, but he has a right in the general sense of the word.
It really depends on what is meant by "right." Person A has no right to explore for or develop the property for minerals, but he has a right in the general sense of the word.
Posted on 3/27/15 at 5:57 am to Fat Bastard
Whoever owns the mineral rights is entitled to the royalties on those mineral rights regardless of production beginning before person B owned the mineral rights. Person B wins.
Posted on 3/27/15 at 7:48 am to Beerinthepocket
Shady assholes like person A keep me in business.
Posted on 3/27/15 at 7:59 am to Clyde Tipton
The lease of the minerals is secondary, or accessory, to the ownership of them. Therefore, A cannot maintain a lease of minerals for which he has no ownership.
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