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Subject: mineral rights severed from surface rights
Question: My question is this: It is my understanding that if the mineral rights are severed from the surface rights, the revert back to the owner of the surface rights after 10 years as long as there was no production on the property. If I acquire a property from a landowner who bought the property with the mineral rights severed 6 years ago and there has been no production in the last 6 years, do I have to wait an additional 10 years after I buy the property for the mineral rights to revert back to me, or do they revert to me in 4 years which mark the 10 year period with no production, even though that 10 year period included multiple owners? Thank you

Answer: (November, 2012)
James R. Morton | Taggart Morton L.L.C. | 1100 Pydras Street, Suite 2100 | New Orleans, LA 70163

The intervening owners are irrelevant to the issue of the expiration of the mineral servitude. That means that if there is no production or operations on the land in question for the ten year period since the mineral servitude was created, the minerals will revert to the surface owner. Note that drilling operations on the property would start a new ten year period even if they resulted in a dry hole and no production was obtained.

Subject: Terminated lease 2
Question: Thanks for your quick response. There is no opertions going on. The lease was for a primary term of 5 years. Terms for year 1 and 2 was spelled out. The lease says it terminates Sept. 3, 2011. They sent me a check this year. I sent it back. Cause the lease clearly says it terminated Sept.3, 2011. I think they made a clerical error in my favor saying the lease terminate Sept. 3, 2011. Do you think I can renogiate my lease? Thanks for quick response.

Answer: (September, 2012)
James R. Morton | Taggart Morton L.L.C. | 1100 Pydras Street, Suite 2100 | New Orleans, LA 70163

You need to read the entire provision of the lease. The lease normally reads that the lease will terminate on the first anniverary date (in this case September 3, 2011), unless they have operations ongoing on the property or pay a delay rental, which they apparently did. As long as they pay the rental timely each year, the lease will continue for the full five-year term. Sending the rental back doesn't terminate the lease, as they only need to tender it to you. You might contact them and ask for it back. If you want to be certain of what I'm informing you, the lease would have to be reviewed by an attorney, but you would have to pay someone to do that. The provision I quoted to you is standard, and if you signed a printed form lease, it is almost certainly in there the way I have described it.

Subject: Terminated lease
Question: Hello, I signed a 5 year oil lease in 2010. Year 1 and 2 lease agreement was spelled out. I got paid rental yearly. 9/3/2012 the lease terminated. The lease says it clearly. I want to negoiate year 3 to 5. Now I want $226 per acre plus bonus money and 3 years paid up which is what the State of louisiana received in the unit pool. The land company say the old terms($200 per acre) are still in affect. I am right that I can renegoiate my terms of year 3 to 5 lease since the current agreement has terminated.

Answer: (September, 2012)
James R. Morton | Taggart Morton L.L.C. | 1100 Pydras Street, Suite 2100 | New Orleans, LA 70163

There is a missing link here. If this was a five year lease, and you got paid the bonus the first year and the rental the second year, did the oil company not pay the rental due before the anniversary date in 2012? If not, and if the oil company did not have operations ongoing on the property or on lands pooled therewith, you would be correct that the lease would terminate and you would be free to renogotiate new terms. The oil company apparently believes that the lease is still in full force and effect, however, which leads me to believe that they either paid the 2012 rent timely, or maintained the lease via operations. You just need to get your facts and then you should know how to proceed.

Subject: can one family member prevent a producing lease from being renewed?
Question: 5 family members hold the minerals rights on a producing oil and gas lease. A family rift has occurred. When the lease comes up for renewal, one family member is threatening that they will not sign it. Can they prevent the lease from being renewed because they won't sign?

Answer: (March, 2012)
James R. Morton | Taggart Morton L.L.C. | 1100 Pydras Street, Suite 2100 | New Orleans, LA 70163

That will depend upon the oil company, but it could cause you a problem. Let's say that all family members own the property in equal shares. That means you and the three family members who want to lease could in fact lease your combined 80% of the property to the oil company. The oil company could then drill a well, but the non-signing family member would still own 20% of the property, and would be entitled to a 20% share of any discovery the oil company would find. He would be a 20% unleased working interest owner. It is very unlikely that the oil company would drill a well with a 20% interest in the property unleased (they might do it if the unleased owner had a 5% interest or less, but if it is higher than that amount, they will likely pass on the deal). One option you might have to eliminate the problem would be to force a partition of the property. Under Louisiana law, you are not required to remain a co-owner of property with a third party (family member or not). The partition route is the way to eliminate the co-ownership problem. You and the other four family members would then be in a position to buy your reluctant family member's interest. A simpler solution would be to simply get him to agree to sell his interest to you, but if he is so uncooperative, the partition route may be your only solution. It's not a quick or inexpensive process, however.

Subject: Sub Servitude
Question: Is there any problem for the lessor when a "sub servitude" stipulation is included in an oil lease, stated as considered separate and valid as long as the lessee uses it?

Answer: (January, 2012)
James R. Morton | Taggart Morton L.L.C. | 1100 Pydras Street, Suite 2100 | New Orleans, LA 70163

When you say "problem," I'm not sure exactly what you mean. I sure don't like that type of a provision in my oil and gas leases when I represent the landowner. What it means, if I'm interpreting your question correctly, is that the lessee gets the right to drill underneath your property to a location outside of your property, and as long as that well (not on your property) produces, the lessee has a right to utilize the subsurface of your property for no additional consideration (other than the initial lease payment), even if you receive no production royalties from the well in question. Without that provision, the Lessee would have to pay you separately for that subsurface servitude. It's a matter of negotiation, but they have to bring me kicking and screaming in order for me to recommend that my clients accept that provision. It all depends upon bargaining power. If you are desperate for the oil and gas lease, you may need to swallow hard and accept that provision. If you aren't that interested. you can negotiate a little tougher (either take it out completely (best in my view), or pay me for it either now or at the time you want to use it).

Subject: oil and gas lease
Question: I would like to speak to a lawyer who would represent a family in dealing with an oil company concerning a lease for the placement of a saltwater disposal well on marsh land owned by a family. We would like four questions answered before we move to the contract stage. What is the prevailing rate per barrell for this area for saltwater dispersal? Should the lease for a now-defunct well on the property be separate from the fee for the well's operation? How many family members of eight would have to agree to ratify an agreement? Are there other saltwater dispersal well in this region (lower St. Bernard Parish marsh)? What would be the fee for reviewing any contract agreement with the oil company?

Answer: (September, 2011)
James R. Morton | Taggart Morton L.L.C. | 1100 Pydras Street, Suite 2100 | New Orleans, LA 70163

These are all intesting questions, but I'm not sure I have the answers to many of them. I'm not sure the oil company will be willing to pay you on a price per barrel for a salt water disposal well, but anything is possible, I suppose. Normally, they would likely want to pay you a one time fee, or possibly an annual rental for as long as they are using the salt water disposal well. There are other issues (ingress and egress to the well, damage to property, etc.). I do think you need a lawyer to review the contract before you sign it. Rule No. 1 is to get the facts. It's not clear to me if there is an existing oil and gas lease on your property. If you have a now-defunct well on your property, it sounds like there may have been a former oil and gas lease that has now terminated. It's also not clear if the oil company wants the salt water disposal well for production from your property or a neighbor's (likely a neighbor's. It is a little unusual for them to want to put the well on your property, but perhaps they want to use the now-defunct well as the salt water injection well. I don't know if there are other salt water disposal wells in your area, but I suspect there are. If all eight family members have an undivided interest in the property, the oil company likely will want everyone's signature on the contract, although they might agree to take a lease from less than all (that's up to the oil company). My standard rate is $250 an hour. I would review whatever contract the oil company wants you to sign on an hourly basis. It's really impossible to predict how much time it will take me to do this without seeing the contract first (is it one page or twenty pages?). Let me know if I can be of assistance to you. I should be able to help, as this is one of my practice areas. Jim Morton (504) 599-8507

Subject: leasing and 10 year reversion rule
Question: Can the owner of the minerals, with two years left before the mineral ownership reverts back to the fee owner, commit the minerals to a 2+X years lease?

Answer: (August, 2011)
James R. Morton | Taggart Morton L.L.C. | 1100 Pydras Street, Suite 2100 | New Orleans, LA 70163

You could, but if no drilling operations are conducted on the leased premises during the first two years, the lease will be void thereafter. On the other hand, if the lessee commences drilling operations before the end of the two year period, he will interrupt prescription on the contiguous acreage for another ten years from the time the drilling operations (or subsequent production) cease. You would want to make it clear to the lessee that you are leasing a mineral servitude interest that expires in two years in order to encourage the lessee to drill before the end of the two years, thus preserving your mineral interest for at least another ten years.

Subject: oil and gas lease
Question: I sold some property in Louisiana and retained 50% of the mineral rights. 2 years prior to the end of the 10 year period I signed a 3 year oil and gas lease. Before the end of the lease Oil and gas was discovered. They are saying I am not entitled to royalties because the 10 year period was up. I contend the lease extended the time period.

Answer: (April, 2010)
James R. Morton | Taggart Morton L.L.C. | 1100 Pydras Street, Suite 2100 | New Orleans, LA 70163

I'm afraid I likely don't have very good news for you here. It is the actual operations for the discovery of minerals that interrupts the running of the 10 year prescription period, not the signing of the oil and gas lease. You will need to find out exactly when the operations for the new well commenced. If that occurred prior to the expiration of the ten year period, you would have another ten years on the mineral servitude. It likely would have been better to enter into a two year lease so that oil company would have been forced to commence the operations prior to the expiration of your mineral servitude, but hindsight is always 20/20.

Subject: Oil
Question: An oil company negotiated a lease with me and we all agreed to the lease. I have signed, notarized and sent the lease back. The landsman then took two weeks to review the leased then he can back to say that the oil company has decided not to accept my signed lease. I believe that the leased has been executed. I could not believe that this happened. Do I have any rights to close this deal? Or is it a lost situation? Now I feel they may want to try and make me an unleased owner.

Answer: (April, 2010)
James R. Morton | Taggart Morton L.L.C. | 1100 Pydras Street, Suite 2100 | New Orleans, LA 70163

Unfortunately, there isn't much you can do here. In order to have a contract (an oil and gas lease is a contract), you need two parties to sign the contract. It sounds like the oil company sent you a lease, you agreed to their terms, you signed the lease and sent it back to them. The oil company then appears to have changed their minds, didn't sign the lease, didn't send it back to you, and didn't pay you the lease bonus. I don't think there is much chance that you will become an unleased owner, as the oil company appears to have lost interest in leasing your property. That could change and they might be back again in the future. Next time, I would suggest rather than signing and mailing the lease to them, you arrange to have the landman come pick the lease up from you and exchange your copy of the signed lease for their check for the bonus money. They can then mail you a fully executed copy of the lease, but at least you will have the bonus money in hand. You can tell them what happened here as the reason why you won't be signing a lease, mailing it back to them and keeping your fingers crossed that they honor their part of the bargain. While you can have an oral lease in Louisiana, that is a hard thing to prove. I suspect the oil company will argue that they never agreed to the terms of the lease. You would have to sue them to try to enforce the oral lease, and the cost to do that would likely be prohibitive.

Subject: Expired Lease
Question: I had a lease with an Oil company from Feb 2008 thru Feb 2009. In November 2008 they began production on a re-entry well. The orginal lease expired in Feb 2009. The company now wants us to sign a new lease back dated to Feb 2009. My question is if we leased when production began why do we need to sign a new lease wouldn't the orginal lease still be valid ?

Answer: (January, 2010)
James R. Morton | Taggart Morton L.L.C. | 1100 Pydras Street, Suite 2100 | New Orleans, LA 70163

You have pretty much hit the nail on the head. Something doesn't add up here. If they did in fact have production from the property in question on February, 2009, when the primary term of the lease expired, the lease would normally continue until 90 days after production ceased without a resumption of operations. You just need to get the facts. It's possible that only part of the acreage was in a valid Commissioner's unit when the lease terminated, and if the lease contained a Pugh Clause, it's possible that the acreage outside the unit terminated and they need to acquire a new lease on that outside acreage. I would have to review the lease in order to give you the best advice, but if all of the acreage under the lease was in fact maintained by production at the end of the primary term of the lease, there would be no need for the oil company to lease the property again. I suspect that unless the oil company has made a mistake in the facts surrounding your property, the property was not held by production when the primary term expired.

Subject: Gas Rights
Question: I have some drilling going on about a mile from my house. The land that my house is on is currently being tested. If they offer a lease on my .8 acres do I have to sign it? If I do not sign it do I become a working partner? Instead of 4/16 would my interest them be 16/16? Why would that not be the best option for someone who has .8 acres in the middle of all the oil?

Answer: (December, 2009)
James R. Morton | Taggart Morton L.L.C. | 1100 Pydras Street, Suite 2100 | New Orleans, LA 70163

You are correct that if you don't sign an oil and gas lease and your property is included in a producing oil and gas unit, you would become an unleased working interest owner. As such you are entitled to, as you put it, 16/16 of the oil produced from your property. There is a very big catch, however. Before you will see a dime, you also have to pay for 16/16 of your share of the cost to both drill the well, and operate it thereafter (i.e. if you had one acre in a 100 acre unit, you would have to pay 1% of the costs). What that means is that the oil company has to recover all of its costs for drilling and operating the well (called payout) before you will be entitled to your net share of future production. Now if the well is a barn burner and pays for the cost of drilling the well many times over, you could theoretically make out better as an unleased working interest owner. The problem in my experience has been that when unleased working interest owners are involved, the well never pays out and the unleased working interest owner never receives anything. On the other hand, if you had leased your land, you would have received some money in the form of a lease bonus and your would receive the royalty (apparently 1/4 based on your message) from the date of first production because royalty owners don't pay for the cost of the well. Accordingly, royalty owners receive their royalty regardless of whether or not the well pays out. One other problem for the unleased working interest owner is the issue of monitoring the costs the oil company can tack onto the well. Your interest isn't big enough to make auditing the oil company practical. In my experience the oil company may tend to lop a lot of costs onto wells that have unleased working interest owners in the picture, which again makes it more difficult for the well to pay out. On balance, my advice is to sign the oil and gas lease and at least get something for the minerals produced from your property, but that is up to you.

Subject: oil and gas
Question: everything in my section is leased except my 30 acres.. Do you think they will come back to leases me before they drill??? what will happen if i decide not to lease because they want pay me what they payed everybody else in my section?? and if they drill without leasing me what kind of royality will i get??

Answer: (October, 2009)
James R. Morton | Taggart Morton L.L.C. | 1100 Pydras Street, Suite 2100 | New Orleans, LA 70163

I don't have many happy answers for you on this one. It is always a tough decision on how hard to negotiate with an oil company. While it is understandable that you want to get the very best terms on the oil lease on your land, oil companies don't have unlimited pocket books and they have a breaking point. If they have leased up everything else in you section and have stopped calling you, they may have reached the breaking point with you and have decided to proceed without a lease of your property. There are not too many positive things that can happen at this point unless you get very lucky. First of all, if they drill a well in your section, they may determine that the geology is such that your 30 acres aren't being drained by their well. In that case, you wouldn't be entitled to anything. On the other hand, if your property is included in the unit around the producing well, that is far from a guarantee that you will ever see a dime. You will become an unleased working interest owner. What that means is your share of production has to first go to the cost to drill the well and pay expenses to maintain the well (your proportionate share). If the well ever pays out (production covers the entire cost of the well plus all expenses), you would then be entitled to a share of production based on the amount of acreage you have in the well. You production would still be used to pay ongoing expenses, but after that, you would receive the balance of the production (again, your proportionate share). That could work out positively if the well pays out and the well is a barn burner, but in my experience, whenever there is an unleased working interest owner in the picture, the well never pays out, as the expenses are always very high. You don't really have practical way to monitor any of this, and the well may be plugged and abandoned before you know what happened to you. My best advice is that it would probably be best for you to try to make a deal with the oil company on the same basis as your neighbors. If they do come back to you with a better offer than before, you may want to consider taking it seriously. You could try calling them, but the offer they previously made to you may no longer be available. Your calling them has a ring of desperation to it, and they may try to play hardball with you. In case you were wondering, the difference between royalty and the unleased working interest is that the royalty owner doesn't have to pay a share of expenses and shares in the production from day one and will receive some funds even if the well never pays out. Also, if the oil company has your property under lease, they are more likely to include you in a unit around any producing well. Additionally, you will receive some money in the form of a bonus payment and possibly a rental payment if the well isn't drilled in the first year and the oil company desires to keep the lease alive for a second year.

Subject: Reserving Minerals
Question: If I sell my property and reserve the minerals, will I own the minerals in perpetuity?

Answer: (February, 2009)
James R. Morton | Taggart Morton L.L.C. | 1100 Pydras Street, Suite 2100 | New Orleans, LA 70163

Unlike every other state in the union, in which the minerals can be severed from the surface in perpetuity, that is not the case in Louisiana. In Louisiana, if the landowner sell the property and reserved the minerals, a mineral servitude is created. If no production or drilling occurs on the land on which the mineral servitude was created for a period of time of ten years, the mineral servitude terminates, and the minerals revert to the owner of the surface. The ten year prescriptive period can be interrupted by drilling or production, and the minerals will remain in the mineral servitude for ten years after production ceases. There are other rules dealing with contiguous property. If it is one large contiguous tract, production on any part of it will interrupt prescription from running on all of the tract. On the other hand, if the servitude is created on two distinct tracts that are divided by property of another, production on one tract will not interrupt the ten year prescriptive period on the other tract. There are several other nuances dealing with the mineral servitude, but that should answer your basic question.

Subject: Pugh Case
Question: What is a Pugh clause, and do I want one in my oil and gas lease?

Answer: (February, 2009)
James R. Morton | Taggart Morton L.L.C. | 1100 Pydras Street, Suite 2100 | New Orleans, LA 70163

I have a funny Pugh Clause story that I will share. When I was going to law school, I worked for a major oil company during the day in the land department. One of the old hand landmen was relating a story when he was out leasing property for the oil company. He was trying to lease a rural tract of land from the farmer who owned the land. The farmer asked the landman "What's this I hear about a Pugh clause." The landman looked the farmer int he eye and kind of made a face like he had just smelled a skunk and said "I wouldn't have one of them in my lease." Actually, a Pugh clause is a provision that is very favorable to landowners, and you in fact want to include it in your lease. Under the standard oil company lease form, if production from a well is obtained that encompasses multiple properties, the oil company has to go to the Commissioner of Conservation and obtain a unit that takes the reservoir from which the well is production and depicts that area of production on the surface. By way of example, let's say that you had a 100 acre parcel and ten acres of your property were included in this unit. Under the standard oil company lease, production from those ten acres included int he unit would maintain the entire 100 acres the oil company leased as long as the well continued to produce. What a Pugh clause does is change that arrangement. It states that production from a unit only maintains the acreage in the unit. In our example, the unit well would only maintain ten acres of the 100 acre lease. That would mean that the oil company would have to maintain the other 90 acres in some other fashion (drill another well, pay a delay rental, get a new lease from you). Accordingly, a Pugh clause is a very valuable provision that all landowners should want in their oil and gas lease, the potentially offensive sounding name notwithstanding.

Subject: Obtaining Seismic Data
Question: I have been approached to have seismic activity conducted on my property. Can I obtain the seismic data when the project is completed?

Answer: (February, 2009)
James R. Morton | Taggart Morton L.L.C. | 1100 Pydras Street, Suite 2100 | New Orleans, LA 70163

Like most contracts originally presented to you by the oil company, pipeline right of way company, or in this case seismic operator, the terms are somewhat negotiable. Each company will have a breaking point, and to some extent the negotiations can boil down to a poker match, but most of the time you can improve on the form originally sent to you. With the standard seismic permit form presented to you by the seismic operator, the right of the landowner to review the seismic data is generally not contained in the form. That is one of the provisions that the seismic operator will generally agree to add. You might say what good is the data to me, as there is no way I can review it and understand it. While that may be true, the information could be valuable to someone who might be interested in obtaining an oil and gas lease on your property in the future. If several years from now you are approached by someone seeking an oil and gas lease and you are asked the question about whether or not you obtained the seismic data, you will be in a much better position if you are able to answer in the affirmative. There are some other changes I normally make to the standard seismic permit, but obtaining a copy of the data after the seismic work is completed is an important change from the landowner's perspective.

Subject: Oil and Gas Lease
Question: I have been approached to enter into an oil and gas lease on property I jointly own with my brothers and sisters. My brothers and sisters have already entered into an oil and gas lease, but I don't like the terms the oil company is offering. What happens if I don't lease my interest in the property to the oil company? Can they still drill a well on the property?

Answer: (February, 2009)
James R. Morton | Taggart Morton L.L.C. | 1100 Pydras Street, Suite 2100 | New Orleans, LA 70163

I will answer the second question first. The oil company will have a right to drill a well on property you jointly own with your brothers and sisters even if you don't grant the oil company a lease. What will happen to you is that you will become an unleased working interest owner. What that means is that you will only participate in any production achieved from a well that is drilled on your property after the oil company recovers your share of the costs to drill the well from your share of production from that well. An example might be easier to understand. Let's say you owned 10% of the property and the oil company went forward with drilling the well in spite of the fact that you didn't lease the oil company your 10% interest. If the well cost $1,000,000 to drill, the oil company would be entitled to recover your share of that well (10% of $1,000,000 = $100,000) from the production of that well. Only after the well paid out (i.e. the oil company recovered all of its costs to drill the well from production) would you be entitled to a share with your share of the cost of the well, you many not receive any of the revenues from the well unless it paid out. On the other hand, if you had entered into an oil and gas lease you would receive a share of production (the royalty reserved by the landowner in the oil and gas lease) from the date the well first started producing. Accordingly, you are taking a risk in not leasing your land. If the well turns out to be a huge success, you would likely do better with an unleased working interest owner position, but most of the time you will have done better leasing your property on a good landowner oriented oil and gas lease form, on terms equal to the highest prices the oil company has paid either your brothers or sister, or your neighbors from whom the oil company has likely also required a lease.

Subject: Leasing Forms for Property
Question: I have some property that an oil company is interested in leasing. They have presented me with the standard printed Bath form. Is there anything wrong with my accepting the standard form everyone signs, which is what the oil company is telling me?

Answer: (February, 2009)
James R. Morton | Taggart Morton L.L.C. | 1100 Pydras Street, Suite 2100 | New Orleans, LA 70163

There's nothing really wrong with accepting the standard printed form of lease as long as you know going in that this is a standard oil company release form, written heavily in favor of the oil company. There are a number of standard changes that favor the landowner that the oil company will readily accept, but you have to ask for them to make the changes. An example of one is the Pugh clause, discussed more fully below. They won't do so voluntarily, however, and most of the printed forms don't contain them. On balance, if enough land is involved, it probably is worth your while to have an experienced oil and gas attorney review the lease and suggest several changes that will improve the form of lease and better protect you.

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