some surface owner’s rights, if the allocation wells were properly pooled. On the fl ip side, it also appears to give the surface owner some rights regarding allo- cation wells. For the fi rst time, the mineral owner and surface owner can work together to benefi t each other.
The right clause In Texas there are 2 royalty clauses used in leases,
Market Value at the Well or the Proceeds Lease. In a 1996 case, Heritage Resources v. NationsBank, the Texas Supreme Court said that in a case of Market Value at the Well, the oil company could deduct all well expenses beyond the wellhead. Since gas must be compressed, dehydrated and treated before it can be sold, those charges are usually passed on to the royalty owner. In the Heritage Resources case, a secondary clause
in the lease stated that the oil company could not make deductions for all those expenses. In this highly criti- cized case, the Texas Supreme Court ruled that the petroleum com- panies could take the deductions. “That is con-
Negotiate from a position of knowledge, rather than a position of not knowing, to avoid being put in a position where you have given up some rights.
trary to common sense and com- mon law because normally, if you have a specific provision in a lease, it overrides general provi- sions,” Wallace says. In the 2015
Chesapeake Operating Inc. v. Hyder case, the Hyders had an oil lease in the Fort Worth Basin. They agreed that Chesapeake could use their surface to drill horizon- tal wells located under their neighbor’s land, although they had no mineral interest in the proposed wells. In return, Chesapeake agreed to pay the Hyders a 5 percent royalty on production from these wells. The lease con- tained very specifi c provisions preventing Chesapeake from deducting post-production expenses. Known as a proceeds lease, this agreement allows for a higher royalty check. The Texas Supreme Court ruled that if an oil company pays the royalty owner on a proceeds lease, the company could not deduct expenses. “If the oil company produces, compresses, trans-
ports gas and sends it down the line 30 miles to sell it, whatever the sale proceeds are, the company has
tscra.org
to share with the royalty owner,” Wallace explains. “Hyder gave us a very clean division line at the Texas Supreme Court about which form of the lease favors the landowner from the royalty owner’s standpoint. It is important for those who raise cattle and also have oil and gas on their property, to understand that pro- ceeds leases are preferred over market value leases for Texas landowners.” Texas Supreme Court decisions become case law,
setting a precedent or accepted way of doing business. When oil companies come to Texas from other states, they may presume the law in Texas functions like the law where they previously operated. They often fail to comply with Texas law and that causes serious issues for mineral and surface owners. In addition, if there has been no oil and gas activity
in an area for decades, landowners may not know what their rights are, especially when it comes to oil and gas exploration, leasing and production. Often Granddaddy or Grandmother handled all the oil and gas business and did not share the details with family members. Wallace recommends that ranchers, whether they
own minerals and/or the surface, locate source docu- ments, such as a will, purchase agreement or trust to determine what they actually own. He advises that they learn as much as possible about the oil and gas business. “Then when someone comes to you, you can ne-
gotiate from a position of knowledge, rather than a position of not knowing. You may be put in a position where you give up some rights you were not required to,” Wallace advises. The TCU Energy Institute provides excellent educa-
tional programs for ranchers who want to learn more about the oil and gas industry. These programs include the Royalty Owner Program, Advanced Royalty Owner Program, Wealth Management and Estate Planning, as well as Geology of the Shale Plays. Additional programs are being developed. The TCU Energy Institute provides these programs
in Fort Worth, Abilene, San Antonio and Oklahoma City. For more information, visit www.energyinstitute.
tcu.edu. The Cattleman will run a bi-monthly column in 2016
to help give readers a better understanding of differ- ent topics related to the oil and gas industry and how they affect ranchers and their cattle operations. Topics include organizing fi les, mineral rights, surface use agreements, minimizing surface damage and dealing with a well that is no longer producing.
November 2015 The Cattleman 95
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116