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Types of Documents used to Convey and Deal with Mineral Interests

 

Clients often bring in documents for me to review, asking me to explain to them exactly what they own.  Some of these convey an interest and others do not.  It is important to review what each document actually purports to convey within the body of the documents, not just what the title says.  Normally, the description in the title matches what is going on in the documents, but sometimes that is not the case.  Just because you title a photo of a cat “dog”, does not make it a dog.

Some documents used to convey (and by convey I mean permanently give away) mineral interests include:

  • Warranty Deed
  • Special Warranty Deed
  • Assignment
  • Royalty Deed
  • Gift Deed
  • Mineral Deed
  • Wills
  • Quit Claim deed
  • And many other-named conveyances.

 

Documents used in dealing with mineral interests include:

Seismic lease/permit - This gives a company the right to come onto your land and shoot a seismic picture of what lies under your land to determine if and where they may want to drill for oil or gas.  This may or may not be something that is advisable to do for a given family farm.  If you do decide to agree to a seismic permit, make sure that they do NOT have lease language in the permit giving the company an option to lease at a specified amount.  

Mineral lease - Lessor (the mineral interest owner) grants the right to explore and develop the mineral rights to the Lessee (energy company) for a “primary term” of years (normally 1-5 years) and for so long as there is production.  As part of the lease, the Lessor receives royalty payments for the oil and gas extracted, normally from 1/8-1/4.  When production ends or if there is no production during the primary term, the Lessor still owns the entire mineral interest and may lease it again.

Division order - A document sent from the operator of a well which sets out the decimal interest that payments will be based upon for each of the interest owners.  This is sent out soon after a new well is drilled or when a new company buys out the interest of another company in a producing well.  Texas has a statutory form for division orders.

 

***Beware for older relatives who own mineral interests.  There are many companies attempting to acquire mineral interests who send out a letter with a check or draft that looks like a lease bonus payment or a production payment attached. The elderly or uninformed can unintentionally sell the mineral rights with the swipe of a pen if they aren’t careful.  Some states have set statutory guidelines as to how these purchase offers may be sent and what they may contain, but it can still be confusing to the elderly. This is why it’s important to know what mineral interest(s) you own and what production is coming from each property. 
Recommended Reading
 

Mineral Lease Process

Mineral Lease Process
by Leslie Henges Dolliver

 
Fractionalization
Fractionalization

by Leslie Henges Dolliver
 
Oil and Gas Law in a Nutshell
Oil and Gas Law in a Nutshell
by John S. Lowe
 
Look Before You Lease
Look Before You Lease
by Jim Stafford