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Oil/Gas/Corporate Legal Responsibility Following the Sale of Mineral Interests


QUESTION: I own mineral rights in Cleburne County, Arkansas. Four years ago I received notice in the mail that I had been incorporated by the state of Arkansas, with detailed stipulations as to what the bonus per acre and royalty would be, provided the well One-Tec was petitioning for permission to drill became viable and productive.

I was never provided with a lease to sign, and have never heard another word about it until a few months ago when my father was contacted by an agent of XTO Energy notifying him of his rights, as a spouse (heirship was passed down through my mother, and One-Tec had left his name out of the original petition)to a portion of the royalties. They then proceeded to have him sign a lease and payed him accordingly for his acreage bonus.

This was a surprise to me, as my brother and I (who were approached initially by Petrohawk) were told that heir-ship was passed through blood lineage, and the spouse had no entitlement. Now, whereas this was great news,it lead me to begin doing some research...

I found out many things, and have many questions about what I have learned...

My brother signed a lease with Petrohawk, my father has now signed with XTO, and I still have nothing but my name on a petition naming me as an unleased interest owner. #1) Shouldn't I have been, or be presented with a lease to sign to make this legally binding?

Only three months following the petition that went before the AOGC, a well was drilled and immediately began producing a notable amount of gas.I found this out only recently when I began investigating things. Nobody, including my brother, who had legally leased, has received one penny in royalties...ever.

After about one year of constant production, XTO energy bought Petohawk's and One-Tec's interests in the area, including their midstream assets. I have recently contacted XTO Energy and signed notarized confirmations of heir-ship, they have "found" the well that is producing our minerals (they actually said, in the beginning, that they had no knowledge of said well even existing), and have indicated that once their "land department" had verified everything they would send it to "accounting" to calculate the royalties owed since they took possession of the leased interests in 2010.

#2) Who is responsible for the acreage bonus and royalty payments for 2009-2010? When a company purchases mineral interests from another company, do they also incur the debts and responsibilities of the former lease holder? In other words, should XTO be offering me a lease to sign and acreage bonus since I never had the opportunity to sign one in the past? And with that, would that make them retroactively responsible to the beginnings of production, or only to when it came under their control? Is this dictated by Arkansas law, or is it negotiable within the corporate purchase contract itself?

#3) After holding a significant lump some in an interest earning "reserve fund", will any resulting royalties be calculated including interest accrued for the past 4 years? Is there legal precedent for that?

I appreciate your time, and hope to hear from you soon!

ANSWER: Thank you for directing this question to me!

First, I believe what happened is that your mineral rights were integrated by the AOGC in an action brought by One-Tec.  It's easy to confuse that with incorporation.  One-Tec needed to form a pooled unit in order to drill the well you now know was drilled, and to do so they needed all of the permissions (leases) from the owners, or they needed a forced-pooling order (called an Integration Order in Arkansas) granted by the State on behalf of the owners they couldn’t identify, or couldn’t locate.  The facts you recite indicate One-Tec was the original operator, and XTO bought their interest and took over as operator after the well was producing.

1.  “Shouldn’t I have been, or be presented with a lease to sign to make this legally binding?”  Yes, if One-Tec and/or XTO knew how to contact you.  It sounds like they know where you are and how to contact you, so a lease under the terms issued by legal order of the AOGC should have been offered to you.  HOWEVER, that said, you do not have to sign a lease in order for the operator to be required to pay you.  Period.  Your mineral rights were integrated for the lands and depth interval integrated and XTO’s division order analyst should have updated the division of interest to include your share of royalty payable to you under the integration order (if your address was known).  Just make certain they have your current, correct address.  Since your interest is only integrated (force-pooled), not leased, XTO alone is responsible for paying royalty to you, as the operator of the well.

2.  “Who is responsible for the acreage bonus and royalty payments for 2009-2010?  When a company purchases mineral interests from another company, do they also incur the debts and responsibilities of the former lease holder?”  The answer to this question depends on the terms of the Purchase and Sale Agreement between One-Tec Operating LLC and XTO.  If XTO agreed to take those liabilities, then yes, they did.  If not, they remained with One-Tec.  However, you should contact the AOGC to let them know that you never received your bonus payment under their Integration Order (have the Order # and date handy when you contact them) and ask them how you should proceed.  Your bonus payment was to be protected until it could be paid to you. You have the power to put One-Tec or XTO sideways with the AOGC if your bonus is not paid.

3.  “After holding a significant lump sum in an interest earning ‘reserve fund’, will any resulting royalties be calculated including interest accrued for the past 4 years?  Is there legal precedent for that?”  Yes it should, and yes, there is precedent.  This is how you make certain that it will be done, done correctly, and done fairly quickly:  You write an administrative CERTIFIED MAIL demand letter addressed to XTO in Fort Worth, Attn: Land Administration Manager, DEMANDING that XTO pay over to you, or cause to be paid over to you, all sums due you, together with all interest legally accrued to those sums.  Be sure to tell them in the letter exactly to what address you want "revenues and all other payments" mailed. If you demand that the payment be made within 30 days, the Land Administration Manager will immediately turn attention to your case.  If there is any legal reason why payment cannot be made to you at this time, at the very least you should receive a detailed letter from XTO explaining exactly what the problem is, and what they claim to need from you before they can pay you.  Every producing State has statutes (laws) requiring interest to be paid on withheld funds, but usually the owner must request it in writing, to get it.  Meanwhile, contact the AOGC to find out about your recourse concerning the bonus payment itself.

You have quite a maze to navigate here and you have only taken the first few steps, so please understand that my answers are intended to point you in the right direction.  Along the way, as you have more questions (and you will) please do not hesitate to ask follow-up questions of me.  Best of luck to you!

---------- FOLLOW-UP ----------

QUESTION: Thank you for your rapid response! =)

With respect to the integration, when the petition I located on the AOGC website included a statement generally stating that "if no response is given, the interests will be deemed leased with the following specifications"...or something to that effect...and then went on to include any living relatives discovered in the future and those currently unknown...does that mean I was effectively leased, or that if, and when, a lease was offered those terms would be grandfathered and legally binding?

In other words, Is XTO now bound to offer me a lease, or simply pay royalties? If an operator never payed the acreage bonus, would that be XTO's responsibility, or One-Tec's? Or, is this something that could have been specified in the purchase contract, therefore confidential, and I'll have to ultimately resort to filing a royalty owner complaint form with the AOGC over?

Seeing as all of this is public record, I did all of the research necessary to find any and all information regarding the well and it's production statistics. I actually had to give the http addresses and docket reference number to XTO for them to be able to access or find any relevant information, or so they say...

You say that XTO is alone responsible for royalty payments...even if they gained possession after a full year of production had already taken place? Is that based on them acquiring the midstream assets (ie, held surplus and storage facilities)? The representative I have been speaking with at XTO indicated that they would compensate me for royalties since they acquired the working interests, but never specified anything prior to their acquiring it. When I asked who to contact on behalf of the "missing year", she just said that she didn't know.

I apologize for the lengthy follow up...I'm really not trying to beat a dead horse here, I'm just trying to wrap my head around what exactly is, and has been going on. I am supposed to be contacted by the XTO rep. in the next couple of days for an update on progress, and I'd like to have a handle on what to query, and what is "correct" prior to discussing it with her again. The more informed I am, the more comfortable I am with working to secure and equitable and fair resolution.

Thank you again for your time ad efforts!

ANSWER: “…Does that mean I was effectively leased?”  Yes, it does.  See below.

“Is XTO now bound to offer me a lease, or simply pay royalties?”  They are bound to pay royalties to you, but it is in their interest to also offer you a lease.  I suggest that you request in your letter for XTO to prepare a lease containing all of the terms set out in the Integration Order and dated effective the first date of production from the well that was drilled.  Then tell them to forward it to you to sign, get notarized, and return to them.  But even if they never send you a lease to sign, they still owe you the royalties from the first day the well produced, in the amount ordered by the AOGC in their Integration Order.

As to the bonus payment, I would tell XTO in your certified letter to them that you hold them responsible for the bonus payment, because they are the operator of the well.

The reason you had to give XTO the basic Order information is probably because they were involved in several acquisitions around that same time, in addition to the One-Tec acquisition.  They probably were not as organized as they could be when they were transferring all of One-Tec’s computer records into XTO’s computer databases.  Acquisitions can be very complicated, and unfortunately owners like you sometimes fall through the cracks.

Yes, I said that XTO alone is currently responsible for your royalty payments, because they are marketing and selling your share of gas production and any condensate produced.  At the very minimum they are responsible for all payment due you from the effective date of their acquisition of One-Tec’s leasehold ownership in the pooled well and took over as operator.  Prior to that date, One-Tec could still be responsible for the royalties due to you from date of production up to the effective date of the sale of the well to XTO.  I say “could” because it depends on the language in the Purchase and Sale Agreement between them, and that’s private—you wouldn’t have access to it.  However, keep in mind: oil companies hate lawsuits with a passion because they cannot even walk into a courtroom for less than $100,000.  If you even threaten them with legal action, your complaint is going to get immediate attention, trust me.  So there is no “missing year”—the money is still there, and you need to take XTO by the hand and show them that they are liable for the unpaid money that is yours.  You do that with an administrative letter mailed by certified or registered mail.  The division order analyst (I hope that’s who you spoke with) would not be allowed to help you recover money from periods prior to when they owned the well, because the analyst works for the company and must protect the company’s interests first.  That’s just the way it works.

So let me sum it all up:

You own mineral rights in land in Arkansas.
Your mineral rights were unleased when One-Tec decided they wanted to drill a well.
One-Tec claimed they either did not know your name, or did not know your address, to try and get a lease from you.
One-Tec filed a petition with the AOGC asking for an Integration Order that included your mineral interest, as an “unknown person,” so the AOGC could use their statutory authority to act as your power of attorney to grant One-Tec the permission to drill the well involving your mineral rights.
The Order issued by the AOGC is a substitute for and oil & gas lease.  The Order states how much bonus must be paid to you, and how much royalty must be paid to you out of actual production sales revenues.
You have never been paid your bonus, and you have never been paid royalties.
You should give that rep (probably a Royalty Owner Relations Rep) until next Monday to call you back with concrete information.
If you do not receive a call by then, or the information she gives you is less than satisfactory to you, you should begin writing the certified letter I described in my previous answer.
You should declare in the letter that you hold XTO solely responsible for any and all sums due you, both bonus and royalty, with the maximum amount of interest allowed by Arkansas law.
You should include in the letter a demand that full payment, with interest, must be paid to you within 30 days or you are obtaining the services of an attorney to file a legal action against XTO.
You should state in the letter that this certified letter constitutes the 30 days notice required before legal action can be brought against XTO.
You should make certain the letter is addressed to the attention of “Land Administration Director” to make sure it will be delivered to the employee with the greatest power to move on your complaint.
You should be sure to mail it by Certified mail, or if you really want to appear serious about getting this resolved quickly, send it by Registered mail instead.  It costs a little bit more, but it has legal advantages your attorney will tell you about if you do end up having to hand this over to an attorney.  FYI—an attorney should be willing to accept the case on contingency, meaning they will only be paid 30% to 40% of whatever they recover on your behalf, with no money out of your pocket, unless your interest in the pooled unit is so small that the total amount due you is less than $3,000.

---------- FOLLOW-UP ----------

QUESTION: Good afternoon!

Sorry to bother you again, but I thought of another question.

I took your advice and constructed a Demand for Payment Letter. I referenced the integration order specifically, and referenced applicable Arkansas Title Code for evidenced support of my claim.

A question came to mind while discussing this with my husband, which is, what are considered "lawful deductions" under Arkansas state mandated integration? I have tried to find this information myself, but can only find legal precedent set by specific legal rulings on a case by case basis.

Also, I asked my father for a copy of the lease the sent him, and discovered that they had dated it retroactively affective dated two months PRIOR to the integration act. Why would they do this, unless his interests are somehow being compromised in favor of XTO, versus a more fair and balanced "protective" stance that the integration order may have provided him which would have been LESS beneficial to XTO???

I can send you a copy of my Demand Letter draft, as well as the lease offered if you would like.

Any insight you can provide would be greatly appreciated!

Thank you again!

Dana Hutchison

Your first question is asking what “lawful deductions” are under Arkansas state mandated integration (“force pooling”).  I will begin by saying that a direct answer would require giving legal advice, which I can’t do because I’m not a lawyer.  But I can tell you that what you are asking about are the costs known as “post-production costs” and typically only apply to gas sales, not condensate or oil sales.  I can also tell you that the costs are what are incurred to either make your share of gas more valuable, or costs necessary to transport your share of gas from the wellhead to the point of sale.  It is usual and customary in the industry for each royalty owner to be charged their proportionate share of the Post-production costs.  The only time a royalty owner does not have to pay their share of post-production costs is when their negotiated oil and gas lease includes a provision expressly requiring the Lessee to pay the Lessor’s share of these costs.  An integration order would not include such language, because the AOGC order will include only the terms most common among all of the leases already taken in area being integrated. A "cost-free" clause, as it is called, is not common to a lease, and is added as a "rider" at the end of a printed-form lease.

As far as the retroactive date on your father’s lease is concerned, there are many reasons why it could have been dated 2 months prior to the date of the integration act, and none of them would place XTO at an advantage and your father at a disadvantage.  The most likely reason why the lease was “back dated” has to do with an Exploration Agreement, Farmout Agreement, or other contract between the partners in the integrated area, so that your father’s lease would be in compliance with the terms of those contracts.  The partners might be liable for a larger percentage of the costs of acquiring your father's lease if it was dated prior to the date the well began to produce.

But to double-check my assertion here, compare your father’s terms with what is stated in the integration order.  The integration order is going to provide the terms for 3 financial items: (1) the dollar amount per net mineral acre that must be paid for unleased, integrated acreage.  What your father paid a lease bonus gross amount equal or greater than the amount ordered by the AOGC?  For example, was he paid $150 per net acre for his lease?  (2) the dollar amount per net mineral acre that must be paid for annual delay rentals, unless the bonus dollar amount expressly states it includes rentals.  (3) the fraction of royalty that must be given to the integrated owner.  Does your father’s lease contain a royalty rate equal to or greater than the fraction stated in the order?

I understand your wariness of oil companies, especially one as large as XTO, which is a wholly-owned subsidiary of Exxon.  But if it will make you feel any better, if any of the answers to items 1, 2, or 3 above are “no” you may tell your father to contact the AOGC immediately and be prepared to send them a copy of his lease.  The date of the acknowledgment of his signature will suffice as proof that the lease was obtained after the integration order was issued, and he will be entitled to relief through the AOGC for any wrong doing on XTO’s part.

As for a copy of the Demand Letter draft, I cannot advise you specifically on that because I am not an attorney.  However, the guidelines I provided in my earlier answers, and the information above, will ensure that the letter contains the main points necessary to get some action on your problem quickly.

Good luck!  


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Marsha Breazeale, M.Ed., CDOA, CPLTA


All questions regarding division orders; ownership decimal calculations; title ownership and payer record changes (testate/intestate inheritance; deed; assignment; court order); oil and gas lease analysis for record-keeping and purposes of payment by operator or payer; pooling, horizontal wells, horizontal well allocation units; unclaimed property reporting; royalty owner relations questions. All questions concerning administration of surface land contracts and payment questions, such as for Surface Right-of-Way, Sub-Surface Right-of-Way, Easement, Surface Use Agreement. All questions regarding industry-standard and company-specific policies that affect land owners.


Sr. Staff Division Order Analyst. Certified Division Order Analyst (CDOA, National Association of Division Order Analysts) and Certified Lease Analyst (CPLTA, National Association of Professional Lease and Title Analysts) with 35 years of experience as a combination division order analyst and lease analyst in exploration and production in the oil and gas industry.

National Assoc. of Division Order Analysts (NADOA), National Association of Division Order Analysts (NALTA), American Association of Professional Landmen (AAPL), American Society of Trainers and Developers (ASTD)

"How an Oil & Gas Exploration & Production Company Operates" and "Principles of Oil & Gas Lease Analysis: Standard Clauses", Oil Patch Press; Articles in NADOA Magazine; LandFocus EDU Professional Training Manuals

Education/Credentials Management from Our Lady of the Lake University in San Antonio; M.Ed. in Instructional Design from WGU Texas.

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Past 15 years: GeoSouthern Energy Corporation; Contango Oil Co./Crimson Exploration & Operating Inc.; Apache Corporation; BP America; Marathon Oil; Newfield Exploration

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