The royalty clause specifies the share of proceeds from production reserved to the lessor in exchange for leasing his/her minerals to the lessee. You may see it written as a percentage or as a fraction. In newer memoranda of oil and gas leases, you may not see it listed at all (although, of course, it would still be specified on the unrecorded lease).
Royalties are calculated free of expenses of production. This means that the lessor doesn’t bear any expenses relating to the costs of drilling the well or producing oil and/or gas. However, they may or may not be free from post-production costs, such as costs to treat the oil and/or gas to make it marketable or costs to transport it to market. When post-production costs are deducted from the royalty owner’s portion prior to distribution, this is referred to as a net royalty. When they are not deducted prior to distributing the royalty owner’s portion, it is referred to as a gross royalty. When negotiating with a landowner or reporting on the lease of record in an ownership report, it is important to be able to distinguish between the two. I also want to mention, that in some leases, an addendum may be included at the end of the lease that replaces the royalty percentage listed in the body of the lease with that listed in the addendum. Always be thorough and look through the entire document when reviewing a lease (as well as any other document in title). A Pugh clause prevents the entirety of the lease from being held by production, after the primary term, when only a portion of the leased premises lies within a producing unit. A Pugh clause can be based on surface area, depth, or both. A surface area Pugh clause operates to release the acreage outside of the drilling unit. For example, if the mineral owner owned 50 acres, but only 20 of it was included in a unit, then the other 30 would be released at the end of the primary term. A depth Pugh clause operates to release certain depths of acreage outside of those included in the unit (for example all depths 100 feet below the drilled well).
When running title, if you come across an unreleased lease, and there is a well drilled on some of the acreage, you should look to the Pugh clause language (or lack thereof) to see whether the entire leased premises are HBP or if only certain portions are held. This could make a big difference in your reporting of the lease(s) of record and of the leasehold status of your parcel. When leasing, a savvy landowner (or his/her attorney) may request a Pugh clause as part of the negotiation process, so it is important to be familiar with what it is and what your company/client is willing to accept. Sometimes when you have a gap in your title, the information just isn’t available of record. In other cases however, it may appear that you have a gap, but you are really just missing some key information that you may not have thought to include.
One way of resolving these “gaps” is by including the probates we talked about last week. If the executor of an estate or several people who appear to be strangers to title (some of whom may have the same last name as the last owner of record) convey their interest in a parcel, it may be a clue that the owner of the property died and you need to look for a probate for him/her. Another thing to look out for is a person (usually a woman) conveying interest who has the same first name but different last name from the person who received interest. This usually means that the woman married between the time she received the interest and the time she conveyed it. Unless you are instructed otherwise, in this situation, it is a good idea to include her marriage certificate, in order to establish that link between her maiden name and married name. Similarly, it is a good practice to include divorce cases in your title as well. You will know you need to look out for them when two people who were a couple convey to just one member of that couple. It isn’t a guarantee that they divorced, but it is a pretty likely sign. Finally, any time the subject property is sold by a county representative (such as an auditor, commissioner, etc.), that is a solid indication that there is a related case that you need to find and include in your abstract. When running title, keep your eyes peeled for any of the above clues that indicate that cases, probates, marriage certificates or divorces are needed. By including the relevant documents, your title will be more complete and more accurate. There will be a clear chain as to the property’s ownership and it will be easier for others to follow. Adaptability is an important skill for landmen. This is something that is always relevant to landmen, but especially so during these times. It is hugely beneficial to your career to be able to adapt to new technologies, changing roles, novel situations, and an ever-evolving legal, political, economic, and sociocultural landscape.
Landmen who have experience in a variety of roles can easily transition to new projects. Their versatility and breadth of knowledge provides them access to a wider variety of opportunities. If you are feeling a little stuck in your current role (or lack thereof), try improving your adaptability by stepping out of your comfort zone. Actively seek out opportunities to learn new things (both within and outside of the industry) and don’t worry if you aren’t very good on your first try. With practice you will improve, and you will expand both your mind and your career in the process. There are many skills that are of vital importance for landmen, but none so much as dependability. Luckily, by improving some of these other areas (managing time well, communicating effectively, and resolving problems), you will also be well on your way to becoming more reliable. To that list, I would also add that it is absolutely imperative to be honest and accountable for your work. Someone who can consistently be counted on to do what they say they are going to do is worth their weight in gold to their client or employer. By being dependable, you will become unexpendable.
Problem solving is such an important skill, that if you aren’t good at resolving problems, you probably shouldn’t even pursue a career as a landman at all. Unexpected things pop up all the time when negotiating with landowners, negotiating with other landmen, and when searching for documents at the courthouse. How you deal with resolving those issues will play a big part in determining your career success.
A friend of mine once shared with me something that her father had told her: “It is never too cold; you just aren’t dressed properly”. That phrase always stuck with me and I take it to mean that what you perceive to be a problem is generally not the issue; rather, taking substandard efforts to adequately address an issue often creates the real problem. Improving your problem solving skills requires you to adjust your mindset. Instead of getting frustrated by the inconvenience of dealing with a problem, pause a moment to take a deep breath and analyze exactly what the issue is. Once you identify it, brainstorm some possible solutions, while keeping your end goal in mind. Choose the idea(s) that make the most sense and test them out, to see if they work. Throughout this process, make sure to keep your team members in the loop and communicate the issues you are facing and the steps you are taking to resolve them. A mentor that has dealt with a similar situation in the past will often be able to offer helpful advice. I also recommend regularly engaging in some sort of creative or athletic outlet outside of work. Usually the best ideas come to you when you are doing and thinking about something else. These activities also help strengthen your brain and expand your thinking, so you can be open to more great ideas in the future. Not only do landmen need to communicate effectively through writing, but they also need strong verbal communication skills. This is obviously especially important for those of you who negotiate with landowners, but it applies to everyone else as well. Some of the other things we have talked about also come into play here: being clear and concise, and keeping your audience’s perspective in mind are good tips when speaking to others. Here are a few other things to focus on when trying to improve your verbal communication skills:
Time management is an essential life skill for everyone to learn. It is especially relevant to landmen who bill based on their time spent on a project (e.g. independent landmen). Your client doesn’t want to pay for two days worth of work on something that should have only taken a couple hours. Time is money, so efficiency matters (especially in these times). To be clear, being efficient shouldn’t be equated with rushing or being sloppy; it just means that your time is well spent.
So, here are some of my practical tips on how to better manage your time:
You should absolutely send a thank you email following an interview, and I recommend doing so within 24 hours. It demonstrates professionalism and can help you stand out from the crowd in a good way. It also showcases your follow-up skills, which are extremely important as a landman. Imagine calling a mineral owner once about a lease but then never contacting him/her again. You wouldn’t get many leases signed that way, so why would you highlight poor follow up skills during the interview process?
This week was the book fair at Helen’s school. I remember when I used to go to the book fair when I was in elementary school and how excited I always was. I just loved making a list of all the books I wanted. My parents would always choose one to buy me for Christmas each year; I still have my favorite one even now. It was awesome to see that she shared my excitement and it got me thinking about what books should be next on my to-be-read list. Do any of you all have any suggestions for me?
If you haven’t already read it, I recommend the Big Rich: The Rise and Fall of the Greatest Texas Oil Fortunes. When I first started Cimmaron, one of my clients recommended it to me and I thought it provided a really interesting account of the oil & gas industry. It is definitely a must-read for landmen. Keep it in mind whenever you have some free time this year. |