We’ve gotten several phone calls and emails from clients over the years about the size of the bonus check that the oil and gas company sent them. It’s always the same story: the landman made promises of big money, and the big money never came. As you can imagine, this makes people angry. It feels very bait-and-switchy.
Side Note: This happens often enough that the companies should train their landmen to warn people that it could happen.
To understand why this happens you’ll need some background.
When a company first decides it is interested in developing any given tract of land it will request a title search on that tract. That title search will be done by a landman, not a lawyer.
The landman will tell the company who they think owns the mineral rights, and the company will then buy leases from those people.
Once the company gets a signed lease back from those people, it will usually have some time (90 days, for example) to check the title work the first landman did. More than once we’ve seen the company change its mind about how much our clients own based off this second title search. Usually it’s for the worse.
Later, usually much later (sometimes never, but we’re hopeful), the company will drill a well and produce natural gas. Once they do, they owe royalties. But before they go paying royalties, the company will ask a lawyer to provide them with certified title. The lawyer will go out and do all the same work the first two landmen did, but sometimes with different results. We’ve seen the company change its mind about how much our clients own based off this certified title. Again, usually it’s for the worse.
When the company changes its mind, it has the right to pay only for what you own, not for what it promised to pay. Why?
There’s a little-noticed clause in almost every lease called the Lesser Interest clause. It says that if you own less than the entire tract, the company will pay you accordingly. There is usually also an Order for Pay or an Order of Payment that the company has you sign at the same time you sign the lease, and it includes similar language.
So when the company discovers that you own less than they originally said you did they pay you accordingly.
The opposite is actually true, too. If the company discovers that you own more than they originally said you did they pay you accordingly. We’ve seen clients get more than they expected. Oddly, that happens far less often than getting less.
Now, it’s quite possible that the landman/lawyer got it wrong. It wouldn’t be the first time and won’t be the last that a human being makes a mistake. The trouble is that it will often take quite a bit of time and effort to prove the landman/lawyer wrong, or in other words it will take quite a bit of money.
If you want to do something about it, you should start by getting a copy of the run sheet that the landman/lawyer made. Most companies will provide it to you if you’re persistent and nice. It’s a list of all the documents the landman/lawyer used to determine ownership. It might not make any sense at all to you, but we can help with that part.
If the company won’t provide you with the run sheet, you will at least be able to get a copy of the document that changed your ownership. Sometimes the change in ownership will be based on an interpretation of a vague clause in that document. If so, we might be able to help you change the company’s interpretation of that clause.
As always, good luck!