Oil & Gas: Divided Ownership

Front 1

Every co-tenant can drill/produce/ lease his share WITHOUT consent of other cotenants. Must account to others for rightful profit shares [revenues - costs] from production.

Cotenant can ratify underlying lease if lease purported to cover his interest. Once ratified, can't change mind and later seek profits share as an unleased mineral owner.

Costs include all reasonable drilling & operating costs on productive wells. Dry hole costs may not be assessed against the unleased cotenant.

Back 1

In TX, cotenant has absolute right to partition property [judicial] Can be in kind (divide property) or forced sale. In kind favored. By sale only upon proof that in-kind is inequitable.

Front 2

Neither life tenant nor remainderman can grant oil & gas lease w/o joinder of the other. Otherwise, can enjoin as waste.

How are lease benefits divided when LT grant is silent?

CL: LT gets current income and interest [100% of delay rentals plus interest on bonus and royalty]; Remainder gets principal or corpus of the bonus and royalty. R doesn't get corpus til LT dies.

Back 2

Exceptions to CL:

1) Agreement: LT & remainderman agree to vary rule
2) Open Mines Doctrine: where a lease was in place when life estate is created, LT gets all benefits under existing lease.

Front 3

Accounting When LT Creation is by Trust

Trust Act applies if LT created in trust that is silent about how trustee is to allocate receipts between LT/remainderman.

Back 3

... shit ton of random math...

Front 4

Mortgagor/Mortgagee

- If mortgagee executes/records before a lease is executed, Lessee's interest will be subject to mortgage lien
- If o&g lease precedes mortgage and is recorded, lease cannot be foreclosed against

However, mortgagee must sell surface assets to try to satisfy the loan, before selling the ME (doctrine of "marshalling" assets).

Back 4

Lessees often seek subrogation agreements from mortgagee.

Lessee may redeem to prevent foreclosure by paying outstanding debt to mortgagee.