Oil & Gas Royalty Nightmares

First edition copyright © 2018 Marsha L. Breazeale

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All rights reserved.  No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including, but not limited to, electronic, mechanical, photocopier, recording, or any other means, without the prior written permission of the publisher.

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ISBN:  978-0-9965519-4-6

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Published by Oil Patch Press, Texas

Disclaimer

Nothing in this book presents legal advice.  The legal choices made by people discussed in this book are unique choices deemed appropriate by that person, in that situation.  Never apply the legal choices of others to your own situation.  Always consult an attorney to obtain legal advice for any legal problem.

Acknowledgments

I want to thank my husband, Rick, for his help finishing this book and for his encouragement, patience, and perseverance. I also want to thank the countless royalty owners who gave me a truly memorable career as a division order analyst.

Introduction

This book may not interest anyone who is not a mineral owner or royalty owner.  Some of the stories presented here are entertaining outside of this context, I think.  The others, however, might bore any reader not connected in some way with oil and gas royalties.  I may be wrong, of course.

My forty years as a division order analyst in the oil industry has given me a deep and wide range of experiences with royalty owners.  Those years also revealed to me the issues most important to royalty owners.  When the idea for this book came to mind, the first thing I did was go into the internet to see what was already there like it.  I couldn’t find anything.  That actually surprised me.

After that, I began pulling together my memories.  A list of memories formed the rudimentary basis for what you see here.  After organizing and reorganizing the list, eliminating some memories and adding others, a table of contents took shape.  A bit of juggling after that produced what you see here.

This book is a collection of short stories mixed with illustrated essays.  The short stories are experiences I’ve had that fascinate me, and I hope will fascinate you.  The illustrated essays primarily provide information as illustrated by actual experiences.

The stories and illustrations given in this book are biographical.  They either directly involved me, or I personally witnessed them involving co-workers or colleagues.  The names, dates, and places have been changed, of course.  However, the underlying events told here really happened.

A couple of these stories still cause me concern.  I’m hoping there are no lawyers out there who read them and decide that, at the time, I should have reported a crime.  Perhaps I should have, but it’s very likely that action would have cost me not only my job, but my reputation in the industry.  Oil companies abhor legal actions that could involve them, unless they are the one taking the action.  At any rate, those particular stories are events that happened so long ago that any statute of limitations has expired.  In at least one story, the co-worker directly involved is no longer living.

I hope that the stories and narratives contained in this book are entertaining.  Each is intended to enlighten, some more than others.

And yes, I really did meet the wonderful Miss Ima Hogg back in 1975, just a few short months before her tragic death in London in August of that year.  I still hope to one day learn who Stephen was, why she loved him so deeply that she would have a birthday party for him designed for a hundred people, and hold that party at the same remote state park in Texas each year.

Maybe one of you out there knows.

1.  Lost, But Waiting To Be Found

Generally speaking, a deed is a deed regardless of the state where the land conveyed by it is located.  A deed is the document used to convey ownership in land from one person to another.  That said, this next story should be of particular interest to royalty owners, especially in Oklahoma.  That’s where this deed was used long ago, in 1930.

A major oil company in Houston was operating several wells producing out of the same-pooled unit in Oklahoma.  One of the owners in the unit was a man we will call Horatio Trafalgar.  Horatio had purchased the mineral rights in an 80-acre tract in the 640-acre gas unit from the previous owner of record sometime in the mid-1970s.  He received royalties from this company steadily after that, usually around the $3,000 per month range, until they abruptly stopped in 2000.  That was four years before the situation with this deed came to my attention.  It came to my attention because the company was notified that Horatio died.

I was the division order analyst responsible for this company’s Oklahoma properties at the time.  I wasn’t an employee of the oil company, however.  I was working as a temporary employee with a temporary agency in Houston, because the oil company had outsourced its accounting and division order departments to a big tech company.  The tech company chose not to fill this particular position with a permanent employee, even though the other positions in the Division Order Department were filled with employees of the tech company.  You’ll understand the need for the distinction a little later.

Major Oil, we’ll call it, received notice of the passing of this owner by a letter received in the mail.  The correspondence made its way to the inbox on my desk.  Enclosed with the letter was a photocopy of the death certificate for Horatio.  Unfortunately, Major Oil company policy required some form of probate documentation be provided to the company before Horatio’s ownership could be distributed to the heirs, in company records.  Until those documents were received, the heirs couldn’t be paid.

I replied using the standard company form letter asking for either an order admitting the will to probate with the will attached, or an affidavit of death and heirship recorded in the county where the land was located.  In the return mail, I received the order admitting the will to probate with will attached, but also included was the final order—the court order completing the probate process and declaring the new owners of the property.  But because Horatio’s account had been in a suspense that meant title problems, since 2000, I had to find out the exact nature of the problem so it could be resolved.  Only then could Horatio’s revenue decimal and the suspended funds be transferred to his heirs.

My research began with the big, bulky division order files for the first well drilled in the pooled unit.  By starting there, I had the best chance of finding a copy of every change ever made to the computer records for the pooled unit.  It took several hours, but I managed to locate the paperwork put there by the analyst who suspended the account in 2000.  He no longer worked in the Division Order Department, having gone to new job after this company outsourced is division orders to the tech company.

The analyst’s notes and copies of supporting documents pointed me back to a deed signed in 1930.  A copy was included in the packet of notes and documents by the analyst.  I read the deed.  Very plainly, the deed stated that it was signed on August 18, 1930, and effective only for a term of 70 years.  No other language.  No or until production ceases, or any other caveat language.  Straightforward, by the terms of the deed, the grantee owned all rights to the land, including mineral rights, but only for exactly 70 years.  Until August 18, 2000.  A trigger date placed on Horatio’s account noted that his ownership only lasted until August 18, 2000.

There was no other documentation in the file.  No proof that any effort had been made to get the interest credited to the person or people who owned it again, beginning on that date.  I went to my supervisor’s office to get his input on what to do next.

"There’s nothing to do," he told me.

Sure there is, I responded.  We need to run title from the date of this deed forward, for just this land, to find out who the heirs are of this Herman Jones, the grantor in the deed.

Won’t do you any good, he said, his desk chair creaking as he leaned back.

Why not?

Because title from August 18, 1930 would only be in the grantee’s line of record title—not the grantor’s line of record title.

‘Oh, yeah,’ I thought.  ‘He’s right.  That’s not how to do this.’

What about hiring a landman, a broker, to track down the heirs of this Herman Jones?

Major Oil isn’t going to do that.  And I’m not going to ask them to.

I just sat and stared at him for a moment.  There wasn’t anything else I could do.  I thanked him for his time and went back to my cubicle.  I sat for a while strategizing if there was anything I could do on my own, without incurring any cost to Major Oil, to find the heirs.  At least, some of them.

It occurred to me that my husband was researching the family trees for both of us, and he was subscribed to a well-known ancestry website where he conducted a great deal of his research.  We already had the subscription—why not ask my husband, who was retired by then, to search on this Herman Jones in Oklahoma, to see what popped up?

We talked about it that evening.  I gave him what information I had—including a copy of the deed in case he might need any other information in it—and left it with him.  He started working on it the next day.  Right away, he came up with a Herman Jones with descendants in Oklahoma, but Herman had died in Idaho.  How could we be certain this was the right Herman Jones? 

My husband said there were two other Herman Jones connected with Oklahoma, but he found one of them on LinkedIn.  The other he found in WhitePages.com.  Facebook didn’t exist yet in 2004.  And both of them were too young to be the Herman Jones we were looking for.  We decided my husband would contact the ancestor who had put Herman’s family tree on the internet.

We didn’t have to wait long for a reply.  The next day, my husband got a phone call.  He had given his phone number in the message he left.  He spoke briefly with Bob Jones, the great-grandson of Herman Jones, to give him my office phone number.  Bob was quite surprised that a major oil company was looking for heirs of his great-grandfather.  My husband told him that I would explain everything to him.

In our initial conversation, the first thing Bob wanted to know is why we thought that his great-grandfather died owning any land in Oklahoma.  He had lived the final years of his life destitute in Idaho, a requirement for him to get Medicaid after failing to qualify for Medicare and Social Security.  Laws are much different now.  Herman died in 1969.  Bob said that his great-grandfather had been required to sign a paper swearing he didn’t own any real property.  Bob feared the government might come after the heirs to repay his great-grandfather’s benefits, if the ancestors were to lay claim to the property.  I advised him that he should visit with a lawyer to settle that issue, but also told him I had never heard of anything like that happening.  Which was true.  But I understood his fears.

The information I gave Bob seemed to overwhelm him.  He wasn’t willing to commit to anything during that first conversation.  It was only after Bob followed my advice and visited with a lawyer that he called me back and was ready to move forward.

The problem was, moving forward had obstacles.  The company policy at Major Oil was very strict.  Our office had to receive properly recorded documents before we could transfer the record from Horatio, held in suspense, to the heirs of Herman.  And there were no less than eight of them, according to Bob.  He had taken inventory, so to speak, before calling me again.

First, we needed death certificate for Herman.  He never had a will that Bob knew of, so we needed an affidavit of death and heirship instead.  The problem with that was the fact that it needed to be someone personally acquainted with Herman during his lifetime.  No one would still be living who could do that.  In addition to that obstacle, Herman’s son, Bob’s grandfather, was also deceased and didn’t leave a will.  I suggested to Herman that he go back to the lawyer, or find another one who would charge a reasonable fee, to consolidate the estates of Herman and Herman’s son, to file for an administration of their estate.  I explained to Bob that an administration could be done when there’s no will, that it’s pretty much the equivalent of the court issuing an affidavit of death and heirship.

Bob immediately balked at the idea of getting a lawyer to help straighten any of this out.  He complained that they were expensive.  He had been burned more than once by lawyers promising to do something for a certain price, and then ended up charging more.  It was then that I did something that was strictly forbidden by company policy at Major Oil.  I told Bob how much money was sitting in suspense: over $100,000.  He gasped.

I then told him that there were two ways he could go to get this resolved.  He could ask the attorney to file the petition for administration of the estates and send me the paperwork signed by the judge and court clerk.  With that, I could transfer the interest from Horatio to the Estate of Herman Jones, and transfer the $100,000 into the Estate account in the Major Oil database either in suspense or in pay status.  It could remain in suspense until the outcome of the administrations, if Bob wanted.  Or, Major Oil could pay the $100,000 to the Administrator of the Estate.  The administrator would then have the funds necessary to pay the legal fees directly out of the estate.

I also warned Bob to be careful about telling the lawyer how much royalty has accrued unless he was confident that the attorney would not decide that his fee should include a percentage of it.

Bob elected to have us continue to hold the accruing royalties in the account for Herman until the judge signed the final order naming the eight heirs and the share of Herman’s interest each was to receive.  It gratified me to no end to perform the transfer from Herman to the eight heirs in the Major Oil database after receiving the final paperwork.  I released the accrued royalties to pay, distributing to the heirs what was by then almost $118,000.  Three new, deep wells had been drilled on the deed acreage since 2000.

Term deeds are still commonplace.  There’s no telling how many people could be walking around out there today who don’t have a clue that they lawfully inherited mineral rights from a long-deceased ancestor.  Oil companies believe they have no legal duty to find the heirs of the grantee at the end of a term deed like the one described here.  The state of incorporation for the oil companies holding royalties from lands in expired term deeds could have received tens, or even hundreds of thousands of dollars.  Those are royalties that belong to living heirs.  If the address of a living heir is unknown, the royalties are paid to the state of incorporation of the holder (the oil company) after a certain amount of time, as a matter of law.

There’s only one reason the $118,000 didn’t end up in Delaware in 2005.   I took the initiative to make contact with someone, anyone, who could claim to own even a part of the suspended funds.  That contact immediately stopped those funds from being eligible for payment to Delaware.

Are there any term deeds in your family tree?

2.  Day Late, Negative Dollar Short

The Big Oil Company division order analyst calculated the decimal interest wrong for a royalty owner in a new well.  The wrong decimal of 0.0500000 was used to make the first eight months’ payments to him.  This incorrect royalty decimal gave him four times more revenues than he should have received.  He was paid a total of $28,000 using 0.05000000 when he should have been paid only $7,000 using the correct 0.01250000.  How could this mistake happen?

Apparently, the division order analyst forgot to reduce this owner’s decimal down to the 25% ownership in production that the Big Oil Company was selling each month, its rightful entitlement.  Big Oil owed only 25% of the owner’s royalty to them, not 100% of it.  The other oil companies, partners in the well, owed the remaining 75%.  That was the first mistake of many that the analyst made.  The remaining royalty owners, it turned out, had been calculated correctly.

Big Oil owned only 25% of the leasehold working interest in the pooled unit for the new well, so it was selling only 25% of total well production to its purchaser under its own contract.  Big Oil’s purchaser was only buying 25% of the production from the well for the account of Big Oil.  That means Big Oil was responsible for paying the