Oil and gas owners who can’t sign a lease. What are Executive Rights?

There are fair amount of mineral owners in the Ohio Valley area who might own a 100 percent interest in their mineral rights, or a share in minerals rights held by their family, but who are unable to execute a lease for those rights.  I am not talking about lands were are still “held by production” or “held by storage” by older leases and wells that are still active.  I am talking about the concept known as “executive rights.”  The executive right, in the context of mineral ownership, is the actual right to negotiate and enter into a mineral lease agreement.  This usually lies with the ownership of the minerals, but not always.   Many times a person who decided to keep all or part of their mineral rights would give the surface owner the executive right.  When done properly, the executive rights holder would be the individual or entity to have to right and ability to negotiate any oil and gas lease related to the property.  In theory, this gave the land owner the right to protect the surface of the property by negotiating the terms on which their surface might be used for oil and gas operations.  The mineral owner would benefit from the lease agreement when production began and would receive their royalty interest when the oil and gas was ultimately sold from the property.  In most situations, the executive rights holder would have the right and ability to receive any “bonus” monies related to the execution of the lease.

While the mineral owner is “non-participating” in the leasing process that does not mean that they are without rights.  Case law from the Texas oil fields, and which has been acknowledged here in West Virginia, demonstrates that an executive right holder owes fiduciary duties to the mineral owner.  What that means, essentially, is that the executive right holder has a duty not to unfairly or unreasonably negotiate deals which are unfair or inequitable to the mineral owner.  For example, an executive right holder, knowing that he or she would not receive royalties from the oil and gas produced from the property, might try to negotiate a higher per acre bonus rate in exchange for a lower royalty rate.  The executive right holder is not harmed, because he is not entitled to the royalty.  The mineral owner, however, is harmed greatly because the royalty rate is the only way they will ultimately profit from their interest.  There are many different ways in which a mineral owner might be harmed by the actions of an executive right holder.  A careful review of the terms negotiated and entered into by the executive rights holder is necessary to make sure the mineral owner’s rights have been protected.  If you are a mineral owner who does not hold their executive rights, take special care to review any deals entered into by the executive to make sure your interests were protected.  Contact a mineral rights attorney today as you may have a claim for a breach of the fiduciary duty owed to you if the executive holder placed its rights above yours during the negotiation process.

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