New “1 Year Term Royalty Assignment” Scheme Targets Unsuspecting Royalty Owners
As a mineral rights or royalty interest owner, you need to be on the lookout for a new type of deceptive scam that’s been making the rounds – the “term royalty deed” scheme. This tricky tactic is preying on unsuspecting mineral owners, so it’s crucial to understand how it works so you don’t fall victim.
Experts in the mineral rights space have been sounding the alarm on this scam, which involves a particular unscrupulous landman acquiring what appears to be a simple one-year “term royalty assignment” from mineral owners. However, the fine print in these agreements is where the deception lies. Let’s dive in.
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Beware the Tricky “Term Royalty Deed” Scam Targeting Mineral Owners
Despite the title implying a short-term transfer, the actual language in the conveyance document used by the perpetrator often extends the assignment for as long as any oil, gas, or other minerals are produced from the property – effectively handing over the owner’s royalty interest for decades. This can mean missing out on lucrative royalty payments from new wells being drilled, all for a fraction of what the minerals are truly worth.
These predatory offers often downplay or omit critical details that would clue the mineral owner into the true nature of the deal. Phrases like “you will retain your minerals and production from the excluded wellbore(s), while your minerals are subject to the assignment during its term” can make the agreement seem harmless, when in reality the owner is signing away their future royalty income from new wells that may have just been drilled but that they are not aware of yet.
In fact, the term royalty conveyance in question contains wording such as:
“This grant shall run, and the rights titles and privileges hereby granted shall extend to grantee herein, and to grantee’s heirs, administrators, executors and assigns, for the period on ONE Year(s) from the date hereof, and as long thereafter as oil, gas or other minerals or either of them, is produced or mined from the lands, leases, or wells described herein, including the excepted wellbore, or from adjacent lands with which said lands, or on land pooled or unitized therewith, in an effort to produced oil, gas, or other minerals and if said operations results in the productions of said minerals, then for as long as oil, gas or other minerals are produced from said lands, adjacent lands, leases, or from lands pooled or unitized therewith.”
And while the grammatical errors seem laughable the end result is not. In several examples provided to me by colleagues, critical information related to the offer was conveniently omitted. In one case the “excepted” well was a fairly old and shallow vertical well. Upon further investigation, my colleague discovered that a rig was onsite drilling five additional wells in a very prolific reservoir. They did a quick back of the envelope calculation and discovered that the Grantee would have walked away with around 90% of the upcoming royalties in exchange for around 10% of the value had their client signed this assignment.
To avoid falling prey to this scam, mineral owners must understand the different types of oil and gas interests and know exactly what they own. Get copies of all relevant deeds, leases, and division orders, and familiarize yourself with the activity and production on your property. This is why it pays to know how to research your minerals on your state’s oil & gas commission website to see what activity is occurring on or near your property. When you get an unsolicited offer like this, the buyer usually knows more than you do about what wells have been permitted or drilled on your property (unless you are proactive).
Most importantly, have any legal document reviewed by an experienced oil and gas attorney before signing – the fine print is where these scams hide. Remember, it is important to get help from a competent attorney in these situations. This information is being shared for educational purposes only and should not be construed as legal or financial advice!
Summary
While term royalty deeds can serve a legitimate purpose in certain situations, the deceptive practices being used are clearly intended to take advantage of unsuspecting mineral owners. Stay vigilant, do your due diligence, and don’t hesitate to seek professional help. Your mineral rights are valuable, and by getting help from a qualified attorney before you sign any legal documents you can hopefully avoid losing them to predatory tactics!
Resources Mentioned in this Episode
Mineral Management Basics Online Course – Cut through the overwhelm and gain the power to manage your minerals & royalties!
Other Scams:
Tips for Negotiating a Lease or Sale
- For help with negotiating tactics, I really like the book Never Split the Difference by former FBI hostage negotiator Chris Voss.
- MRP 6: How to Negotiate an Oil and Gas Lease
- MRP 202: Common Mineral Owner Mistakes (in this episode we talk about a way to do some of the work yourself and have your attorney review the deed or lease as a way to potentially reduce the expense of hiring an attorney).
Researching Your Property
- MRP 231: How to Find Oil & Gas Info For New Mexico
- MRP 230: How to Find Oil & Gas Data for Colorado
- MRP 227: How to Find Oil and Gas Info for Oklahoma
- MRP 226: How to Use the Texas Railroad Commission Website
- MRP 233: How to Find Oil & Gas Info for Utah
- MRP 238: How to Find Oil and Gas Info for North Dakota
- MRP 240: How to Find Oil & Gas Info for Wyoming
- MRP 248: How to Find Oil, Gas (& Lithium) Info for Arkansas
- WellDatabase Lite
Texas Property Code
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