6Nov

Life Tenants and the the Open Mines Doctrine

I’ve had a few landmen ask me about the proper way to handle payments of bonus and royalties under oil and gas leases involving a life tenant.  Judging by the guesses people have given, it may not be entirely common sense.  The entire analysis changes even further if the Open Mines Doctrine applies.  I suppose that’s one reason it’s always good to make sure you have an excellent title attorney preparing your title opinions and division orders!

The answer:  Once a lease is granted by both the life tenant and the remaindermen, courts generally allocate funds between them as follows:

However, the Open Mines Doctrine is of key importance when dealing with an active lease, because the entire division of proceeds changes when this doctrine applies.  The Cornell School of Law defines the Open Mines Doctrine as follows:

In property law, a doctrine that permits a tenant to commit voluntary waste on a piece of land by depleting it of natural resources when mining was previously done on the land and mines were currently open at the time the tenant took possession of the land. In this situation, a tenant is allowed to continue mining on the land, but can only continue to mine in the open mines already in existence and cannot open any new mines on the land.

The Open Mines Doctrine, while borrowed from the law of hard minerals, has been adopted in most oil-producing states.  Under this doctrine, where it applies, courts generally allocate funds between the life tenant and remaindermen as follows:

  • Life Tenant: Delay Rentals, all Bonus Payments and Royalty Payments.

So when does the Open Mines Doctrine apply?  Generally, a “mine” (oil and gas lease) is “open” when the oil and gas lease exists when the life tenancy is created.  Perhaps counter-intuitively, this may also include additional wells drilled under that lease.  One important limitation is that the Open Mines Doctrine generally does not apply to future leases or top leases.

 

Austin Brister
Austin represents oil and gas exploration and production companies and landowners in a wide variety of complex commercial litigation matters, including contract and property disputes, royalty disputes, breach of lease cases, lease termination/perpetuation disputes, and an array of other issues in the upstream oil and gas sector. Austin has prosecuted and defended claims in state courts and federal courts. Austin strives to find practical business solutions to complex issues, but if necessary, he works hard to implement effective strategies in the courthouse.
Austin Brister

9 comments


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  1. help. i could really use some help in figuring out who is entitled to what on a new lease my family has signed in arkansas, where there is a life tenant, and an already producing well under another lease. the life tenant, my fathers’ surviving spouse, is currently receiving 1/3 of royalties on the well that was already producing when my father died. the problem is that we have signed a new lease, with another company, to drill a new well(s) on another part of our land. do we(the remaindermen) have to pay her 1/3 of the new well(s) production also?

    • I must first note that I am not licensed in Arkansas. I suggest you retain the assistance of an attorney licensed in Arkansas. Especially due to the fact that this could greatly affect your receipt of royalty payments.

      In Texas, contrary to the rule for hard minerals, when there is a lease in effect with a producing well at the beginning of the life tenancy, the life tenant is also entitled to proceeds from additional wells drilled under that lease. However, the open mines doctrine is limited to the term of the lease in existence, and the life tenant may not grant additional oil and gas leases on the property.

      However, to fully answer your question would require a somewhat detailed fact-specific inquiry, to determine if there is a Pugh clause in the life-tenant’s lease. If so, has the acreage under consideration for the new proposed well been released? Has the proposed drilling acreage been otherwise released? Has the life tenant’s lease otherwise expired by operation of law or under the terms of the lease itself? Are the remaindermen, in effect, creating a “top lease?” Again, I would suggest finding an oil & gas attorney, licensed in Arkansas, who can help you answer these questions. If you need help finding one, let me know! Good luck!

    • thank you very much for your reply and help. i was trying to ascertain whether it was worth going the trouble and expense of seeking out a lawyer. i guess if we want to know the answer to all this, for sure, we are going to have to-i didn’t understand a thing you said about all the lease details. unfortunatly we have already signed the lease, so she is probably going to get 1/3 anyway, unless we sue her. i tried to bring up these questions to the landman that we signed the lease with beforehand, but he was resistant to listening to my objections about it. the only thing i can tell you is, like i said, that this lease is an entirely new lease, with a new company on another seperate part of our land from the other well(s). i would very much appreciate any recommendation you could give for and an arkansas oil and gas attorney.

  2. mr. brister, thank you so much for your replys. you have been very helpful.

  3. Most of the new leases I see are of the “Paid Up” variety where the Bonus and Delay Rentals are paid up front in one lump sum.

    When I have had access to the payment records from the original Lessee, the cash consideration paid to the Lessor was never allocated to Bonus or Delay Rental.

    In Texas, if there is a life estate and there is NOT an “Open Mine” situation what is the recourse for the Life Tenant?

    Thanks

  4. Situation – Life estate is in existence, no producing wells on property. I offer a lease (no severance language for non-producing lands) to the life tenant and ratifications to 2 of the remainder interests. The third remainder interest is dead, as of 2009. This person divorced from their spouse in 2006 leaving two children, one is 18, the other is 14.

    Question 1 – who do I send the ratification(s) to for the 3 remainderman interest? The father of the 14 year old as guardian, and the 18 year old as separate interest?

    Question 2 – Can you proceed with a well as an operator, if you do not have all of the remainderman interests ratified?

    This property is in Texas. Represents a 1/16 mineral interest.

    Thanks,
    Clint

    • Austin W. Brister

      Clint,

      Unfortunately I can’t give too specialized of assistance on this site due to State Bar restrictions attorney-client relationships, and my practice insurance would go nuts.

      But I can tell you that as far as the guardian, you’ll need to look into obtaining the laws regarding conveying property held by a minor. Texas has a texas uniform transfers to minors act, which discusses a small part of the problem, and also the Estate Code which has a few sections regarding the maximum primary term, and a few provisions regarding the “voidability” of a conveyance made by a minor. Perhaps soon I will prepare a general article on leasing from minors.

      The other thing I can tell you is that if you need to determine who the remaindermen are (which would include your situation since you are trying to figure out what to do with the deceased person’s interest), you need to look at the instrument that created the life estate. Sometimes it will give specific instructions.

      • Thanks for the response Austin. I understand about the specifics of the question and the nature of the response, but I felt like I needed to be specific to get the best response I could the first time. I will check into the laws for transfers into minors. The document creating the Life Estate is “absent” from the public record. There is a Guardianship case on file in the Probate records, but it’s incomplete and it references a “1/3 Life Estate” to the wife of the deceased. Other than that, there isn’t much to go on.
        I’m trying to lease this property for myself, and I got more than I bargained for I think. I spoke with the wife who owns the life estate and she said that she was young with three little kids herself and didn’t know what she was doing. Her deceased husband’s relatives were putting pressure on her to set up a Life Estate and she doesn’t even know what that is, even today, 45 years later.

  5. While under the open mind doctrine.can the life tenant and the remainderman sell minerals?

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