Dividing family mineral and royalty estate - what you should know
Dividing up family interests is a common practice for any number of reasons, and can be considered an advantage for all parties.
Separation of family oil and gas assets can arise for any number of reasons:
Family members pass on and their interests need to be divided among heirs
Interests were held in a family business and for some reason it needs to be dissolved
Certain family members want to sell and others do not
Family members want their share of the interests to be held as separate property
Out of some other necessity (i.e. financial needs)
How long does the process take?
The amount of time and effort it can take to separate mineral and royalty assets depends on:
How organized the family is in document retention and accessibility
Communication efforts between family members and the professional helping them
Operator timeliness in transferring ownership
(Most importantly) If former patriarchs or matriarchs passed with (or without) a will and if the will(s) was probated
Get a will...have it probated.
Depending on which state/location your mineral and royalty interests are located, this can end up causing the most issues if the deceased did not have a will in place to describe the distribution of the mineral and royalty estate.
The Intestacy Law in Texas asserts that when a patriarch or matriarch passes without a will and their spouse is still alive, 50% of the interest they owned at the time of their death passes to their spouse. The other 50% gets divided up evenly among their children. If their spouse is deceased, 100% of their interest passes to their children and divided evenly among them. So, in Texas dying without a will is not all bad, but can still cause issue amongst family members so it is best to have a will that states the division of estate.
Whether or not a will is probated can also cause issues, which is why it is always best practice to have it probated, or pass it through the courts to "finalize" it and have it recorded in the county courthouse where the deceased passed and the state and county where the assets are located to put the public on notice. This process alone can take a long while so it should be handled immediately or at the earliest opportunity.
Note: Getting the will probated is a very necessary step if family members ever wish to sell some, or all, of the mineral or royalty estate as it will have to be done to clear title. Find out when is the best time to sell minerals and royalties.
If these steps are taken, all that needs to be done is transfer the property to the heirs via an appropriate, properly drafted document clearly conveying either some or all of the property rights to the new owner(s). A professional Landman can do this for you.
Predecessor died without a will, now what?
If your predecessors passed without a will it's not the end of the world so don't worry. Assuming everything else is in order, family is on good speaking terms and they've kept good records, the paperwork will be the least difficult part of the process. Many folks think they need an attorney to do this, but a competent Landman can help finalize the transfer of oil and gas assets or property rights and save you money.
Finalizing the transfer of property rights requires certain steps that need to be followed. Depending on your unique situation, the following could be required:
A Title Review to determine the deeds necessary to transfer the property rights between family members (i.e. General Warranty Deed, Special Warranty Deed, Quitclaim Deed, Distribution of Property, etc.)
Affidavits of Heirship to confirm family history (these could also be used to define how the estate is to be divided)
"Having proper representation can go a long way."
What if family members don't agree on how to divide up ownership?
When it comes to dividing oil and gas assets among family, oftentimes the hardest part is getting them to agree on how to split up the assets. This can become an especially delicate situation if there is a considerable amount of property or the assets are producing a substantial amount of revenue.
In either case, bringing in an intermediary can be the best way forward. Unfortunately, in my experience there is usually at least one member of the family that does everything in their power to keep the process from moving forward, or wants more than they deserve, which is why a good and patient intermediary is needed.
Sometimes, time is the only answer for things to work themselves out but if time is not available, it's when a patient and skilled go-between with experience dealing with sticky family matters, emotions, and behaviors is the resource that is needed to get all parties to the finish line so they can put this behind them and move on.
I've also found that, paradoxically, family members feel more comfortable talking to a neutral, non-biased or judgmental person that is removed from any family drama!
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What happens if I want to separate my assets that are producing?
Let's assume family members have their oil and gas assets distributed, their assets are producing, and they are receiving monthly royalties. Down the road, some of the family members may want to sell some of their assets and the other members may want to buy them. Assuming they agree on a fair price, they can sell the assets to each other without issue.
To transfer the revenue's being received from the Operator to the purchaser, one needs to get in touch with the Operator's Division Order or Royalty Inquiry Division department and send them a copy of their recorded deed. The Operator should typically respond to a request of the change in ownership within 15-30 days, could take 45, with an updated division order to sign off on and the rest should take care of itself.
One caveat is the division order the Operator sends back needs to be an approved division order similar to what the National Association of Division Order Analysts have created, which can be found in this PDF. You want to make this your responsibility to check your new division order complies with the NADOA approved form.
If their division order does not comply, the best thing for you to do is to simply disregard, print and fill out the NODOA form, and send that back to them with a copy of the lease. If they don't like this, their intention could have been to alter what you as a royalty owner were due to receive. This is not always the case (and we'll attempt to give them the benefit of the doubt), but this is why we send them a better form with a copy of the lease to ensure accurate dispersement of royalties.
If they balk at this, you may need to briefly hire an industry professional to send them a respectful letter (with a copy of the lease agreement) stating they are representing the you, the royalty owner, and your preference is to use the NODOA form and state why. This should resolve any issues the Operator may have with using their own division order form.
Tips to help ease the separation process for families
Get along with one another. If there is sour blood, put aside what brought family members to this position, the past can't be changed. Stay focused on why this is important for everyone to move on.
Get any documents related to the property in order
Get the owner's will recorded in the county courthouse
Get the owner's will probated
Family experience matters
As a 14-year oil and gas professional, I've seen and dealt with a lot on the buy side and the sell side.
I have a vast amount of experience dealing with families, those on good terms with each other and those on not so good terms. So far, I have a 100% success rate in getting families to work together and I will continue to do all I can to continue this record.
I have worked for and with Operators of all sizes. I know and speak their language and have come to know some of the shenanigans some of them attempt to pull. Having proper representation can go a long way. A lot of the time, I know these Operators personally and can get someone on the phone fast thereby cutting down on wait and lag times if you were to do this by yourself. If I don't know someone at a particular company, I know how to go about locating the person necessary to get our needs accomplished.
Since we've been offering this service we have had great success for our clients. We are happy to be there for those who don't know where to start, don't have enough money for attorney fees (or don't want to spend the money on attorney fees), or need a professional to be in the middle to help move family estate matters along.
If you've inherited your mineral and royalty rights, check out our answers to common questions to help you know what to do next (scroll down to the section, How to Handle Inherited Minerals & Royalties). You can also schedule a time to speak us. We're here to help.
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