This is a special blog due to an experience I recently had over an oil and gas receivership lease.

TEX. CIV. PRAC. & REM. CODE §64.091 et seq. provides a method whereby oil companies, who are unable to locate missing mineral estate owners and their heirs, may obtain a “receivership lease” from the missing mineral estate owners. A verified petition (sworn to as being truthful) made to a district court must identify by name the missing mineral estate owner and “swear under oath” that a diligent effort has been made to locate this missing mineral estate owner(s). After reviewing this application, and requiring live testimony as to the diligent efforts, that local district court will appoint, by court order, the county judge (or another third party in rare instances) to execute an oil and gas lease on behalf of the missing mineral estate owner in favor of the applying oil company. Thereafter, the lease bonus and future oil and gas royalty payments (and anything else for that matter) attributable to the leased interest is to be paid to the clerk of court. These payments are made for the benefit of the “missing mineral estate owner.” The receiver (think county judge or county clerk) remains the receiver until the “missing mineral estate owner” appears in court to claim its interest.

This statute was designed for the benefit of oil companies. Companies that want to show 100% of the mineral estate as being under lease have a procedure to do this even if every owner cannot be found – all that is required is that the oil company look “honestly, far, and wide” for the missing mineral estate owner.

Sounds straightforward – and it is.

However, based on several recent experiences, at least a few oil companies are having trouble with administration.

1. Diligent Effort means something

Having an employee yell, from the top of his lungs, in his office cubicle in downtown Houston – “where are you?!!!” – is probably not a “diligent effort.”

Remember, a verified petition is made “under oath.” Theoretically that means you could be charged with perjury if it is determined you lied. While that is unlikely, you can “bet your bottom dollar” that someone will come behind you and try to find those missing heirs. There are individuals and companies all over Texas doing just that.

At the very least check the courthouse records, and if the missing heir lived in another county (location for instance of an acknowledgement) – look there; check the Comptroller’s Office for unclaimed funds; and use the internet (Google) for on-line name searches. And document your efforts.

Informally, or otherwise, someone is likely to contest your diligence.

2. Obey the Court Order Establishing the Receivership

Once you get a court order – follow it. You went before our judiciary and asked that they take care of a problem for you – and they did.

People may come before you identifying themselves as the “missing mineral estate owner” (Crook) and ask for the future payments to be sent to them. Don’t do it – refer them to the Court. You have ceded the decision on ownership to the Court – let the Court do its job. Tell Crook – “hey, you are in the wrong place – go to the Court and get a court order.” You needn’t expend your resources further on this matter – it is under the purview of the district court. Pay the Court until the Court instructs you differently – theoretically, your taking this matter in your “own hands” could result in your being in violation of a court order – and that is not a good idea.

3. Obey any Court Order Terminating a Receivership

It is important to realize that, when you establish a receivership, that receivership remains an active case until the missing owner(s) appears to claim their property. This means that, among other things, you are still in an active case and you are still the Plaintiff. There is a reasonably good chance that the lawful owners or their heirs will establish their ownership rights before the Court – and you will have notice of this beforehand via your outside counsel. If they do and get an order to that effect, then abide by the Court order. As a neat trick, you should receive copies of these ownership applications. Make sure that the draft orders clearly instruct you as to the payment of “future royalties.” This is where a good in-house attorney or outside counsel can earn his or her value.

Bottom Line –

If you take a receivership lease, it is subject to the control of the receiver, the court, and the district clerk. You have “washed your hands” of the matter – don’t do their job, and, hopefully, they will not try to drill oil wells.

Edward Wilhelm and Jack Wilhelm provide assistance to buyers and sellers of oil and gas properties.

THE WILHELM LAW FIRM, 5524 Bee Caves Road, Suite B5, Austin, TX 78746; (512) 236 8400 (phone); (512) 236 8404 (fax);

DISCLAIMER: The information on this site is not intended to and does not offer legal advice, legal recommendations or legal representation on any matter. You need to consult an attorney in person for legal advice regarding your individual situation.