Navigating Fiduciary Obligations
Trustees, Executors, Administrators, and Personal Representatives all share the fiduciary obligation to act in the best interest of the entity they represent. If the entity has oil & gas interest, the obligation and liability become more challenging. Fiduciaries need to stay on top of their assets.
What is the fiduciary being asked to do?
Many times, the oil patch can seem like the wild, wild west. Is the document presented to the fiduciary a lease or does it convey the mineral and or royalty interest? Is the lease or offer to purchase conforming to market conditions on the ground? Is the company making the offer currently drilling a well on your tract with out mentioning it? The American Association of Petroleum Landmen advises their member’s to withhold information unless specifically asked. It is buyer beware; the golden rule does not apply. Is the company drilling an offset well or has one been drilled? Is your asset being drained by offset production? Should your asset be in an adjoining unit? Should you place the asset in the proposed unit? These issues need to be researched fully before a fully informed decision is reached.
Accuracy of information
It is surprising to see how many errors occur in Title Opinions and Division Orders. Is the operator or pipeline assigning the asset the correct interest? Has the mineral or royalty interest been interpreted correctly? It recently came to our attention that three 14,000’ wells were drilled on our newclients NPRI acreage. The major independent who drilled the wells completely left our client out of their title opinion and division order. The fiduciary needs to stay on top of all assets whether drilled or not. Over generations, ownership names and percentages may change. Have all the Probate proceedings and Certificates of Trusts been filed in all the correct jurisdictions? Possibly the asset was not properly described when acquired. Maybe one of many assets was overlooked and not placed in the trust. Would the trustor’s interests be better served with a more consistent revenue stream? Should the assets be sold?
The courts and legislature are placing more and more responsibility on the mineral and royalty owner and by extension the fiduciaries. For example, there is a two-year limitation on royalty recovery from the discovery date of an error in payment. My role is to provide pertinent information to the fiduciary, so he or she can consistently make informed and knowledgeable decisions.