North Dakota Mineral Rights Purchase Offer

North Dakota Mineral Rights Purchase Offer

A North Dakota mineral rights purchase offer may be presented to an owner in one of two forms:

1. A North Dakota mineral rights purchase agreement which identifies the owner of the mineral rights – the seller, and the proposed mineral rights purchaser – the buyer; or
2. An option agreement which identifies the owner of the North Dakota mineral rights – the optionor or option-giver, and the party receiving a right to purchase the mineral rights sometime in the future – the optionee or option-holder.

Some of the possible terms of a North Dakota mineral rights purchase agreement are identified and discussed herein.

The mechanics of an option agreement relating to North Dakota mineral rights are identified and discussed separately – see North Dakota Option Agreements.

North Dakota Mineral Rights Purchase Offer – Short Time for Acceptance

Regardless of which form of North Dakota mineral rights purchase offer used, either the proposed agreement itself, or separate correspondence from the buyer’s agent, may identify that the buyer’s offer can only be accepted by a certain specified date.

It would appear that any such short-term date for acceptance of the North Dakota mineral rights purchase offer is merely an attempt to induce a quick acceptance of the purchase offer – perhaps without a proper evaluation of its provisions by North Dakota legal counsel, or without an appraisal valuation of the mineral rights by an independent third-party.

If the buyer is legitimate and the purchase price for the mineral rights is advantageous to the buyer, the buyer will likely still be interested in acquiring the identified mineral rights even if the initially identified date for acceptance by the seller passes without acceptance of the purchase offer.

Independent Landman Acting as Agent for Buyer

Regardless of which form of North Dakota mineral rights purchase offer is used, the purchase offer will likely be presented to the seller by an independent landman – who is acting as an agent for an identified oil company buyer – which itself may just be an intermediate entity acting on behalf of an unidentified ultimate purchaser of the mineral rights.

North Dakota Mineral Rights Purchase Offer – the Parties

A North Dakota mineral rights purchase agreement will initially identify:

• the owner of the mineral rights – the seller, and
• the proposed mineral rights purchaser – the buyer.

North Dakota Mineral Rights Purchase Offer – the Mineral Rights

A North Dakota mineral rights purchase offer will also initially identify to some extent the mineral rights which are to be purchased – in part by providing a legal description of the land in which the mineral rights are located.

In addition to providing a legal description of the land in which the mineral rights are located, a North Dakota Mineral Rights purchase agreement should also identify the extent of the seller’s mineral rights which are to be purchased – by including a provision similar to the following:

100% [or some lesser %] of Seller’s right, title and interest in certain undivided oil, gas and other mineral interests located in and under the following described lands:

Notably absent from some North Dakota mineral rights purchase offers is an identification of the quantity of the mineral rights owned by the particular seller – either xxx mineral acres, or some fractional percentage ownership declaration of the seller’s total mineral rights in the property.

Gross Mineral Acres

The term gross mineral acres refers to the total geographic area of the parcel(s) identified with respect to North Dakota mineral rights – delineated by the number of acres which are located within such parcel(s).

Net Mineral Acres

The term net mineral acres refers to the total gross mineral acres of the parcel in question multiplied by the percent of ownership of a particular owner in the minerals interest.

For example, 20% of the mineral interests held in a 160 acre parcel of land would be 32 net mineral acres.

However, since parcels of land which have not been individually surveyed are never correctly identified as an exact number of acres in area, the use of a fractional ownership percentage of the mineral rights in a particular parcel is preferable to a reference to the net mineral acres purportedly owned by a person in such parcel.

Identification of the Seller’s Mineral Rights

The absence of an identification of the quantity of the total mineral rights owned by a seller in a parcel of land at the time that the North Dakota mineral rights purchase offer is drafted may be acceptable if the buyer has not yet performed a title examination.

However, the purchase agreement can be made contingent upon the buyer determining the extent of the seller’s mineral rights – which is more favorable to the seller than having a proportionate price reduction clause in the purchase agreement.

Mineral Rights Purchase Agreement – Proportionate Price Reduction Clause

A North Dakota Mineral Rights Purchase Agreement may contain a proportionate price reduction clause – which may allow the buyer to unilaterally reduce the purchase price by some arbitrary percentage if the seller is ultimately determined to own a lesser quantity of mineral rights than was first thought by the buyer.

One version of such a proportionate price reduction clause is similar to the following:

If Buyer determines that the Seller’s ownership of the mineral rights is different than is stated in this purchase agreement, the dollar amount of the purchase price specified in this purchase agreement shall be paid to Seller only in the proportion that the actual interest bears in the real property.

Should Seller own mineral rights more or less than what is stated in this purchase agreement, Buyer will increase or reduce the specified dollar amount of the purchase price to be paid to the seller proportionately.

Another version of such a proportionate price reduction clause is similar to the following:

Prior to the closing date, Buyer will conduct title due diligence, and if Buyer discovers that the seller’s interest in the mineral rights to be conveyed and delivered to Buyer is greater or lesser than the amount stated in this purchase agreement, the purchase price for the seller’s mineral rights will automatically be proportionately adjusted higher or lower to account for the Interest actually conveyed.

While the specific terms used in the two examples are different, the common element is allowing the buyer to unilaterally reduce the purchase price upon the buyer’s determination of certain matters.

Proportionate Price Reduction Clause

A proportionate price reduction clause similar to either of the foregoing provisions may be acceptable only if:

1. the seller’s ownership interest had been previously identified in the North Dakota mineral rights purchase offer, and
2. the seller is comfortable entering into a purchase agreement which may result in the seller receiving a substantially lower purchase price than the seller had been expecting when the seller signed the purchase offer.

For example, if a North Dakota mineral rights purchase offer containing a proportionate price reduction clause identified that a purchase price of $100,000 was to be paid to the seller in exchange for a conveyance of the seller’s mineral rights to the buyer, the seller of the mineral rights may ultimately receive a payment substantially less than $100,000 if the seller’s ownership interests in the mineral rights are determined by the buyer to be less than was first apparent to the buyer.

A proportionate price reduction clause in a North Dakota Mineral Rights Purchase Agreement should not be acceptable to the seller if the seller’s ownership interest had not been previously identified in the proposed agreement, or if the seller wants a guaranteed price.

The preferable procedure for the seller would be to require the prospective buyer to perform a preliminary title examination in order to specify in the North Dakota Mineral Rights Purchase Agreement the extent of the seller’s mineral rights, and allow the buyer to walk away from the purchase agreement if a subsequent title examination identified that the seller either did not have good title to the mineral rights identified in the purchase agreement, or owned a lesser quantity of mineral rights than the buyer had been anticipating.

Mineral Rights Purchase Agreement – the Mineral Deed

A North Dakota mineral rights purchase offer may provide that by executing the purchase offer document, the seller agrees to grant, sell, convey and assign to the buyer all of the seller’s mineral rights pursuant to a Mineral Deed, which is either presented to the seller together with the North Dakota Mineral Rights Purchase Agreement, or shortly thereafter.

The terms of a North Dakota mineral rights purchase offer may also require the seller to duly execute the Mineral Deed and deliver it to the buyer or the buyer’s agent prior to receiving payment for the mineral rights.

However, the seller should avoid signing any Mineral Deed until arrangements have been made for the payment of a specified and guaranteed purchase price in exchange for the seller’s conveyance of the seller’s mineral rights to the buyer pursuant to the execution and delivery of the Mineral Deed.

North Dakota Mineral Rights Purchase Agreement – Seller Warranties

A North Dakota Mineral Rights Purchase Agreement may identify that the seller will be making certain warranties of title with respect to the seller’s mineral rights upon execution of the purchase offer.

While a buyer would like to obtain the seller’s warranties with respect to certain matters of title, all things being equal, the seller would be better off not making any warranties of title – but allow the buyer to perform a title examination and make its own determination as to the quality of the title before proceeding with the purchase of the seller’s mineral rights.

Nevertheless, the seller should be expected to warrant that the seller has the full capacity, right, power and authority to execute, deliver and perform all documents relating to the sale of the seller’s mineral rights, and that all required actions and approvals necessary for such execution have been duly taken and obtained.

In addition, it may be necessary for the seller to warrant that title to the seller’s mineral rights are free and clear of any claims, interests, liens, encumbrances and demands arising by, through or under the seller, his/her heirs, executors, administrators or assigns.

North Dakota Mineral Rights Purchase Agreement – Title Review

A North Dakota mineral rights purchase offer may identify that the seller will be required to cooperate with the buyer to provide any information or documents that are either not in the buyer’s possession, or are not publicly available – but which are necessary for the buyer to complete its title review and due diligence examination.

Such a requirement may be reasonable under the circumstances.

However, the North Dakota Mineral Rights Purchase Agreement may also identify that buyer in its sole discretion may make a determination as to the existence of one or more title defects.

If the seller is not required by the terms of the purchase agreement to clear any such title objections, the buyer can terminate the purchase offer, and the status quo will be retained.

However, if the North Dakota mineral rights purchase offer requires the seller to take certain action in order to clear any such title objections, the buyer’s unlimited discretion to determine title defects may be one-sided in favor of the buyer.

Any such determination should have some factual basis, and any such title objection should have some legal support in the North Dakota statutes, judicial decisions, or title standards.

North Dakota Mineral Rights Purchase Agreement – Counterparts

A North Dakota Mineral Rights Purchase Agreement may identify that it can be executed pursuant to counterparts which have been separately executed by the buyer and seller.

A counterpart is a full version of a North Dakota mineral rights purchase offer which is executed by one of the parties, but not by both of the parties.

Each of the parties would separately execute its own counterpart of a North Dakota mineral rights purchase offer, and the parties would then exchange the executed counterparts.

Allowing the execution of the purchase offer by counterparts should not be objectionable, and may facilitate the efficient mutual execution of the purchase offer document.

However, abuse of the counterpart provision could arise in the situation where the seller has executed a purchase offer counterpart and transmitted it to the buyer’s agent, who held onto the seller executed purchase offer counterpart without arranging for the prompt execution and return of the fully executed buyer counterpart of the agreement to the seller.

Closing Requirements – Mineral Deed

A North Dakota Mineral Rights Purchase Agreement may identify certain requirements for closing the proposed purchase transaction – such as the following:

Subject to the satisfaction of the conditions to closing set forth in this purchase agreement, the closing of the proposed transaction shall occur within fourteen (14) days from receipt of the executed Agreement, although such date can be extended by the mutual agreement of the parties.

A provision similar to the foregoing may be acceptable to the seller.

However, the purchase offer may also have a clause similar to the following:

Seller shall execute, notarize and deliver to Buyer one (1) original Mineral Deed with respect to the seller’s mineral rights, in recordable form and in a format prescribed by the buyer, which Mineral Deed shall be delivered to the buyer on or before the closing date.

In addition, the purchase offer may identify that the terms of a Mineral Deed may supersede any provisions in the North Dakota mineral rights purchase offer to the contrary.

Therefore, the form of the proposed Mineral Deed should be reviewed by North Dakota legal counsel for the seller before the seller executes the North Dakota Mineral Rights Purchase Agreement, and the buyer and seller should negotiate the terms of any Mineral Deed which is to be executed by the seller at closing.

It would also not be advisable for the seller to send a duly executed Mineral Deed directly to the buyer or to the buyer’s agent without previously arranging for the delivery of the Mineral Deed in exchange for payment of the purchase consideration.

Such an exchange can be facilitated by an independent third-party – such as a Title Company licensed by the state of North Dakota.

Closing Procedures – Payment by Check or Wire Transfer

The payment of the consideration to be paid to the seller in exchange for the sale of the seller’s North Dakota mineral rights can be made by wire transfer to the seller’s bank account, by the buyer drawing a certified check on the buyer’s bank, or by a check issued by a Title Company licensed by the State of North Dakota.

While a wire transfer to the seller’s bank account is certainly the faster alternative, consideration should be given to the identity theft risks involved in providing the seller’s bank account number to the buyer or the buyer’s agent, or in inadvertently providing the buyer or the buyer’s closing agent with a bank account number which belongs to someone other than the seller.

Once the wire transfer has been completed – even if was sent to a bank account improperly identified by the seller – the transfer may be irrevocable.

Therefore, consideration should be given to receiving payment either by a certified check drawn on the buyer’s bank and delivered to the seller through a Title Company licensed by the State of North Dakota, or by a check issued by a Title Company licensed by the State of North Dakota, rather than receiving payment by wire transfer.

Consent of Spouse

A North Dakota mineral rights purchase offer may identify that the consent of the spouse of the mineral rights owner must be obtained with respect to the purchase offer.

However, a spouse may have no marital rights in the North Dakota mineral rights owned by his or her spouse which have been severed from the surface rights.

Nevertheless, out of an abundance of caution in the event that the spouse of the mineral rights owner has certain homestead rights with respect to any surface ownership which may be connected with the mineral rights, the buyer may have reasonable grounds to request the spousal consent to the purchase offer.

Conclusion – North Dakota Mineral Rights Purchase Offer

If you receive a North Dakota mineral rights purchase offer, please consult with North Dakota legal counsel before accepting any such offer.

If you desire assistance with respect to reviewing a North Dakota Mineral Rights Purchase Agreement, please, please contact North Dakota attorney Gary C. Dahle, at 763-780-8390, or gary@dahlelaw.com.

Gary C. Dahle has represented clients from the countries of Canada, Norway, and Sweden, and the states of Alabama, Arizona, California, Colorado, Connecticut, Florida, Idaho, Illinois, Indiana, Iowa, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Missouri, Montana, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Tennessee, Texas, Virginia, Washington, and Wisconsin in the United States, with respect to North Dakota mineral rights and probate issues in various North Dakota Counties.

Even though Minnesota and North Dakota attorney Gary C. Dahle does not maintain an office in North Dakota, he is able to assist persons throughout the United States with their North Dakota probate, real estate, and mineral rights issues which do not require a court appearance.

Attorneys not licensed in North Dakota are invited to refer the North Dakota portion of the probate estate they are associated with to Minnesota and North Dakota attorney Gary C. Dahle, at 763-780-8390, or gary@dahlelaw.com.

Minnesota and North Dakota attorney Gary C. Dahle does not represent oil companies – only owners of North Dakota mineral and royalty interests, and is currently accepting new clients with respect to North Dakota Option Agreements.

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