An executive right is the right to execute oil and gas leases. That is the short version. The longer definition is “ the right to take or authorize all actions which affect the exploration and development of the mineral estate … [including] the right to engage in or authorize geophysical exploration, drilling or mining, and producing oil, gas and other minerals.” This means, even though an owner may hold a mineral interest, if they don’t have the executive rights then they are unable to authorize mineral exploration on the property.
Properties rights or incidents of property ownership are often referred to as a bundle of sticks. These sticks are the different rights you have regarding the property and you can choose to sell or retain certain rights. The “sticks” that are associated with mineral interests are: the right or lease (the executive right), the right to receive bonus payments, the right to delay rentals, and the right to receive royalties. Each of these incidents of ownership, or “sticks” can be held by the same owner or by different owners.
It is important to understand that if you are the owner of an executive right covering more than your share of the minerals from which you are entitled to receive royalties, bonus payments and delay rentals you owe certain duties to those other mineral owners. A mineral owner that does not own the executive rights is called a non-participating mineral owner.
The primary duty owed to a non-participating mineral owner by an executive rights owner is the duty to lease.
This duty does not necessarily mean that an executive rights holder must lease, but it means that if the executive rights holder offers the land to lease it must be on terms that are favorable to the non-participating mineral owner. An executive right holder cannot take a benefit for himself that is not also given to the non-participating mineral owner.
THE TAKEAWAY: As a mineral owner you have certain incidents of ownership or “sticks” that can be kept or sold. One of the more important “sticks” is the executive right to sign or enter into oil and gas leases. If you own the executive rights, remember that you owe a duty to the non-participating royalty owners to negotiate a fair and equal price.
– The Business Team
Scott | Josh | Jeremy