Oil Patch Press
When a Memorandum of OGML Gets Filed, Does It Replace the Full OGML That I Signed?
No, it does not, ever. The full OGML an owner signs is the contract that is enforceable, not the Memorandum. It is very common today for oil companies to record a Memorandum of Oil, Gas and Mineral Lease in place of recording the original, signed oil and gas lease. Recording the OGML is not what makes it enforceable. It is enforceable the minute it is signed and delivered to the Lessee (or landman representing the Lessee) and it is accepted. A Memorandum is only a summary version of that original OGML.
A Memorandum of OGML is recorded instead of the original lease because the oil company must protect its rights as the Lessee by filing notice that a full OGML was taken from that owner covering the owner’s mineral rights in the lands described in the Memorandum. Filing the Memorandum puts the world on notice that the Lessee has taken a lease covering the Lessor’s mineral rights in the lands described in the original lease. We call this “third party notice” in the industry. The Memorandum of OGML is not what is enforceable as a contract, it is the unrecorded original lease summarized by the Memorandum that remains enforceable until it expires under its own terms.
An oil company prefers to file a Memorandum instead of the original, signed oil and gas lease for one primary reason: the original, signed oil and gas lease contains terms that the oil company doesn’t want the world to know. Specifically, they don’t want other owners (still unleased) in the area to know what terms this Lessor received; those landowners likely will demand the same. This can cause a leasing budget to get completely out of hand (and sometimes even shut it down entirely) so a Memorandum allows the oil company to negotiate with each landowner separately, without each of them knowing what others have already negotiated. There’s nothing ethically wrong with this, and it in no way cheats one landowner out of something just because another landowner got it and they didn’t.
Terms of an OGML that are most sensitive and disruptive to ongoing lease negotiations in an area are: royalty rate, term of the lease (6 months instead of 3 years, for example), and a long list of special provisions in an Addendum that creates special handling for the lease for its entire life. Usually only the larger landowners, those who own at least 10% of the total mineral rights in what will eventually be a pooled unit, have the clout to negotiate big leases like those containing 25% or even 30% royalty rate. In fact, rarely have I seen leases with a royalty rate greater than 30% royalty that did not cover at least 50% of the total, pooled mineral rights in the entire producing unit.
Owners should not be nervous allowing an oil company to file a Memorandum of OGML in the courthouse instead of the original, signed OGML, except the owner should understand that they can never get a copy of their original, signed, full-length OGML from the courthouse in case they lose the original they are given at signing. That's because it never gets filed of record there. For that reason, it’s extremely important for a mineral rights owner with an unrecorded lease to store that lease in a very safe place, forever. Leases sometimes can last for decades, for as long as that lease continues to produce oil or gas. And, the owners should understand that they can never file their copy of the lease into the county records without the probability of serious legal problems with the oil company (or current Lessee owner of the lease).