Navigating Mineral and Surface Contracts

It can be a time of excitement when a landowner is contacted regarding some sort of mineral or surface rights proposition. Be it a cell tower, wind turbines, a pipeline, or the sale or lease of mineral rights, landowners need to be certain they are protecting their interests. As well as some landowners know every inch of their property, oftentimes that knowledge is no more than six inches deep and stops long before drilling is fruitful.

According to Crystal McDonough, landowners are periodically at a disadvantage when negotiating such contracts because the other party is the one with the data of geologists, professional landmen, and even surrounding contract values for comparison. Simple mistakes- like entering automatically renewing contracts- can be avoided by utilizing a seasoned natural resources attorney.

A cattleman attempting to quickly learn the oil and gas, surface use, or mineral rights leasing finer points is much like an oil and gas man walking into the livestock auction to purchase cattle with only a basic understanding of the business. An expert at your proverbial elbow could prevent a multitude of mistakes and avoid trouble as deep as the shale.

Knowing what mineral and surface rights might bring in a competitive bid situation can also be important information for a landowner hoping to identify a buyer. Perhaps most importantly, an experienced oil and gas attorney can ensure that a landowner knows exactly what type of rights they own in addition to surface rights.

With contract negotiations, the more data and information a landowner has, the more bargaining power they have and that is worth more than even a steadily bobbing oil derrick or wind turbine.

 

Property Due Diligence:​
Going Beyond Title

Property ​Rights ​To ​Consider​

• Mineral Ownership​​
• Water Ownership​​
• Renewable Energy​​
• Easements​​
• Zoning​​
• Liens ​​
• Mortgages​​
• Covenants​​
• Environmental and Operational Concerns​​
• Lease Analysis​​
• Regulatory Analysis​​
• CRP and other Government Land Programs​​
• Other Contractual Obligations​

Understanding ​How They Relate ​and Work Together​​

Title​​

• Mineral Ownership​​
• Water Ownership​​
• Easements​​
• Lien​s​
• Mortgages​​
• Covenants​​
• Recorded Leases​

Regulatory Analysis​

Federal​​

• EPA​​
• Federal Energy Regulatory Commission​​
• Bureau of Land Management​​
• U.S. Fish and Wildlife Service​​

​​Colorado​​

• Colorado Oil and Gas Commission​​
• Water Resources Division​​
• State Land Board​​
• Colorado Health Department​​

Local​​

• County, city and municipal zoning and ordinances​
• Contractual Obligations​
• Purchase Sale Agreements​​
• Grazing Leases​​
• Farming Leases​​
• CRP​​
• Other Government Land Programs​​
• Rental Agreements​​
• Lease Agreements​​
• Housing Agreements​​
• HOA Bylaws and Covenants​​
• Existing Permits (for example water permits)​​
• Zoning Variance Permit​​

Putting It All Together

Legal Analysis To Understand…​

• Risks​
• Recommendations​
• Cloud On Title (Quite Title, Det. Of Heirship, Probate, etc.)​
• Permit Applications​
• Cost Benefit Analysis​

Drive Greater Resilience, ​
Less Risk in a ​
Post-COVID World​

Click here to view video with more details and information.

Crystal McDonough, Owner and Attorney McDonough Law Group​

Karen Breen, CPA, Embark Finance & Accounting Advisory Services, Managing Director​

Judith Pearson, Woodruff Sawyer Family Office and Trustee Liability Group Leader​

Don’t Become a Statistic​

1. Business Stress Test™​

– Legal, Risk, Finance​

2. Get out of the Firefighting Mode that COVID created​.

3. Seize Control of Your Insurance Program​

– Understanding the current insurance marketplace in the context of historical challenges​.

– New world new risks​.

Business Stress Test™ – Legal​

According to a 2014 Forbes article, between 36% and 53% of US businesses are involved in at least one legal or court proceeding in any given year. ​

​Many of those businesses are sued by employees, contractors, vendors, clients, customers, and even business partners. ​

​What’s even more concerning is the fact that many of these legal issues and disputes could be prevented, or at least minimized, with the proper legal planning and compliance. ​

​It is important to do a thorough review of your operations, procedures, and legal documents to identify any holes or weaknesses that are leaving your business vulnerable to liabilities, lawsuits, and other disputes.​

Regulatory Compliance Ever Changing Rules (federal, state, local, etc.)​

Return to work policies and potential claims. ​

Layoffs may increase as stimulus packages and PPE loans go away – may trigger alleged wrongful termination, demotion, or failure to promote an employee.​

Families First Coronavirus Response Act (FFRCA) requires employers to receive paid sick leave.​

Family & Medical Leave act (FMLA)​

Negligent in adhering to employment-related policies and procedures, such as improper training​.

Americans with Disabilities Act (ADA) how will long haulers be classified? What accommodations must be made?​

Privacy and HIPPA laws​

Worker Adjustment and Retraining Notification (WARN) Act claim for unpaid wages.​

OSHA guidelines​

Will your company require vaccines? ​

Yes, but some employees may be excluded.​

-​ Employees with disabilities​.

-​ Employees with sincerely held religious beliefs.​

-​ Employees covered by collective bargaining agreements. ​

​What accommodations must be provided?​

​Can I require proof of vaccinations of employees and guests? ​

​How does this affect my employment practices, fiduciary liability and workers compensation policies be affected?​

Business Stress Test™ – Risk​

Seize Control of Your Insurance Program​

Understanding the current insurance marketplace in the context of historical challenges​.

New World New Risks​

While the magnitude of D&O claims isn’t different ​the types claims are challenging.​

Adequacy of disclosure in your financial/business environment.

Balancing and prioritizing diverse and complex interest of stakeholders (shareholders, employees, customers, beneficiaries).

Regulatory compliance

Reputational risk

Business Stress Test™ – Finance​

Build RESILIENCE & REINVENT How Finance Teams Operate ​

Cash Remains King!​

Optimize Working Capital​.

Don’t just focus on P/L at the expense of the balance sheet​.

Accelerate receipts, manage inventory turn, extend payments.​

Review tax planning and seek accelerated refund claims​.

Current ratio above 1.0 is key​.

Always Be in a State of Finance Readiness​

GAAP vs cash basis financials​.

​Agile Forecasting – run multiple scenarios, stress test debt covenants​.

​Ensure financials enable a lender or investor to understand your business.​

Sell side due diligence – act as though you’re going to sell and prepare the documents that a buyer would be interested in​.

Revenue, Expenses, Margins, Trends, Client Concentration, Forecasts, Working Capital, etc​.

Finance Automation is Front and Center​

Reduce Time to Close = Better + More Timely Decision Making​

​Digital Transformation.

Automation of manual processes.

Integrate Disparate Systems – Move out of Excel!

Data analytics, Dashboard/Management Reporting.

What gets measured gets managed.

Why do it? ​Per KPMG ​2021 Report​

A transformed finance function transformed can deliver:​

45% cut in general accounting costs​.

15% improvement in working capital​.

50% reduction in manual reconciliations​.

Digitization of the Workplace – Legal/Risk​

Contracts and Agreements​

Subcontractors’ vs Employee agreements, vendors, leases, licenses, etc.​

Cyber: Combination of Increased Threats, Cyberattacks and Malware Continue​
in Remote Workplace​

1. Lack of two factor authentication​.

2. Cloud based breaches.​

a. Misconfigured security measures​.

b. Lack of monitoring security.​

3. Employee connectivity not as robust as corporate environment​.

4. Cyber security staffing (4 million cybersecurity jobs unfilled)​.

What You Need to Know about Hiring Your First Contractor

Hiring workers is an important step for a business. A business owner is faced with a chicken-and-egg dilemma: Is it better to hire employees anticipating that the business will grow, or wait until the business has grown and then hire employees? When a business is starting out, a full-time employee may not be needed. Business owners may instead consider hiring an independent contractor to complete smaller, discrete tasks or to work on specific projects.

Hiring independent contractors instead of employees allows business owners to outsource certain tasks, such as managed IT services or bookkeeping, without the expense and administrative burden of setting up W-2 withholdings, benefits, and payments for Medicare, Social Security, unemployment compensation insurance, and worker’s compensation insurance. Additionally, hiring independent contractors increases a business’s flexibility: Employers can end their relationship with contractors more easily than with staff employees, and they are not obligated to pay contractors when there is no work.

Before hiring your first independent contractor, make sure you are fully prepared. While this list is not exhaustive, it will provide you with some important background information before you hire a contractor.

1. Understand the factors relevant to a worker being legally classified as an independent contractor. Often, independent contractors are business owners who are in a profession or trade that offers services to the public. According to the Internal Revenue Service (IRS), a worker is an independent contractor for a business if the business owner can only control or dictate the type of work or result of the work to be completed and not the manner in which the work is completed.

A few questions can help you determine whether the person you want to hire is likely to be classified as an independent contractor rather than an employee. First, will you be hiring this person for a temporary project or projects? Second, will the worker determine where and when to conduct the work that will be done for you? Third, will this person use his or her own technology or equipment to complete the work? Finally, will the worker be paid on a flat-fee basis or hourly?

Generally, the more control the worker has over the manner in which the work is performed, the more likely the worker is to be classified as an independent contractor. The more the employer dictates the time, place, and manner in which the work is done, the more likely the worker will be legally classified as an employee. It is very important to make sure you classify your workers correctly as independent contractors or employees. You risk paying significant fines and penalties if you misclassify your workers.

2. Verify credentials. As with any new hire, make sure to request and review the prospective worker’s resume and references before the worker begins work. Review the worker’s resume, ask questions, and make sure the person has the qualifications and experience necessary to complete projects for your business. Also, call the references. If the worker owns a business, check the Better Business Bureau as well as online reviews. Make sure there are no complaints filed against the worker or any allegations that would make hiring the worker inadvisable.

In some instances, it may be appropriate to conduct background checks. However, you should do this primarily when a person’s criminal history is relevant to the work at hand. Ban the Box legislation is aimed at preventing discrimination in hiring of people with arrest records or convictions. However, some states require individuals working with children and the elderly to undergo a background check.

3. Establish an accurate payment system. Business owners should ask the independent contractor to submit detailed invoices for work performed. A contractor should not be paid prior to receipt and review of an invoice. Paying a contractor without receiving an invoice resembles payment of wages to an employee. In addition, a business owner should not withhold any taxes from the contractor’s payment. The contractor is responsible for paying the contractor’s income taxes, as well as Social Security and Medicare taxes. You will need to keep track of payments made to the contractor and report them to the IRS.

In addition to taking the steps outlined above, ensure that you have the following essential documents in place:

1. Tax forms. The independent contractor will complete a Form W-9 with the contractor’s Tax Identification Number, and you will complete the corresponding Form 1099-NEC to report payments made to the contractor to the IRS. Check with your CPA to ensure that you have complied with the state and federal requirements.

2. Independent contractor agreements. Every employee should sign an employment agreement with your business. Similarly, every independent contractor should sign a contract that defines the work to be performed, the nature of the relationship (independent contractor, not employee), termination provisions, and payment terms.

3. Confidentiality agreement. Your business’s success stems from its unique business strategies and trade secrets. When an independent contractor begins working with you, the contractor may become familiar with these strategies and secrets. Before the contractor begins any work for your business, you should ensure that the contractor has signed a nondisclosure agreement prohibiting disclosure of this confidential information to your competitors or anyone else without your permission.

4. Agreement not to compete or solicit. Before a contractor begins work, you may also want the contractor to sign an agreement not to compete with you after the working relationship ends. A noncompetition agreement sets out terms to prohibit the contractor from competing with you in a certain geographic area and for a specified time after the relationship with your business has ended. Likewise, an agreement not to solicit is designed to prevent the contractor from taking your customers or employees with him or her when the contractor leaves. The contractor should sign a nonsolicitation agreement prior to beginning work.

Keep all records and agreements on file for each of your independent contractors. While you may not be required to turn over your files, if the IRS audits your business, having these documents will help confirm the nature of the independent contractor’s relationship with your business. This list is not exhaustive for every type of business, but we have a team of lawyers ready to help you prepare these documents and any others that are specific to your business. Give us a call today to set up an appointment.

Common Business Formation Mistakes

The key to a successful business is having the right people, financial knowledge, effective processes, and a well-researched business plan. According to the Bureau of Labor Statistics, approximately 20 percent of businesses fail in their first year, and 50 percent fail by their fifth year. Forming and running a business is hard regardless of whether the business provides products or services. As a business owner, you are likely to make mistakes, but you can learn from them. Awareness of the following common business formation mistakes may help you avoid them and increase your chances of building a successful and lasting business.

1. Failure to plan. Spend the time and money necessary to create a well-thought-out business plan. Do research and then create a business plan and a budget. Carefully consider your expectations for the business as a startup, as well as one, five, and ten years out. Write down your goals. Consider consulting a business coach who can help you formulate your plan.

2. Failure to research. You should thoroughly vet the market for your intended product or service. How much demand is there? Who are your intended customers? Consider engaging a market research company to survey your ideal prospective customers. Talk to others in the same industry. Gather as much information as you can so you can identify traps others have fallen victim to or have been able to avoid. Do not limit your research to friends and family who are not likely to be objective. Seek advice from objective customers or other business leaders.

3. Failure to form a legal entity or forming the wrong type. Some new business owners try the do-it-yourself approach to business formation. This is a major mistake. While there are tools online that purport to help you form a corporation or limited liability company, it is prudent to invest in the advice of legal counsel. Talk to a lawyer who knows the law in your state to help you determine which business structure is best for your business. It is also important to consult a tax advisor who can advise you about the federal and state filings and taxes applicable to the different structures. With the advice of a lawyer and tax advisor, you can choose the structure that is best for you and your business to set your business up properly from the beginning.

4. Doing it all. You might be able to create your own website, answer your phones, pay your taxes, handle your books, talk to your customers, design new products, and manage the affairs of your business at the very beginning, but do not wait too long to delegate some of this work. The worst thing for a business is to have customers turn away because your product or service is subpar—this could easily occur if you are doing too much and do not delegate tasks. Consider hiring a virtual receptionist to answer and return calls and make appointments. Hire a graphic designer to create your logo, branding, and website. Do not wait too long to hire your first employee. Before hiring, thoroughly vet the candidates to ensure you find the right fit for your business. Spend sufficient time training your new employee to ensure the employee understands your goals and your brand and will properly convey your company’s image to your customers.

5. No website or marketing. The first place potential customers will look for you is online. While many new businesses create Facebook pages, many do not build websites or effectively market their businesses. You want customers to find your business, and you want to create brand awareness. A marketing strategist can help you build and effectively market your brand. This will help generate leads for your business. There are many review forums, such as the Better Business Bureau, Facebook, Yelp, and Google. You can easily link your website to these review forums, which will accomplish two important goals: (1) driving customers to your business and (2) allowing your customers to leave reviews for your business.

6. Setting the wrong price. Make sure you are not offering your product or service at a price that is too low or too high. Research your competition: what prices have they set for their products or services? If you set a price that is too low, your business may fail because your prices are not high enough to generate a sufficient profit. Look at the market for your product or service and determine your desired profit margin based on your financial projections and your own sales.

7. Improper bookkeeping. Businesses commonly fail to implement good bookkeeping practices. When you talk to your tax advisor, ask about good bookkeeping practices and strategies. Proper bookkeeping will help ensure the separation of personal and business expenses, assist you in staying on top of insurance and tax payments, and help you understand your financials and your business’s health.

8. Not having written contracts. Every agreement with a client, vendor, or employee should be in writing. The written agreement should specify the agreed-upon terms of the business relationship or transaction. If you sell products or services online or have other important content on your website, you should also have written terms and conditions on your website. A business lawyer can help create well-drafted agreements for you to use with your clients, employees, or vendors. You can also ask your lawyer to review contracts given to you by your vendors. Without properly drafted written agreements, disputes and lawsuits frequently arise.

These are some of the most common mistakes experienced by new business owners, so do not feel discouraged if you make one. The key is to learn from your mistakes so you do not repeat them and to avoid others that are preventable.

Successful business owners take the time to research and plan before launching their new business. In addition, they are not afraid to seek advice from others.

Our team of experienced attorneys is here to help you succeed. Call us today to set up a consultation.