The easiest way to buy mineral rights is through a reputable auction house. The quality and price of mineral rights sold at auctions vary widely. You will find rip-offs with a 60-year return on investments (ROIs) as well as high-quality assets at a reasonable market price. You have to be educated enough to know the difference and be willing to put in the due diligence of thoroughly researching each listing before you bid.
Simon Energy Associates (SEA) is an independent firm specializing in the divestiture of energy assets. SEA sells mineral rights through negotiated sales and sealed bids. They have well-researched, thorough data rooms to felicitate your due diligence.
Make sure you know what you own and keep good records. Original documents should be well-organized in folders, and digital copies should be placed in digital folders. You should also have a spreadsheet detailing everything you own. Download a free mineral management spreadsheet. Alternatively, there are several good mineral management software packages that can be helpful.
Giant horizontal fracked wells of the Delaware Basin (the deepest part of the Permian) are some of the most valuable mineral rights. These wells generate a massive amount of oil and natural gas and, because there are multiple layers of shale, multiple stacked horizontal wells can be drilled in a given tract of land.
Sometimes a listing will be for royalty interest (RI), but when you look at the conveyance language, mineral interest (MI) and royalty interest (RI) are conveyed. Sometimes what is conveyed is interest in one or more wellbores rather than all the oil, gas, and other minerals in a specific tract of land or associated with a particular lease.
The easiest way to buy mineral rights is through a reputable auction house. The quality and price of mineral rights sold at auctions vary widely. You will find rip-offs with a 60-year return on investments (ROIs) as well as high-quality assets at a reasonable market price. You have to be educated enough to know the difference and be willing to put in the due diligence of thoroughly researching each listing before you bid. For more risks, check our guide on Risks Associated with Buying, Owning, and Selling Mineral Rights.
New oil and gas wells decline sharply (especially horizontal wells). The royalties from the first few months of production should not be used to value the property. It is quite common for a 1-year old well to produce 1/2 or even 1/3 of its initial production. A valuation based on the first 6-12 months of production will result in dramatically overpaying for the interest. You may never get a return on your investment.
Hydrocarbons are finite resources. Successful conventional wells generally produce smaller amounts of oil and gas for long periods of time. The newer horizontal wells produce large quantities of hydrocarbons, but the wells do not produce as long. Buying interest in a well that is near the end of its life is risky. It may be plugged and abandoned before you get a return on your investment. And if your interest terminated with the lease, you no longer have the ability to generate income in the future.
Most mineral owners do not hire an attorney to negotiate lease terms. This is a huge mistake and usually leaves money on the table. One of the many terrible, but common lease terms is giving free gas to the operator in order to run the well. Some operators have started running their frack fleets on natural gas, and guess who is financing that? Buying mineral rights with poor lease terms exposes you to additional risk.
Jim Barrett stands next to a well pad on his farm in Bradford County, Pa. He accuses Chesapeake Energy of cheating him out of royalty money. Marie Cusick/StateImpact Pennsylvania hide caption
The U.S. is one of only a few countries in the world that allow private individuals to own the minerals under their land, a policy that dates to the Founding Fathers as they sought to elevate private interests over those of the British Crown. This financial incentive to allow new drilling goes a long way in explaining the nation's natural gas boom. The National Association of Royalty Owners estimates some 12 million American landowners receive royalties for the exploitation of oil, gas and other mineral resources under their property.
Clark says it felt like he had "won the lottery," and he is grateful every day for the two gas wells drilled on his dairy farm. He estimates he receives about $10,000 per month in the form of gas royalties.
He says Chesapeake Energy, which operates four wells on his farm, is stealing from him, and he has joined a class-action lawsuit against the company. Chesapeake, which declined to comment for this story, is defending itself against lawsuits in at least seven states for allegedly underpaying royalties.
Many energy-producing states took a hit during the downturn, as companies went bankrupt, workers were laid off, and tax revenue collected from oil and gas dropped. In most of them, like North Dakota, where Preszler lives, wells produce both oil and gas. When prices plummeted, oil suddenly wasn't worth what it used to be, he says, but the gas still needed to be transported and treated, and that cost stayed constant.
"That's when people saw their checks being reduced significantly," he says. Some even received statements with a negative balance, meaning they wouldn't receive more royalties until the balance turned positive again.
In Pennsylvania, wells produce mainly gas, so landowners like Barrett noticed right away when companies took out big, unexplained cuts. Some Pennsylvania landowners have been complaining for years about exorbitant deductions. Still, many never have a reason to complain. Clark, for example, says he feels his deductions are reasonable.
Some landowners hire a lawyer to negotiate a lease with explicit language that prohibits deductions or spells out exactly which costs can be taken out. The greater stake an individual has in a well, the more bargaining power he or she has to negotiate a lease that works in his or her favor, says University of Texas law professor Owen Anderson.
UNI Royalties is one of the leading companies that purchase oil and gas royalties, overriding royalties, mineral rights, whether producing or non leased or un-leased. We provide owners an easy means to liquidate your royalty and mineral assets while receiving top dollar.
UNI Royalties makes it easy for the individual mineral and royalty owner to convert producing or non-producing minerals into cash. We provide a direct means to liquidate gas and oil royalties and overriding royalty interests. We are a purchaser of oil and gas royalties as well as many other types of royalty interests.
Other examples of royalties from intellectual property include payments for the use of patents, trademarks and copyrighted materials such as books, films or musical compositions. In addition to intellectual properties, oil and gas and mining leases generate royalties paid for the use of natural resources.
Investors who receive royalty income will get the payments as long as a copyright, patent, trademark, mine, oil well or other source is generating income. This makes royalties a potential source of long-term and relatively stable income without a lot of downside risk. Sometimes royalties can increase sharply, as when a song gets used in the soundtrack to a popular movie or there is a big rise in energy prices.
The easiest way to invest for royalty income is by purchasing shares of a royalty trust. These are publicly traded corporations that acquire ownership of rights to leases and deposits of oil, gas and minerals. The income generated from royalties is distributed to shareholders as dividends.
Songvest, for example, focuses on music royalties. Investors can purchase fractional shares of the royalty streams from popular songs. EnergyNet lets bidders purchase royalty interests in oil wells, gas wells, logging operations and more. Royalty Exchange auctions rights to royalties on a wide range of properties, including music, movies, TV shows, oil, gas and many others.
Royalties can provide steady, stable, long-term income to investors. Royalties are generated by many types of assets, including musical compositions, oil wells, gold mines, books, movies and TV shows. As passive income, royalties are taxed at lower rates than wages and salaries. Investors can invest in royalty income through auction sites and royalty income trusts.
CAP recommends that the Obama administration update current rules to set bonding requirements based on the number of wells that would need to be reclaimed. The Texas Railroad Commission, for example, requires that a company post $25,000 for 10 or fewer wells; $50,000 for between 10 and 100 wells; and $250,000 for 100 or more wells. Based on reclamation cost estimates, even these requirements appear to be too low to cover potential cleanup costs. The required bond per well should reflect the average cost of reclamation for each site to shield taxpayers from the cost of cleanup. Some experts have called for a bond of $20,000 per well, and further bond requirements for additional facilities associated with the drilling operations.
This set of frequently asked questions (FAQ) is provided as an informal guide to members of the public seeking information or legal services the Railroad Commission CANNOT provide. Since the Texas Legislature has given the Railroad Commission limited authority to regulate the oil and gas industry in Texas, our staff cannot advise you in all oil and gas matters. Areas over which the Railroad Commission has no authority include lease and royalty matters (including leasing, payment of royalties and the right to receive royalties), the financing of or investment in oil and gas activities, and bankruptcy.
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