Oil and gas royalties questions Form 2022

So, you want to be a land man.  Well, it helps to have a background in  doing property deed searches and familiarity with your local town hall.  You will need information from the deeds of the properties you are interested in.When you find properties with mineral rights which have not yet been leased to another party or are not held in public trust, you just have to talk with the property owners and sell them on the idea of getting royalties for the extraction of what lies under their feet.  The owners have to realize that this involves the disruption of ten or twenty acres of property for a couple of weeks, and the noise that attends the drilling and completion of a well.  Some are fine with it, some are a bit more reserved.  One factor which usually helps is including free casing gas for the life of the well, with the proviso that the homeowner pays for the hookup and pressure regulator.  Free fuel for life is a powerful incentive, even if the well does not produce for long.  When the royalty checks stop, they can still draw gas for the house from the well.

One of two options depending on the drilling and completing of a well. If no well is drilled and the lease is not renewed, no royalties will ever be paid as there is no production but the annual lease payment will continue until the original lease period is complete. If there is a well drilled but it is uneconomic and it is plugged and abandoned, it is the same situation as above.If a successful well is drilled and completed, the lease/royalties last until there is no more (economic) production and the well or wells are all plugged and abandoned.If a slowly drying up well or field production stream is sold to a smaller, lower-cost producer, the royalties continue.Bottom line - for the life of the well(s) on the lease.

Where do I go to purchase oil and gas royalties, or mineral rights? You can buy the mineral rights on a piece of land from the land owner. You go to the land owner and make an offer to buy them. You could buy the whole property, or you can buy just the mineral rights on it, and the land owner (usually a farmer) gets to keep the surface rights. It’s called a split title. It’s just like buying a whole piece of land but you need a lawyer who understands this stuff to do the paperwork. You can do all kinds of weird things with land rights that virtually nobody knows about, but lets just stick to this one. “You can slice land more ways than bologna”, as they used to say in the oil company Land Department I used to work in.Buying mineral rights is just like buying the entire property, except you can buy only the mineral rights and not the surface of the property. You get a title document transferred to you that says that you have an “Estate in Fee Simple” on the property, and adds something like “All mines and minerals” or “All oil and gas”. The land owner gets a title on the same land that says something like, “Excepting thereout all mines and minerals”, meaning he keeps the surface rights.However, you don’t buy royalties on a property, you get royalties by leasing the mineral rights that you own to an oil and gas company, which then drills a well on the property. If they find oil or gas, the terms of the lease will give you royalties. These are a share, typically 12.5% to 25%, of the oil and gas they produce. Normally a land man for an oil company will approach you and make an offer of a oil and gas lease on the mineral rights on your land, which will include a bonus payment for letting them drill a well, and a royalty on any oil and gas they produce. Its worthwhile having a lawyer read the lease before you sign it.The lease will give them a certain period of time for them to drill the well, typically 2–5 years, after which it will expire and you can lease it out again if another land man comes by. If they do drill a well and find oil, the lease is “held by production” until they stop producing and then the lease drops. Then you can lease it out again if another oil company comes by with a better idea.Actually, if you were getting the royalties on an oil well on your land, you could sell them to someone else, and so you could also buy them if someone wanted to sell them to you, but that is something rather unusual for private citizens to do. You could also lease the mineral rights on a property rather than buy them, but then you would have to drill an oil well yourself. You can do that, but this is not a game for amateurs. I do know people who were laid off by oil companies who took their generous severance packages and made large fortunes leasing and drilling properties they knew from experience were good prospects, though.In the Eastern US, including Texas, most of the mineral rights are owned by the surface rights owner, while in the Western US, most of the mineral rights are owned by the federal government.I am more used to conditions in Alberta, which is unusual in that the title on every single piece of land in the province has been split. There are two titles for each piece of land, one of which says “Excepting thereout all mines and minerals” and the other of which says “All mines and minerals”.The government got 85% of the mineral rights in Alberta because they amended the Homestead Act in the late 1800s to reserve them on the land they were giving away to homesteaders. The railways later caught on to the fact they could do the same thing on their enormous land grants somewhat later when they were selling the land to farmers. After the oil companies started drilling thousands of oil wells, the farmers caught on, too. That’s why every piece of land in the province has two titles.There is oil everywhere in Alberta, you never know where, and no farmer sells the mineral rights with the farm if they can possibly avoid it. They sell the surface rights and keep the mineral rights. They usually leave the mineral rights to their next of kin in their will. It is possible to buy the mineral rights from them, but oil companies prefer to lease them, since when they drill a well, if they don’t find oil, they don’t want them any more.

The minimum investment may vary,and our consultants can help you determine what is best for your portfolio,however, royalty investing is for accredited investors only. To meet thecriteria as an accredited investor, you will have made at least $200,000 ormore each of the last two years, or $300,000 or more combined income with yourspouse, or you have $1,000,000 in liquid net assets, not including the equityin your primary residence.

Royalties are payments from an oil company to the owner of the mineral rights for the land their oil reservoir is under.Ownership of land implies a lot of separate individual rights, (and duties), rights to the surface, the air above, the water flowing across, the timber growing on the land, and the minerals underneath the surface, to name a few. Each of these rights are separable and leasable. For example, you can lease the aerial rights to a cell phone company to build a tower. They would pay you a royalty check for that.If an oil company thinks there is oil under your land, they will lease those rights from you, as quietly as possible. They pay you a lease bonus of so much per acre when you sign the agreement and agree to start withing a set number of years (often three years) or the lease expires. They will then drill an exploratory well and if it is successful, start drilling production wells. You get a royalty interest from every barrel produced on the property. The royalty interests used to be one eighth, but that may have changed. (there is an old industry term for the full amount of production as being eight eighths, before the royalty payment is stripped out.) Once production starts, the lease won’t expire because it is “held by production”This is true no matter who owns the mineral rights, an individual, a government, a tribe, whoever. If the reservoir underlies several different leases, the field may become unitized and each royalty interest owner is paid a pro-rata share, based on acreage contributed to the unit, of the entire field’s production.

One tax advantage of oil and gas royalties is that they can be a replacement property as part of 1031 like-kind exchange. A 1031 like-kind exchange allows the seller of a property to defer capital gains from the sale of real property by purchasing like kind property within 180 days from the sale of the property. The process is technical. One quirk of the law, is that real estate and oil and gas royalties are considered “like kind” for the purposes of a 1031 exchange, and a party can sell a house and use an oil and gas royalty in a well as replacement property and vice versa.

Some reasons:They burned too many people in the recent past - Not many people want to risk moving to remote areas of Texas and then becoming unemployed in 18 months to two years…again. It's happened too many times, and experienced hands are sick of it. They aren't fooled by the promises of high wages and potentially long term jobs as they have seen what happens.The jobs are in areas where people don't want to live - West Central Texas is great for Texans. However, most people have no desire to live there. That's where the jobs are.It's hard work - It's long hours, lots of driving and heavy, dirty labor. Those jobs just aren't appealing to younger people, and many older people can no longer perform them.They want trained people - Instead of training people, most employers want people who already have skills. Those people are fewer than they used to be and most already have gigs.Texas can be a hard place to live - If you aren't familiar with the state, you may not find it to be to your liking. Many people don't.References,Texas upstream employment trends indicate talent shortageCompanies, needing Permian workers, find West Texas a hard sell

Since the time of oil extraction started, the known amount of extractable oil, for the current consumption at that time, has been at 40yrs. You can find articles in the late 1800’s, early 1900’s, 1950’s, 60’s, 70’s, all the way up into the 90’s at least that show we’ll run out of oil in 40yrs. Today though we’re at about 70yrs for current production rate with known reserves.The fact is we always had newer technologies to find and extract it. We’re coming to an age where we’re within decades of not needing oil for the vast majority of fuel purposes (probably will still need it for air travel), we’ll need it for production of various materials as well.Coal the world as a whole has identified about 1.3Trillion Short Tons of Coal, we consume about 9B Short Tons of Coal a year, that’s about 144yrs worth at current consumption. Coal consumption has been leveling off, and is expected to start dropping.Natural Gas proven reserves 187,300,000,000,000 m^2 consumption 3,468,600,000,000 per year - 54yrsSo, if we continue using like we are, we’re probably could sustain it at least 100yrs maybe more, one could assume we can identify and locate more fossil fuel resources as we have always been able to do so. But more importantly, we are likely to be vastly reducing our reliance on fossil fuels in the decades to come, We’ll never likely run out of coal as we’ll stop using it, oil - our reliance should be drastically reduced. Natural gas, maybe the one that’s most likely to be closest to being depleted, but still not likely before the year 2100 IMO.

Oil and gas royalty statements might be confusing at first, but they are really pretty easy to follow.Royalty statement formats vary from operator to operator, but all statements contain the same basic accounting information related to how much the well produced that month and your share of the revenue. Let’s break it down and look at each section at a high level.There are three parts to a royalty statement:Basic Information:On each royalty statement, you’ll find basic information about the operator, oil & gas well, and the owner.Whole Well FiguresThis section represents the production, taxes, deductions and gross revenue for the entire well. This figure will be divided among all the interest owners.Owner FiguresThis section represents the owner’s portion of the oil & gas volume, taxes, deductions, and net revenue.Mineral Rights Insight has a detailed section-by-section breakdown of how to interpret each section on a typical royalty statement, including details about deductions.There is also a YouTube video covering the same topic.