Saturday, July 6, 2013

I Won't Sell, I Will Just Keep Leasing It

I just got a phone call from a man who is in need of raising significant money quickly and wanted to know "Who buys mineral rights?" It was in a shale play. And I said I'd buy them. At the right price. After a lengthy discussion, I found out his mineral rights are mortgaged (along with his land). I asked him how much the balance is. He told me and said "And that's why I want to sell my mineral rights, pay off the loan and use the rest to do some other things."

Based on his balance owed, how many acres he had, the location within the shale play, the royalty percentage in the oil & gas lease and some other factors, I was immediately taken aback. After having spent considerable time with him during the "interview," I was aghast that he thought his mineral rights would bring that much money. I knew they wouldn't. Not even close! So, I clarified that he was, indeed, hoping to get that much money, and then said "I sure wish I could help you out here but we're going to be much too far apart. They are not worth near that amount of money. The market won't pay near that much." And then I explained that the market is the barometer. Minerals are worth what the market says they are worth, in general. Sometimes, you can't even find a buyer, but when you can, a sale will never be for several times what the market is for like minerals. Unless the buyer is a buffoon!

The man agreed with all of that and I could tell he was disappointed. But, that was pretty much the end of it, I couldn't help him.

He then said that he'd just keep signing an oil & gas lease on them every five years and enjoy the lease bonus. I knew that he had suffered medical problems and needed money, so, I politely told him not to count on more lease bonus money, it might not come around again. I told him he could just sit and hope that the current Lessee drills and hits. But to realize that there is risk. I then pointed him to this site -- -- it has a pretty comprehensive discussion of the risks involved and factors to consider, whether to sell mineral rights or not. We then ended the conversation amicably and I wished him well.

I suppose the moral of this story is that those thinking of selling mineral rights need to understand market value, and to never count on lease bonus money coming around on a regular basis. Because more than likely, it won't. Good luck, mineral owners!

Sunday, June 16, 2013

Oil & Gas Royalty Rights (Royalties)

In the United States and in some parts of Canada, those who own mineral rights usually own the royalty rights to their proportionate share to the oil and gas production revenue from oil and gas wells. The owner of the executive right is the one who has the right to explore for oil and gas on the property or lease it to an oil company. In return, he will enjoy a royalty, a share of the production. The royalties are usually a minimum of one-eighth (1/8th) of the well's production, multiplied by his share of acreage within the production unit.

For as long as there has been oil and gas production in the USA and Canada, royalties have been bought and sold. One can readily sell royalties in any oil and gas producing region, it's just a matter of finding a willing and reputable buyer. The oil rights or gas rights value varies widely. If you wish to sell oil rights or sell gas rights, bear in mind that if the royalties are paying from a well that is a good producer, obviously, the royalties will be worth more than those from a poor producer. The value is calculated from the projected income stream from future production. The value is also dependent on whether or not the income is declining.

There are many reasons why owners choose to sell oil or gas royalties. Perhaps they wish to buy something or provide for children's education. Maybe the owner just wishes to enjoy life more or to enjoy retirement more with sure-thing cash settlement. If one keeps the royalties, it may take many years to achieve the same amount of cash income that a sale of royalties will produce. And, some owners sell because the royalty interest is small and the paperwork is burdensome. It just might not be worth the hassle of keeping it. A lot of owners find it complicated and just wish to simplify their life and leave it up to a buyer to monitor the production and revenue. Increasingly, older generations who own royalty rights are dying off and children and grandchildren inherit the royalties; the royalty interests are diluted by the number of heirs and many would just rather sell something they know nothing about.

The oil and gas business is daunting, complicated to the royalty owner, but selling royalty rights is not difficult with an experienced royalty buyer. A sale of royalty rights can be accomplished fairly quickly but it can't happen in a day or two. It does take a little bit of time but a good royalty buyer makes the process easy, as he will do most all of the work, making sure that the royalty interest is transferred properly with the county and also the oil and gas company which operates the oil or gas well. Whether you wish to sell oil rights or sell gas rights, you can enjoy a lump sum settlement payment for your royalties.

For more information about selling oil and gas rights, read this site about selling royalties or contact this blogger.

Friday, June 7, 2013

What Is A Non-Participating Royalty Interest (NPRI)?

The oil and gas business is certainly a challenge! It's a very complex business. For mineral owners, it's quite daunting to understand mineral rights, especially, since many mineral rights owners inherited their rights and really do not know what they have. Daddy or Grandpa might have bought something 50 years ago, then passed and didn't really keep ideal records. This is quite common! So, say you found some papers and you know it has something to do with mineral rights. What, exactly, do you have?

Do you find a reference to a non-participating royalty interest? For short, it may be called NPRI. A non-participating royalty interest is the right to receive oil royalties or gas royalties, pure and simple. It does not include some rights that a mineral rights owner enjoys. Such as, the right to explore for oil and gas. (This is moot unless you are Bill Gates, as oil and gas wells cost a small fortune to drill.) More apropos, a mineral rights owner has the right to lease the lands to an oil and gas company (grant an oil & gas lease) and let the oil company (who has big bucks) drill and explore. And, if a mineral rights owner did, in fact, own the royalty rights, the oil or gas company will pay him royalty if a well hits. Lastly, a mineral owner enjoys the rights to a lease bonus (lease signing bonus) and annual rentals (rentals are uncommon these days). So, a non-participating royalty interest is just basically the right to receive oil checks or gas checks (royalties). Almost all sales of mineral rights these days are just that but in decades past, sometimes an NPRI was carved out of the mineral rights.

Perhaps you have discovered that you inherited an NPRI. Maybe some day you will be contacted by an oil company saying that they have drilled a well and they wish for you to ratify an oil & gas lease that the mineral rights owner has signed. The document is called just that -- ratification. This is quite common. Once you ratify and are put in "pay" status, you can then enjoy royalty checks when oil/gas production occurs. Hopefully, the oil or gas company will hit something good and you'll get regular checks. If for any reason you wish to sell these rights, it is possible to do so. Here is more info about the non-participating royalty interest (NPRI), or just contact me for help.

Thursday, June 6, 2013

Oil & Gas Operators Deducting Too Many Fees

Oil and gas exploration entered a new era in 2008 with the announcement of the discovery of the Haynesville shale play in Louisiana (and later Texas). The Barnett shale, Fayetteville shale and other shale plays had seen some development before that but the Haynesville broke it wide open.

This post is about deductions from royalty checks to the mineral owners. Prior to 2008, in my opinion, all was pretty much well. Operators did not make many deductions to oil and gas royalty checks. We are primarily talking about deductions pertinent to natural gas, not crude oil or condensate. The problem for royalty owners has surfaced in the past few years. The two worst companies operating in the Haynesville shale which I have seen are Chesapeake and Samson. Wow, they are socking it to the royalty owners. Instead of a few percent, I've seen it as high as 33%. Say your check's gross amount due you is $1,000; they deduct up to $330 for fees. And often, exactly what these fees are is impossible to determine. This isn't right. Some operators don't even show deductions at all, they just pay the royalty owner a lower price for each unit of natural gas. Something should be done about this. And, in fact, something is being done about it in some cases, as numerous lawsuits have occurred. What a shame. The governing authorities should step in here and protect royalty owners. But, who knows if that will ever happen. And, in some states, a class action lawsuit, where a lot of mineral/royalty owners could band together in a class action, it just isn't possible due to the way the laws are in that state. I hope things will improve.

I have had people contact me wishing to sell their mineral and royalty rights because it's just not worth dealing with it due to excessive deductions and fees reducing their royalty check amount. These regular oil and gas checks sure come in handy for people but you sure hate to be "taken." I understand their thinking and regret that operators put people in this position. And as I said, this only started happening in the past few years. For anyone thinking along these lines (about selling royalties), here is more info: selling mineral rights.

Friday, May 31, 2013

How much will my royalty check decline? (Oil royalty / gas royalty)

Mineral rights owners usually own the right to the royalty right -- royalties. There is a provision in an oil and gas lease for this. It's commonly a minimum of one-eighth of the well's production, multiplied times their share in the production unit. (In modern wells, they are usually pooled with neighboring parcels into a production unit. Average production unit size is 640 acres, but it can be larger, say 960 acres or 1,280 acres.

Let's take a hypothetical royalty owner who has sufficient acreage in a production unit such that when the well first comes in, it is paying him $1,000 per month. Nice! How long will it stay at $1,000/month? Impossible to say, it might be one month, three or four months, or more. Usually a month or two. (This also depends on how the operator is producing the well. They might keep the well production up for a few months using different choke sizes at the wellhead. Anyway, at some point, it will start to decline. In today's resource plays and shale plays such as the Bakken, Barnett, Haynesville, Eagle Ford, Tuscaloosa Marine Shale, Marceullus, Utica, Niobrara, Cline, etc., like the tight sands drilling of the past couple of decades, these reservoir rocks are very tight (dense) and they must be fracked to get the oil or gas out. The word "frack" is short for "hydraulic fracture" and this (along with horizontal drilling) is what makes modern oil and gas exploration tick. And since these shales or tight sands are not very permeable, the nature of the beast is that production drops off much more rapidly than in a conventional (say, permeable sandstone, limestone or dolomite) reservoir.

How fast? Generally these modern wells will drop 50-85% during the first year. Then, say, 35-50% the second year. It will flatten out some after that but it will always be decreasing over time. Bottom line is that 2-3 years later, one's royalty check is usually only about 5 to 10% of what it was in the beginning. So, plan accordingly and do not get used to the big checks for any oil or gas well, because they will NOT last! Enjoy it while you got it!

Here is a production chart from a well I looked at recently that is actually pretty good. Two years later, it's producing 20% of it's initial rate. That's good for these type wells! This is a Haynesville shale well.


This next Haynesville shale well exhibits a more normal production decline shape where it declines rapidly in year 1 and flattens out. Two years later, it is only producing a small fraction of its initial production rate.


We don't know how long these wells will produce because these new resource plays are pretty new. Operators say they'll produce for decades and I hope that's true but operators love to toot their horns because they are trying to please stockholders. We just don't know. I do know that I have looked at quite a few wells that dropped off like a rock and they will not last but a few years. There is no way they can continue much longer, as they are barely scraping a profit right now, and still declining. I am hoping that in the "sweet spots," where production is good, the wells will behave as operators predict and last for a long time once they start their flattened decline rate. Time will tell! Welcome to the oil patch, risk is everywhere! Including risks such as the reservoir rock fractures closing once the reservoir pressure is reduced to a certain point. If the fractures close, gas entry to the wellbore could largely shut down and it would be over. (They'd have to plug and abandon the well.) Scary! (Scary because we don't know!)

But, we also have the benefit of being in an amazing technological revolution, so, who knows what they will come up with twenty years from now!

As for one's particular royalty check income stream, if the income is sufficient, one can just hold what they got. But, if one ever gets to the point that he doesn't want to deal with the paperwork or deal with small checks and would just rather cash out and get a lump sum, or perhaps he needs money for whatever reason, an option is sell for a lump sum cash settlement. For info, here is a website for selling royalty rights.

Good luck, I hope they hit a gusher on your place and you get rich as Jed Clampett!

Saturday, May 25, 2013

Sell Royalty Or Sell Mineral Rights In Mississippi

Some mineral rights owners elect to sell their mineral rights or royalties and get a lump sum cash settlement. One can sell all or part of their minerals. For those interested in selling mineral rights in the Mississippi counties of Wilkinson County, Amite County or Pike County, and even minerals or royalties in West Feliciana Parish, East Feliciana Parish, St. Helena Parish or Tangipahoa Parish, Louisiana, see more info at this site. This area is part of the Tuscaloosa Marine Shale (TMS) oil and gas play. Some of the wells drilled have been poor, a couple show signs of being commercial, but it's too early to tell if this area will "dollar up" well for the oil companies. So, some owners choose to sell to pass along the risk and enjoy the cash. Only the owner can make the decision as to what is right for them at this time in their life. But, sure-thing cash money certainly has real value, the oil and gas business (and exploration) is fickle, indeed.

AREA OF INTEREST IN MISSISSIPPI: At this time, the focus area for a mineral rights sale is for lands in Wilkinson County, Amite County and Pike County, Mississippi. If you own minerals within a few miles of the Louisiana/Mississippi line, you may fall within the area. In Wilkinson County, near the towns of Pinckneyville, Donegal, Ashwood, Newtonia and Whitaker, Mississippi. In Amite County, near the towns of Capell, Olio or Gillsburg, Mississippi. In Pike County, near the town of Osyka, Mississippi. The area is not heavily populated, so, suffice say, within a handful of miles of the Louisiana border.

If you have producing mineral rights, meaning you are receiving TMS or other royalty checks, you can sell mineral rights for lands in Mississippi but also anywhere else in the USA. Visit the site mentioned above or go to Payday Minerals.

If you have land and minerals for sale in South Mississippi near the above areas, we might be interested. (Land and minerals near the Louisiana line in Wilkinson County, Amite County and Pike County.)

Visit the above site links or just call the number below.