Nov 4

Educated Royalty Owners Better At Maximizing Their Income

Author :
TCU Energy Institute

An estimated 8 million Americans own minerals throughout the United States, one of only two nations, along with Canada, that allow private ownership of minerals.

Those mineral owners must navigate a complex web of regulations that differ from state to state and can differ depending on whether or not the surface and mineral rights have separate ownership.

“Managing mineral assets should be managed like a business,” said George Wilson, TCU Energy Institute Legal Scholar in Minerals Management and a board member of  the National Association of Royalty Owners (NARO) Texas chapter. “Managing mineral assets effectively could mean more money.”

Wilson was in Midland recently to teach a three-day Royalty Owner program at Midland College’s Advanced Technology Center. He plans to bring the program back to Midland Dec. 16-18.

The goal of the program, which began with a look at the state’s energy laws, then moved to leasing mineral rights and concluded with critical issues after production begins, is to “level the playing field,” Wilson said.

Royalty owners, he said, “need to know what is a lease and protect themselves.”

The program, he said, educates royalty owners on what they need to know about owning minerals, leasing those mineral rights and what needs to be included in a lease and post-production division order.

Royalty owners, he said, include not only oil and gas producers but farmers and ranchers. Many, he added, are retired and royalty payments comprise a major portion of their income, especially those living on modest retirement.

Mineral rights are received in one of four ways: They are inherited, they are gifted, they are part of a trust or they are purchased.

“The average royalty owner receives his interest from his parents and usually lacks the knowledge of what he needs to do to protect his interests, especially if production is pooled, and maximize production of those minerals or maximize his income,” Wilson said.

The most important thing, Wilson advised, is for a mineral owner to understand a lease and the clauses included in that lease that are beneficial to the mineral owner, and how production from their leases will be verified.

Those attending the program, he said, “have had positive comments. One person said he wished he had attended the program before he signed leases. He attended to learn how to verify production and ensure he was being paid properly.”

Once a mineral owner receives his mineral property, Wilson recommends a complete inventory of those properties be made, the new owner establish who is supposed to be paying royalties on those minerals and notify those payers and the counties where those properties are located of his ownership and contact information.

Then, Wilson said, the owner should obtain, organize and maintain all documentation relating to those leases. That, he said, is a critical component of running a minerals business. Any correspondence from a payer is important, he said. “They don’t send you correspondence for fun,” he noted. That correspondence should be read, understood, responded to and filed for future reference.

“The devil is in the details,” he said. “Make sure you know what is in that document, make sure you understand what is in that document.”

With domestic production soaring thanks to the development of unconventional shale plays and horizontal drilling, Wilson said it is more important than ever that royalty owners be educated as royalty income increases. It’s more important, he said, for royalty owners to obtain the additional information needed to protect their interests.

Oil and gas producers, he noted, support efforts to educate royalty owners.

“They understand educated royalty owners are easier to work with,” Wilson explained, “than ones that demand greater bonuses without understanding what’s going on because they have unrealistic expectations. With additional knowledge, that makes producers sleep easier and royalty owners sleep easier and negotiations easier for the entire industry, in which the royalty owner plays a part.”