Replies to This Discussion

Permalink Reply by Max on April 3, 2014 at 4:10

Two Dogs, I searched for the numbers to compare but I haven't found any early stats.  I found one from recent counts that gives some numbers;

http://blackbearddata.com/data-products/lease-ownership-data-lod/mi...

My view is that as population increases, land is continually being divided into smaller tracts.  While the original large track could have severed the minerals (oil & gas) from the surface, and the original owner had possession of those minerals, he would die one day and leave those minerals to his heirs.  Most people die and leave more than one heir, thus dividing those mineral estates. 

Or, the original owner could sell part, half, or whatever, but at some point in time, those mineral estates will change hands and with each division, there will be some folks that want out for cash today.

As the years march by, with no one selling their interest, the mineral estate grows smaller until there's no real reason to keep a .001% stake, so I figure most folks will sell their interest to someone who buys up most of these small mineral estates.  In my view, the nature of the process drifts toward investors, not landowners. 

I count investors as ONE mineral owner sharing minerals with the other investors of that investment.  Yes, a well-to-do could be an investor, but that would give my point credit, reduced mineral owners growing over time.

The only way to know would be to have the data, and I'll try to find some to back my point, but until then, your point stands above mine.

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Permalink Reply by Skip Peel - Mineral Consultant on April 3, 2014 at 4:21

Investors are generally not interested in very small mineral interests.  The amount of work and expense required to contact, negotiate and acquire enough tiny ownership interests to make a decent acquisition is something that some brokers may do if they don't have more important business to attend to but is considered a waste of time for serious investors.  An incredibly large percentage of these heir mineral owners did not know they owned them until approached with a lease and they have little or no idea of their location other than legal descriptions on a lease form.  In fact most don't even know who the other undivided owners are outside of a few close relatives.  The time and expense required to aggregate a good size mineral interest in E TX is often too much to market those minerals at any reasonable profit.  Individual investors do run across a decent size tract interest held by a handful of family members on rare occasions. And those occasions become ever more rare with each passing year.

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Permalink Reply by 1kw6x71km1v37 on April 3, 2014 at 9:38

Many of the small interests are simply ignored by operators, who then pocket the production proceeds.

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Permalink Reply by Skip Peel - Mineral Consultant on April 3, 2014 at 10:01

I don't find that to be the case.

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Permalink Reply by 1kw6x71km1v37 on April 3, 2014 at 15:57

I could show you some acreage and talk to several dozen people so affected. They were gonna roll over me and my family once until I bit their ass but good with a crackerjack attorney. Stupid Texans paid up then, and considerably more. Oh, the wonder of compound interest on on six-figure money.

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Permalink Reply by Skip Peel - Mineral Consultant on April 3, 2014 at 16:03

I suspect I have a broader frame of reference than you do.

Permalink Reply by Max on April 4, 2014 at 1:25

CS, was this some of the minerals located in mid-East Texas, which EXXON claimed no one owned (and never did), so they claimed them? 

Permalink Reply by Dion Warr, CPL on April 4, 2014 at 6:26

Max:

Probably something to add here is that the ownership of minerals dilutes in many cases due to death, descent and distribution of increasingly smaller interests to owners that are ignorant of owning such interests.  Everything works all well and good with owners that owned and possessed mineral properties (the more concenttrated, generally, the better), kept good records, and had informed heirs that promptly probated these interests and filed in appropriate venues.  With owners (particularly in families) that did not see a net benefit in public filings, or that simply didn't have the funds available to justify incurring the expense of legal work and public filings, the problems with identifying those interests have mushroomed with the passing of each subsequent generation.  Oral histories and genealogies become less and less packed with details of actual or purported ownership, particularly in minerals in TX and elsewhere except LA, and by then of course the costs associated with proving up these interests have skyrocketed, if the "heirs of heirs of heirs" are aware that they own anything to prove up at all.

Individual investors (aggregators) can sometimes be the worst enemies of their heirs in that some are so secretive as to the breadth and extent of their business dealings and purchases that their heirs would not even know where to look.  Sometimes the information only comes to light because of happenstance or some unrelated transaction in the same or a nearby county where some fastidious researcher made the connection where others had not, which then unlocks a cache of ownership of which the heir was totally unaware.  I still remember one GHS member (active, still?) that took several of us to task when challenged her assertion that the O&G industry had not conspired against the heir of an inherited interest by drilling a well which affected a mineral parcel (to which the ancestor in title had no surface rights) and not picking up that the heir had moved out-of-state and should have known who they were because "everyone in town knew who the [ancestor-in-title] was" (although I would concede that a non-native language barrier and attitude issues probably contributed to that fray).

So specifically to your point, the 0.001% probably wouldn't be worth holding on to and could be purchased, provided that an heir or successor in title would actually be aware that they have something to sell.  If not - the interest continues to fragment past a barrier of economic ROR to even bother doing the research.  In E TX and other long-producing or highly fragmented areas, measures mentioned by others (including the use of receivers leases) have been utilized to attempt to bring rights under lease.  In states where force pooling is available, small interests can be pooled or unitized without a lease allowing development to continue.  In LA, there is no risk charge assessed against the UMI - this is not the case in other states.  But Skip is correct - E&P gets nothing out of the UMI other than recouping up to the proportionate costs of the well itself (and in the case of a dry hole, nothing) - they at most go sideways - except that at the minimum the well gets drilled, which in a pure pooling situation, it may not.

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Permalink Reply by Max on April 4, 2014 at 1:42

Back to the Forced Pooling; from what I read, before pooling became a part of the law (Texas), if I owned the oil & gas minerals on a 4 acre tract, I could drill a well on that tract and my neighbors would either have to drill their own well, or, let me drain their oil & gas.  I would put all the revenue in my pocket, including what flowed to my well from "the reservoir". 

The state begin seeing forest of drilling rigs, side by side, and pooling was a solution to this environmental impact.

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Permalink Reply by Skip Peel - Mineral Consultant on April 4, 2014 at 1:51

The birth of pro-ration and conservation of fugaceous minerals occurred in the Black Giant field of East Texas in the 1930's.  It is a fascinating story in a number of respects.  For those who would like to learn more, I suggest "The Last Boom" by James A. Clark and Michel T. Halbouty.

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Permalink Reply by 1kw6x71km1v37 on April 4, 2014 at 5:02

Skip, despite any tactical advantage you may have, it does not negate the fact that it happens, and I know from personal experience and landowner testimony that it is an acknowledged methodology, frequently used in Louisiana by operators.

Max, that sounds like a case that went to court in Texas. If not, there was one where one of the biggies drained another biggie not under lease (and I mean they are both big, big companies). The damage award coupled with punitive damages available in Texas was in the many multi-millions of dollars.

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Permalink Reply by Skip Peel - Mineral Consultant on April 4, 2014 at 8:14

CS, the fact that it happened to you and has happened to others does not make it a wide spread or common occurrence.  I think it's safe to say I know a lot more land/mineral owners than you.  I know them directly as my clients and indirectly by way of the legal firms with which I work and in my opinion it is an exception, not the rule.  As Dion confirms in his reply, the operator may recover the proportionate cost of that mineral interest, if the well proves productive, but does not make a nickel in profit.  There is no wide spread conspiracy to cut out small mineral interests in order to steal their share of production.

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