Mineral rights owners need to be aware of their rights and protections. Mineral rights rules and regulations are constantly updated and vary from state to state.
What rights do you have?
In addition to so many situations where a landowner’s rights might be violated, consider this:
Recently, nationwide, a controversial tool called forced pooling is being used more and more as drillers work to gain access to minerals located under the surface of private property, oftentimes without the permission of the landowner.
In some circles, forced pooling is compared to eminent domain. In other circles, it is referred to as compulsory integration. Forced pooling means that, under certain circumstances, landowners and their neighbors are compelled to join gas-leasing agreements. Forced pooling is prevalent in well-established oil and gas states and has become more common, which has become disconcerting to homeowners whose drilling history is minimal and they must suddenly hurry to understand all the complexities behind protecting their mineral rights.
When it comes to forced pooling, drills are typically allowed to extract minerals from a “pool,” otherwise known as a large area comprising a minimum of 640 acres. Under these circumstances, if a lease has been negotiated for a certain percentage of the land, the company can then extract gas from the entire area. In this case, because drillers aren’t allowed to build surface wells on unleased land, they have resorted to using horizontal wells, or possibly some other way, to collect the minerals. Currently, 39 states have some form of forced pooling law. Most mineral rights contracts have a voluntary or forced pooling clause.
In places like New York, 60 percent of a landowner’s acreage, involved in the proposed drilling area, must agree to lease their land before the state oil and gas board will consider a driller’s petition for forced pooling. In Virginia, the leased land requirement is only 25 percent.
In states where these laws apply, drillers must notify landowners of a hearing before the oil and gas board, or whatever type of regulatory agency has been created for this purpose. Upon approval of the driller’s petition, landowners have these options:
contribute to the cost of the well and share the profits from the gas sales
not pay for the well and share the profits after a “risk aversion” penalty is deducted
receive a state-mandated minimum royalty payment
be enrolled in the state-mandated minimum royalty payment if an option is not selected
opting out is not an option.
While a landowner cannot prevent forced pooling, voluntary pooling can increase landowners rights and work to protect rights that might make the transaction more satisfactory for the homeowner.
When it comes to mineral rights, particularly when push comes to shove, knowing all of your rights is vital in this industry.
In order for oil and gas reserves to reach the market, minerals rights are leased to oil companies through a legally binding contract. At times, mineral rights leasing might include the drilling of an extended reach well. This could be beneficial to the land owner because less surface drilling space is used, smaller holes mean generating less waste, less noise and extended reach wells are kinder to the eco-system.
While there is still a lot of flexibility regarding the definition of an extended reach well, the most commonly accepted term is that the horizontal depth must be twice the length of the vertical depth (2:1). Another acceptable definition is a well that exceeds 4500 feet in length. An extended reach well can also be defined as a well that drills in deep water or through salt, even if the well ratio does not meet the 2 to 1 standard. The advantage of an extended reach well is that it can acquire greater drainage through fewer locations, reach deposits far away from the rig, drill where other rigs might not be able to be placed, increased reserve potential and deferred abandonment.
The extended reach well was created in the 1980’s. Mobile Oil was the first to experiment with this type of well. The longest extended reach well on record is one located in Russia that measures a depth of 41,667 feet and a horizontal measurement of 38,514 feet.
Extended reach wells are more costly than standard wells and are a challenge when it comes to directional drilling. Hole cleaning is an issue, as well as managing the mechanical loads on the drill string and downhole pressure. These types of wells also demand extra planning, but are beneficial in reducing overall environmental impact, which can be important with mineral rights leasing.
Additional benefits of extended reach wells include the ability to reach a large area from just one surface drilling location, and productivity and drainage can be maximized by keeping the well in a reservoir for a longer distance.
Extended reach wells have progressed to the point where new technologies have emerged that stretch the current boundaries. One method is called the Reelwell Drilling Method, where the distance of a current well of this type is multiplied.
Finding out if your property’s mineral rights belong to you is the first step to selling this interest. If the surface rights have been separated from the mineral rights, you may not be the owner of both. Deeds, which are public record, can be obtained from your county recorder’s office, and will indicate to whom the mineral rights belong. This is also a great point to start tracking data on these rights, crucial information to attract and inform potential buyers.
Knowing the market for oil and gas mineral interest will be helpful in setting a selling price. You can begin by checking the New York Mercantile Exchange for current pricing of these commodities. However, asking price for mineral rights is subject to extreme fluctuation and is often dependent on how motivated you can influence buyers to be. Building a spread of interested buyers is key to the value you can secure from your sale. When potential buyers are faced with competition, this will drive their offers higher, as well.
Simply put, minerals that are producing revenue are likely to be of more value than minerals with no history of producing revenue. Without this history of revenue production, potential value may be less certain to buyers.
Waiting to Sell
Like selling a house, this process should not be instant or overnight, so anticipate a few weeks of interacting with the market. It may be tempting to accept the first offer you are given, but if you can keep a savvy business sense and a little patience, it will pay off on this one-time transaction of the rights to your valuable oil and gas assets.
Acting too quickly on a sale can also be the result of pressure from a so-called flipper, who will get you to sell your rights to them at a lower price, find a buyer at a higher price, and leave with the additional profit you could have made for yourself.
Listing Your Rights
Listing online through a professional company will get your mineral rights on the market. Getting consultations from various professional companies prior to listing will be helpful in deciding where to place your trust for the sale of your mineral rights. Don’t be afraid to admit when you don’t know something, and seek help from an attorney if you need assistance in understanding the terms of your negotiation before it is finalized. Call the team at Gallatin and get started today!
When it comes to selling mineral rights, one person you will likely be dealing with is a landman. A landman/landwork is defined by the American Association of Professional Landmen (“AAPL”) the following way:
“Landwork” shall mean the actual performance or supervision of any one or more of the following functions:
A. Negotiating for the acquisition or divestiture of mineral rights.
B. Negotiating business agreements that provide for the exploration for and/or development of minerals.
C. Determining ownership in minerals through the research of public and private records.
D. Reviewing the status of title, curing title defects, providing title due diligence and otherwise reducing title risk associated with
ownership in minerals or the acquisition and divestiture of mineral properties, but shall not include division order or lease analyst
E. Managing rights and/or obligations derived from ownership of interests in minerals.
F. Unitizing or pooling of interests in minerals.
“Land Professional” shall mean a person who derives a significant portion of his income as a result of performing Landwork.
“Landman” shall mean a Land Professional who is primarily engaged in Landwork.
who negotiates the mineral rights deal in behalf of an oil or gas company.
In the past, a landman was referred to as a leasehound but this title has become obsolete. There are predominately two types of landmen in the oil and gas industry:
A field landman: this type of landman works closely with the in-house land man and also directly with land owners. A field landman is usually an independent contractor who researches and drafts documents, typically using the county courthouse where the land is located. The field landmass performs title searches to make sure the title is clear and makes sure every step of the negotiation process follows the appropriate compliance. The field landman is also works with title attorneys who may be reviewing title for the company that plans to drill a well or purchase mineral rights.
An in-house landman: typically an in-house landman is an employee of the oil and gas company, working in their land department. The in-house landman is usually involved in negotiations and/or trades with land owners or other companies, manages the rig schedules, and works to make sure the relationship between the mineral owners and the oil and gas companies is cohesive. They also participate in hearings and assist in due diligence.
Because the buying and selling minerals rights can be so complex, hiring a professional and reputable landman is vital. Several things to inquire with the landman you are dealing with may be:
Is he/she member in good standing with the AAPL
How long as he/she been a landman and what regions have they worked
Does he/she hold any certification with the AAPL
Is he/she a member of the local landman organization
A good landman will be punctual, knowledgeable, thorough and accurate. Also
important is to make sure the landman keeps matters regarding the buying or selling of mineral rights private. Title research, contract negotiation mixed with a competitive environment makes it crucial to work with a landman you can trust.
Fortunately, there are a lot of options available when it comes to buying and/or selling your mineral rights, to guarantee you get the best deal. For the pasts ten years, our team of experts at Gallatin have assisted countless mineral owners experience their ultimate success in the purchase and/or sale of their mineral rights. Both the buying and selling of mineral rights can be financially advantageous, yet risky and highly complex, which is why we take great care when it comes to understanding every step of the way, including the option of whether or not to buy or sell those rights in the first place.
When it comes to purchasing mineral rights, we can help:
Make sure the mineral rights for a particular property are actually available for purchase – Because of the complexity surrounding the purchase of mineral rights, never assume anything.
Know which minerals will receive the greatest return – The top five most desirable minerals in the United States are: oil and gas, gold, copper, diamonds and coal, but, mineral values change, which is why we always know the latest.
Make sure the mineral you would like to purchase is actually a mineral – Again, do not assume anything. With this type of investment, you do not want to find out, after the fact, that what you purchased was not a mineral after all.
Never underestimate every single aspect of the deal – As previously mentioned, purchasing mineral rights is very complex—not only the price, but access to the property, damage possibilities, fresh water access, and a timeline in case you’re not mining right away. We already know every aspect of the deal and can help you lower your risks.
Laws, regarding mineral rights, vary from state to state – We go to great lengths to understand the laws of each state.
When it comes to the option of selling mineral rights, the difference between a good deal and a great one can be a matter of putting the deal together correctly, of which we specialize in:
Impressive record-keeping – We can help you organize all of your deeds, lease agreements and other records, so “the integrity of the deal” can be easily shown.
Know the current mineral rights market – Mineral values rise and fall, which is why we know the current, real market value.
Option agreements are considered red flags – We know the red flags and, by working with us, these can be avoided.
Be patient with the process/Know the best offer – We are pros at helping making sure the deal you accept is the best one for you.
Again, the buying and selling of minerals can be lucrative and even meaningful, and yet risky and complex, which is why we here at Gallatin, strive to make sure your experience will be the best one possible.