Got Minerals? Oil & Gas Info
Barnett Shale Oil & Gas Information
Email me to request a copy of the May 2007 Barnett Shale Impact Study.
Here are two great articles excerpted from the Fort Worth Star-Telegram that answer some general questions:
Digging for clues to mineral rights
By JIM FUQUAY
Star-Telegram Staff Writer
It's often said a home is most people's biggest investment. So why can't real estate agents and title companies tell prospective homebuyers whether mineral rights are part of the deal?
As more homeowners sign deals to lease their mineral rights to drilling companies for thousands of dollars upfront, more buyers in the housing market are asking whether mineral ownership is a part of the deal.
That has made mineral rights another part of negotiations to buy and sell homes, real estate professionals say.
But finding out whether mineral rights are included in a sale isn't easy.
'Up to the buyer and seller'
Neither real estate agents nor title companies issuing title insurance policies have historically been involved in determining mineral rights ownership on small residential lots. Moreover, legal advisers are telling agents and companies not to make promises about who does or doesn't have mineral rights.
"It's up to the buyer and seller to work out," said Jack Rattikin Jr., chairman of Rattikin Title Co. in Fort Worth. "The only way to make a thorough search of minerals is to retain a landman and go back to 1845 or whenever," said Rattikin, referring to the date Texas became a state.
Marshall Boyd, partner in Williams Trew Real Estate Services, a large residential and rural property agency based in Fort Worth, tells a similar story.
"It's become an issue, but it's not part of our licensing or training," Boyd said of mineral rights ownership. When a homeowner using one of Trew's agents asks whether mineral rights come with a property, "we tell them they ought to seek the advice of an oil-and-gas attorney or petroleum landman. That's not necessarily the answer they want to hear," he said, but it's the best the agency can do.
Because of the growing interest among both buyers and sellers, his agency has created a mineral rights information sheet for sellers it represents, explaining how they can retain the mineral rights of a property. But even the sheet recommends retaining an oil-and-gas attorney.
Tom Morgan, vice president of legal affairs for the Texas Association of Realtors in Austin, said his group considers the drafting of a clause reserving or restricting mineral rights to be practicing law and hence to be avoided.
"Real estate people don't have enough knowledge to write a mineral rights clause that's detailed enough. We advise hiring a lawyer to draft that language."
Separate estates
The companies' responses to what would seem to be a straightforward question illustrates just how tricky mineral rights issues can be.
In Texas and many other states, the mineral "estate" can be separated from the surface estate, meaning that one party can own the mineral rights for a property while another party owns the surface and everything on it. The separation can happen at any time, but subsequent deeds to the property typically don't specifically address the issue. Instead, they may just refer to exemptions and restrictions recorded in earlier transactions. That means someone has to go look at those previous documents to see whether the mineral rights are still attached to the property.
Judging by comments from area landmen, consumers rarely hire them to research mineral rights.
"I don't think we have gotten calls like that," said Carla Brown of Morning Star Land Services in Azle, which has more than 30 landmen researching mineral rights ownership for petroleum producers. Brown said that she has encountered property owners at county courthouses trying to research their own mineral rights but that it can be a hit-or-miss experience.
"Some areas have good records and the title flows smoothly," she said. "But if there's a gap in title, where deeds aren't filed, it makes it really hard. When we train our landmen, we tell them not to go to the courthouse thinking, 'I'm going to research three tracts of land today.' There's just no way of knowing."
If it doesn't go smoothly, the search can get expensive. Landmen typically charge $200 to $400 a day, and most are busy with contracts with petroleum production operators.
Simplest issue
Perhaps the simplest issue involves whether the home seller also intends to sell, or convey, the mineral rights.
If the current homeowner owns the mineral rights and does not specifically reserve them, the rights pass to the buyer of the property. To reserve the mineral rights the homeowner must include an exclusion or reservation to the property deed stating that the mineral rights will not be sold with the property.
Mineral rights have become another negotiating point in many home sales, real estate experts say.
"If you have a house that's very desirable and a couple of potential buyers" are interested, the owner is much more likely to be successful retaining mineral rights, Boyd said. "Otherwise, it's the first thing the owners give in on."
Scott Bradshaw, owner of Arlington-based DFWProperties.net, which handles mostly residential properties, said mineral rights ownership has declined as an item of contention.
"When it first came out, people thought they were going to get rich. We nearly had deals fall apart over it when the seller didn't want to relinquish their mineral rights," Bradshaw said. But with the realization that a small urban lot might promise a signing bonus of a few thousand dollars at most and less than $100 a month in royalty payments -- a figure that will quickly decline after the first year of production -- the urgency of securing mineral rights diminished.
"People aren't buying a house and mineral rights. They're buying a place to live," Bradshaw said. "We haven't seen a price spike" based on the value of mineral rights, he said, "so it's not a big value."
Land developers and home builders say that increasingly, the matter is settled before a home's foundation is even poured.
"By the time the land gets to us, unless somebody's just stupid" the mineral rights have already been reserved by a prior landowner, said Mike Edge, vice president of real estate for Choice Homes in Arlington. "In the majority of situations, we have told our salespeople that we don't own them," so home buyers can't get the mineral rights, Edge said.
Surface rights
The more important issue for Choice and other builders, he said, is making sure a drilling company can't use the surface.
"At this point, surface rights are the magic words," Edge said. "I'm not going to the expense of creating a neighborhood if an operator can come in with surface rights" and drill.
That's an important issue, because in Texas and other states, the mineral estate is considered superior to the surface estate. That means that the surface owner must accommodate the mineral owner who wants to develop those minerals, possibly allowing access to the surface property for a drilling rig or other production equipment. A "no surface use" lease settles that question.
Charles Newman, a lawyer with Beadles Newman and Lawler P.C. in Fort Worth, said a "no surface use" waiver puts mortgage lenders and investors at ease as well.
Barnett Shale Blog
Our Barnett Shale blog looks at everything about gas drilling, including what's going on with leasing offers in your neighborhood, what's going on down at City Hall, and what's up with the landmen and drilling companies that are working in the Shale. Check it out at www.star-telegram.com/blogs
JIM FUQUAY, 817-390-7552
jfuquay@star-telegram.com
* * * * * * *
Knowing the drill on gas leases
DAN PILLER
Star-Telegram Staff Writer
Thousands of Fort Worth and suburban homeowners are pondering lease offers — in some cases more than one — from natural gas drilling companies or their leasing agents. The companies want to drill into the Barnett Shale formation almost two miles underground. Each drilling tract is different and leases may vary, so landowners are urged to contact an attorney or a lease consultant, either individually or through their neighborhood association.
Here are a few of the most common questions and terms about natural gas leasing:
What are leases and royalties going for in the city now? How are they set?
They vary with location and competition. Like real estate, leases are determined by the free market. In Tarrant County, leases have tended to range from $1,500 to $3,000 per acre. For a typical urban lot in Fort Worth, that means a lease bonus of $250-$500 on average. The royalties tends to range from 20 percent to 25 percent, divided among all of the participants in a particular lease.
How much monthly royalty income can I expect?
There's no set answer. Groups are being told in neighborhood meetings that individual payments will range between $30 and $150 per month. The royalty depends on how many people are in the lease and how productive a well is.
What is the difference between a gross royalty and a net royalty?
A gross royalty pays a percentage of the gas revenue before pipeline and — if necessary — processing costs. The net royalty pays the landowner after those costs. Estimates vary, but the gross royalty can be up to 15 percent higher in terms of real dollars to the lessor.
What's the difference between a lease bonus and a royalty?
The lease bonus is a one-time upfront payment, sort of like the down payment on a house. The royalty is the monthly percentage of the gas revenue that goes to each mineral-rights owner.
How are royalties figured?
Companies take the average daily production from a well, (remember that although production is measured by million cubic feet, the price is always measured in thousand cubic feet), multiply that total by 30 or 31 depending on the month, multiply it again by the average price of natural gas for the month (which has been in the $7+ per thousand cubic feet range so far in November), then multiply it again by the royalty percentage. That figure is divided proportionally among the royalty owners in the lease.
If a company wants to drill under a neighborhood, how many of the properties must be leased?
Not all of them, just enough for the company to be able to drill horizontally through the shale about 7,000 feet below the surface. The drill bit can be steered around properties that haven't signed.
But doesn't that take the gas out from under properties that haven't signed?
Probably, but nobody knows for sure.
How long are leases?
They are usually either three years or five years, the time the company has exclusive right to drill. If the lease lapses with no drilling, the property owner is free to negotiate a new lease. If the company honors the lease, drills and begins production, then the lease continues in perpetuity.
Can more than one company take out leases in a neighborhood?
Yes, and it's to the property owners' advantage to have competition.
Could more than one company drill a neighborhood?
Yes, because drilling likely will be done from a pad site adjacent to or even outside the neighborhood. Conceivably, several companies could run horizontal bores under a single neighborhood. The difficult part for them is finding suitable pad sites.
How long does it take to drill the well?
Counting the preparation of the pad site (which is usually 2 to 5 acres), about a month. Of that, roughly 18-25 days is actual drilling. After that, the drilling rig is taken down and what's left is the so-called Christmas tree, a 5-foot-high mechanism atop the wellhead and a water-collection tank nearby.
Will pipelines have to be laid?
Yes. A so-called gathering line will be laid from the wellhead to the closest common carrier line. Pipeline companies will pay property owners to put the pipe underground. The pipeline companies have, and will use, eminent-domain power.
Are there safety concerns?
Safety has been more of an issue for workers, two of whom have been killed in accidents in recent years, than for neighbors of a well.
What are environmental concerns?
Most issues include noise (although bafflers and other techniques cut noise down to 3-5 decibels); water use and disposal; the lights on the rig, which at night shine over the neighborhoods; and the noise and traffic from the steady stream of trucks needed to haul away the wastewater from the so-called closed loop drilling system (done to avoid the ugly sludge pits that normally accompany drilling sites). Hydraulic fracturing, done after the rig is down, is a high-pressure water injection into the well bore for anywhere from 12 hours to three days. It's a noisy procedure.
How much will the wells produce, and for how long?
Initial production from Tarrant County Barnett Shale wells has ranged from 1 million to 8 million cubic feet a day. That figure generally declines by 50 percent to 75 percent during the first 12-18 months of production, then levels off. Generally, the first royalty checks a mineral owner gets will be the best. As for the lifetime of the wells, the best-informed opinion holds that Barnett Shale wells should be good for about 30 years of production.
Click here for a diagram of a typical gas drilling rig and it's components:
