Informational Guides & How-To Resources with specific types of property or business. Check our valuable guides on this page today at Ranger Land & Minerals.

Mineral Interest vs. Royalty Interest

Mineral Interest vs. Royalty Interest [+Net Royalty Acres Calculation]

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When entering into a mineral rights agreement, it is very important to understand the complex definitions. This includes many industry terms. What could be the result without a proper background in mineral interest terminology? Investors run the risk of exchanging an asset or participating in a contract far less valuable than the property itself. In this quick guide, we will define and compare royalty interest vs mineral interest, mineral vs royalty acres, and several other commonly used terms to clear up confusion and provide guidance for mineral rights investors.

What is a Mineral Interest?

A mineral interest is the absolute ownership of all minerals below the subsurface of a property. With rights to mine, exploit, or produce any and all resources. Mineral interests are also mineral rights or subsurface rights.

With mineral interests, property owners have the permission to execute conveyances and enter into agreements. This includes with third parties to explore, extract, or sell the minerals. With this, mineral interest owners can earn mineral royalties. This is usually from the sale of valuable resources such as oil and natural gas.

Mineral Interest vs Royalty Interest

Mineral interests are the real assets that can be under the ownership of individuals and entities. Royalty interests do not represent physical properties. Unlike mineral interests, royalty interests are the lease terms that outline a mineral rights owner’s share of production profits.

Before entering into a mineral rights lease, it is critical to understand the terms of the royalty interest outline. This is to evaluate the quality of the contract. It is also possible to earn royalty interests without owning mineral interests. Unlike mineral interests, royalty interests can be claimed. This is if a person or business is involved with the exploration or production of any valuable resources.

What is a Mineral Acre?

A mineral acre is the square measurement of any landmass that has minerals beneath the surface. Mineral interests are quantified in mineral acres, which can be measured as roughly 640 acres of ordinary land. Within a mineral acre, the land is divided into both net mineral acres and gross mineral acres.

Net Mineral Acres vs Gross Mineral Acres

A net mineral acre is equal to the exact amount of subsurface land that a mineral interest owner or oil and gas operator can exploit for the extraction and sale of the resources. In large oil fields and plots of land with multiple mineral rights owners, it is very rare for net mineral acres to be equal to gross mineral acres.

Gross mineral acres are the total number of mineral acres in any subsurface property discussion. Looking over a division of land, gross mineral acres are only equal to net mineral acres if one individual or entity owns all of the mineral rights. Net mineral acres may also be less than gross mineral acres. This is if a portion of the land has been protected, reserved, or previously exploited.

Net Mineral Acres vs Net Royalty Acres

Much like in the cases of interests, there are a few key differences when we compare mineral acres vs royalty acres. Net mineral acres (or NMA for short) represent real property, whereas net royalty acres (NRA) are terms in a mineral rights lease that outline cash flow.

In mineral rights leases? the average mineral royalty rate is roughly ⅛ of the sale of oil, gas, or another resource. With this, for every net mineral acre, one can expect about ⅛ of the gross mineral production to be equal to their net royalty acre.

Net Royalty Acre Calculation

As an example, for net royalty acre calculation, let’s say that you own 500 net mineral acres. Then you have entered into an oil and gas lease agreement with a full-service provider. First, take a look at your royalty interest rate as expressed on your contract. Next is to multiply it by 1/8 (or 0.125). In this example, we will use 10% as your royalty rate. Which when multiplied by 0.125 will equal 0.8. This would be your royalty interest rate.

Finally, how to calculate your net royalty acres?

Take your royalty interest rate (0.8) and multiply it by your net mineral acres (500) to equal 400. With 500 net mineral acres at a royalty rate of 10%, your net royalty acres would be 400.

Final Thoughts

This is what new investors and seasoned property owners alike are well aware of. Mineral rights terminology can be confusing and occasionally intentionally deceiving when practiced by an unreputable company.

Do you need help to navigate the unique differences of net mineral acres vs net royalty acres? How about mineral interests vs royalty interest? Learn more about your mineral lease agreement today. We strongly recommend working with a mineral rights broker or an oil and gas industry legal specialist.

If you have more inquiries, reach out to us here.

wellhead price

Wellhead Price in Oil and Gas [Definitive Guide]

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What’s the price of oil today? Well, that strongly depends on both where you are. Also at what stage along the resource supply chain you are on. In the realm of mineral rights, there are many different ways in which natural resources are quantified and sold. This includes such as oil, natural gas, and coal. For those with a passive or direct business interest in oil or gas production, we’ve developed this resource as a guide to wellhead price and some of today’s most commonly sought-after definitions.

What is a wellhead price?

The wellhead price of oil or gas is the exact value of the resource at the point of extraction. The “well-head” refers to the pinpointed location in which a well produces oil ready for sale. The term wellhead price can be used in place of both “field price” and “realized price,”. It is also occasionally expressed as the “price of oil at the well-head.”

Here, the most important thing to understand about the wellhead price is that no costs have been levied against the value. Wellhead pricing is the absolute highest valued resource cost along the supply chain as transportation and handling costs are not accounted for in this figure.

Why is the oil price on my royalty payment different from the wellhead price?

The oil and gas price as expressed on a royalty statement is almost always going to be lower. This is compared to the wellhead price. This is largely due to the fact that oil must be refined after it has been extracted from the earth. Knowing this, transportation costs ensue, which bring down the net price of the oil that has been extracted and sold.

As a mineral rights owner, you are entitled to a fixed percentage of the gross profits. This is from a successful oil and gas lease. Although transportation costs are deducted from the wellhead price, these expenses are absolutely necessary. This is to bring the product to market and therefore netted from the wellhead price.

Price Differentials in Oil and Gas Wellhead Price

Besides transportation, there are a few other factors that make up the price differentials. This is between the wellhead price and the actual price of an oil or gas production. Depending on the quality of the raw materials, there are extensive costs for adjusting the quality and energy content. This also includes adhering to local regulations.

Here, we can expand the definition of a wellhead price. This transpires at “an arms-length agreement” in the sense that all parties are acting in their own best interests. Wellhead prices are meant to represent fair and balanced values of resources. On the other hand, the actual price of any given resource extraction may be heavily influenced by existing business and supply chain relationships that could not be classified at arm’s length.

The First Purchase Price (FPP) of Oil

After the price differentials have been applied to the wellhead price of an oil production, the first purchase price (often abbreviated as FPP) is released by the seller. The first purchase price is measured in price per barrel, typically expressed as price per bbl, and is valued at the exact price at which oil is sold to the first buyer after entering the market.

The first purchase price of oil must be reported by the purchaser after completing a fair and honest arms-length transaction. Sales are typically expressed on a run ticket or another form of purchasing receipt. Deductions and premiums may be added on or adjusted if there are many mineral rights owners or extenuating circumstances.

What is the commodity price of oil?

The commodity price of oil is the value at which the price of oil is traded in markets throughout the world. Much like gold, silver, natural gas, and now water, oil is a commodity that is taken from producers and sold on the open market. Expressed as a real dollar amount, the commodity price of crude oil is sometimes referred to as black gold thanks to its centuries as a valuable resource.

Many people believe that the commodity price of a barrel of oil is the most important commodity in the world, as the resource is used in nearly every country in the world to varying extents. The commodity price of oil rises up and falls down all as a result of global supply and demand. Like in 2020 the commodity price of oil dropped dramatically after global demand was reduced as a result of the coronavirus pandemic.

If you have further questions about gas, oil, royalty payment, and more, feel free to contact us here.

oil and gas minerals royalties

A Complete Guide to Oil & Gas Mineral Royalties [2021]

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When it comes to owning mineral rights, for many, it’s all about the royalties. No, we are not referring to the King and Queen. Nor talking about the compensation an actor receives from an appearance on a program or advertisement.

Instead, mineral royalties in the context of mining are the monthly payments that mineral owners receive. This is when natural resources undergo extraction and selling. In this article, we will explain everything you need to know about oil and gas royalties.

What are mineral royalties?

Mineral royalties are received by mineral rights owners. This is when an active oil or gas lease produces and brings resources to the market. Payments are from the producer and seller. Mineral royalties are generally receivable after forty-five to sixty days. Usually, after the resource is sold to the mineral rights owner.

The United States is one of the few continues in the world. Individuals and businesses can earn mineral royalties for privately sourced oil and gas.

What is an oil royalty check?

An oil royalty check is the actual, physical receipt of a royalty payment. Many modern operations utilize digital payments through automatic deposits. Mostly, it is still commonplace for gas and oil owners to receive physical royalty checks via mail. With this, companies are able to package gas and oil royalty checks. This includes a detail of breakdowns of payment calculation.

How are oil and gas royalty payments calculated?

Oil and gas royalty payments have three main factors when it comes to calculations.

First is the amount of the resource produced, terms of the lease, and current market value. In a mineral lease, ownership is defined as full or partial mineral rights to a parcel of land. From there, a percentage of the total monthly sales is defined. This is to represent the mineral rights owner share and oil and gas royalty payment amount.

Here is an example in simple terms.

An operation produces $10,000 worth of oil in March (based on market price and quantity sold). Then a mineral rights owner will receive a 10% stake in profits. In computation, a $1,000 mineral royalty payment that month. Of course, this approximate calculation is for presentation before mineral royalties taxes.

Are mineral royalties payable on gross or net?

Oil and gas royalties are almost always payable on net mineral sales, rather than the gross profit of the production.

What if there are many shareholders, investors, and interests? With that, large oil and gas operations must dish out many mineral royalty payments. This is before claiming a project’s gross profit.

How is the oil and gas royalty income taxed?

The IRS taxes mineral royalties as ordinary income. This depends on the exact dollar amount of the oil and gas royalty payment. Annually, mineral rights owners have a requirement to report active oil and gas royalties on their tax returns as income. Take note that they may also pay tax for severance and other local considerations. This is before the mineral royalty payments reach an owner’s pocket.

How often are oil and gas royalties paid?

Almost always, mineral royalties are payable on a monthly basis. Oil and gas payments are made along the ordinary accounting cycle of the producers. Generally, in the mail two months after the resources are sold. Natural gas royalties are commonly paid 3 months out. The oil royalty payment standard of 2 months.

There may be a minimum mineral royalty amount that must be reached before a payment is made. This is depending on your lease and location. If a production produces less than the threshold, there will be an amount rollover of the outstanding oil and gas royalty. Usually into the next month’s payment.

What is the average oil royalty payment?

The nationwide average oil royalty payment rate is about ⅛ of the sales or 12.5 percent. This percentage can be applicable to oil fields large and small. This has a huge range of expected oil royalty payments across the country.

Oil royalty percentages are completely negotiable as all mineral rights transactions. With this, longstanding landowners may be able to increase their earnings with royalty payments of up to ¼ of the resources sales.

How long on average do mineral royalties last?

Oil and gas royalties will last as long as the well does. This is as long as a mineral rights lease stays active and producing,

The average high-producing mineral deposit will yield for 20 to 30 years. Draining some oil wells are applicable optimal rates for production.

Basically, large oil wells are likely to last even longer. Of course, not all wells are constantly being drained at the fastest rates possible.

Although the terms are completely negotiable, most mineral royalties have a duration of 3, 5, and 10 years. Leases are renewable with updates on agreements and terms. Usually, if both parties still have interest after the completion of the initial term.

If you have more questions about oil and gas minerals, know more about it here.

legal-location

Legal Location in the Context of Mineral Rights

If you are buying property, then your deed will likely list your new asset’s legal location. The term “legal location” is not always useable in property leases and sales. Still, it is entirely necessary if you are entering into a mineral rights agreement.

In this article, we will define the term “legal location” in the context of mineral rights. After that, we will be detailing the components that make up a mineral property’s legal description.

What is a legal location?

What is does it mean in the land law of the United States? The legal location of a property means the exact boundaries of the purchasable asset. This definition is sufficient for surface properties. Still, it is not enough to define the legal location of a subterranean asset.

What is the legal location of a mining claim?

In mining law, legal location is much more than a property’s land area. Mineral rights extend into the subsurface of the earth. Additionally, the natural resource reserves generally extend beyond the boundaries of the property above. With all of this in mind, the legal location of a mining claim must take into consideration a lot. It includes all of the geographical, historical, and legal elements of a property.

Legal Description of the Property

The legal description of a property is exactly how the legal location of a mineral claim means on a property deed. The legal location of a mineral rights property may be conveyable with a variety of details. This depends on the location of the property specifically from which state. Legal descriptions are generally a requirement to contain full descriptions of a few key points. Examples are in heavy mineral-producing states like Texas, Oklahoma, and North Dakota,

Below, we detail some of the most common elements of the legal description of a mineral rights claim. Failure to fully understand the legal location of an asset may be critical in determining whether or not a purchased mineral property is as advertised.

Latitude and Longitude

First and foremost, the best way to define the location of a property anywhere in the world is the latitude and longitude. Not only is this helpful in crowded city streets, but it is also equally as important when considering oil reserves loathed in remote, desolate areas of the United States.

Property Boundaries

Once you know your property’s longitude and latitude, what’s next? It will then be very easy to identify it. Usually with the registration location of the proper parcel of land. This may be most easily located by looking up the land’s parcel tax ID or parcel number. This is the most important registration number to legally bind you to your new property.

If you cannot find the parcel number on your property deed, check your property tax bill if you have owned your land long enough to have received one of them. If it is a new property in question, be sure to verify with your local land office.

County & Abstract Number

A property’s ID number is first defined by its abstract number, which is unique in each of a state’s counties. The abstract number is assigned by the state’s land office and helps quickly identify property locations.

Survey Name

The survey name of a mineral rights property’s legal location refers to either the location’s block section or county. Surveys are generally named for the organizations that conduct the first full measurement of the land. Independent surveys may also be referenced in the property’s survey name.

Block Section, Name, and Number

The block section of a legal location is a smaller division within land surveys to help define each boundary. Blocks are sectioned into distinct names and numbers, some of which are highly specific decimal designations. In some states, the block number and the survey number are the same figures.

Alternate Name

As mineral rights can change hands between individual owners and large corporate entities the names are occasionally changed through history. If a parcel of land has had its legal name changed, then past names may be listed on property deeds as “alternates.” These may be required in some states to protest new property owners from misleading parcel identification.

How to Find A Property’s Legal Location

The legal location of a mineral rights property should be included in all negotiations, contracts, and deeds. Within each state, local land offices can be contacted for any questions about a mineral rights survey, block, or ID number. In most cases, it is very easy to find your property’s location if you know its county, township, and approximate location.

If you have further questions, feel free to reach out here.

oil and gas permits

A Complete Guide to Oil and Gas Permits [2021]

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What is unique in The United States of America? We are one of the few countries around the world that permit private citizens to own mineral rights. Within the borders of our country, rules, regulations, and policies differ. This is heavily from state to state on a number of issues. For oil and gas, this is no different as state permits will vary throughout different territories.

In this quick information blog, we will define what state permits for oil and gas are. We will also answer some of the most common questions.  This includes regarding who, what, and where oil and gas permits application happens. After diving into the basics for these terms, we will provide a few additional resources. Mostly information about local state permits and drilling permits.

What are oil and gas permits?

A permit is an application with the local government. An application to drill, complete, re-enter or complete a well. Permits are requirements in all states in which oil and gas drilling is permissible. The filing of permits is usually with the Land Office of a state government.

Who will submit a state permit for oil and gas?

State permits are issuable to oil and gas operators for active or soon-to-be active mineral rights. Mineral rights owners do not need to worry about filing a state permit. Submission of that paperwork is by the oil or gas operator.

Only issuable to American citizens, filling of state permits are from the oil and gas operator employees. They are legal to work on the project. More often than not, companies will have a landman to file permits. They don’t have direct involvement with any of the other parts of the overall oil and gas operation.

When to file these permits?

Within any organization, filing of state permits is typically soon as possible. Especially after the action is undergoing on an oil and gas lease. If the well is ready to be drilled or completed for the first, second, or final time. This is where a permit must be filled at every step along the way.

In typical instances, permits will last for one full calendar year before expiring. This may vary by the state or the nature of the permit as well.

Why is permitting a requirement for oil and gas?

State permitting is a requirement. This is to ensure the ongoing health of the earth and the success of an oil and gas operation. Unpermitted drillings may cause damage to the earth or reserves which could lead to catastrophic environmental and economic damage.

Oil and gas permits are required in order to ensure the health and safety of:

  • All mining operations
  • The quality of air, water, and earth
  • Well drilling
  • Use of roads
  • Resource storage
  • And more

Is it possible to file these permits on federal land?

Yes, in some parts of the country federally reserved land does not technically belong to any state in particular. This is even if found entirely within one’s borders. In states like Nevada, Arizona, and more it may be possible to file an oil and gas permit. Usually for the exploration or extraction of natural resources from federal lands. Information for outstanding federal mineral rights can be seen here.

Resources for filing State Permits for These Resources

Not every state has a dedicated mineral rights office. Most states in the Union have at least one main point of contact or center of information. This is where to file permits for oil and gas operations. Are you looking for a reference for your local state? We will include some of the most popular state resources below.

Texas: Please see the GLO energy business resource page for mining on state lands within the Lone Star State. Commissioned by George W. Bush, GLO provides resources and permits for prospecting, leasing, and mining operations.

Oklahoma: The Department of Environmental Quality is Oklahoma’s home for general oil and gas permits as well as specific applications for special operations and businesses.

North Dakota: North Dakota-based operators can make use of the Frequently Asked Questions page for the state’s oil and gas permitting processes.

Colorado: In the centennial state, oil and gas permits are issued by the Colorado Oil and Gas Conservation Commission.

Pennsylvania: Resources for the Keystone state’s oil and gas permitting process can be found on the PA Department of Environmental Protection website.

Nevada: Please see the State of Nevada Commission of Mineral Resources Division of Minerals page for current information on state permits.

Arizona: Since 1915, Arizona’s State Land Department has been the best resource for locating and filing state mineral exploration and drilling permits.

If you have more questions about these permits, feel free to ask us here.

mineral-rights-recorder-of-deeds

Mineral Rights Recorder of Deeds, Records, and FAQ

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Like many different kinds of highly valuable property, a record of mineral rights is a must-have. This comes from a government official. Recorder of deeds is a must for legality. Similar to real estate or automotive purchases, mineral rights can transfer between owners. This is only possible once the official paperwork has been documented and signed.

There are many questions regarding any legal stipulations about land ownership. We’ve put together this guide to help clear some things up below the Earth’s surface. In this glossary and FAQ, we will define some of the most commonly used terms in official mineral rights records.  After that, we will provide additional resources to help localize your questions and answers.

What are mineral rights?

Are just getting up to speed with your purchased or inherited land? First, you must understand what it means to own mineral rights. Mineral rights entitle the owner to any valuable resources that are beneath the earth. This is available as part of a fee simple estate or purchased separately in a split estate,

Most commonly, mineral rights are about oil and gas used for energy. It usually includes manufacturing and more too. Mineral rights are not available in all areas. It is available only to Americans, Canadians, and residents of a handful of other countries.

How does the recording of mineral rights take place?

Officially, recording of mineral rights with a mineral rights deed. is the process If you own your land in a fee simple estate, then there may not be a separate deed for your subsurface rights. Rather, it will be a designation as part of your whole property. Knowing this, it is important to completely understand what property rights are conveyed. This is in the event of a sale or purchase.

Physically, mineral rights records exist in a government office or digital database. Usually, the local governments hold copies of deeds. This is to retain a record and solve any disputes about the property. A copy should also be on hand by the mineral rights holder. This way he or she can legitimize ownership before entering into an oil and gas lease.

What is a recorder of deeds?

A recorder of deeds in a government official, office, or entity that is responsible for the processing and maintenance of public record deeds. The physical or in-person recording is the usual way to record deeds. The practice of digital databases for mineral rights deeds has only become more prevalent since the turn of the 21st century.

How to Find your Recorder of Deeds

It is very easy to find your local recorder of deeds before entering into a property transaction. If you live in a city, check with the city office. If you live outside of town, which is much more common for mineral rights negotiations, then it is likely that your recorder of deeds will be at the county level.

Deed recording practices vary heavily from state to state. If you are in an area that is currently useable for oil, gas, or other resource production, then your local office may have a designation recorder of deeds solely for mineral rights transactions.

What does the recorder of deeds do?

Whenever a deed becomes recorded, the property owner can officially claim the rights to whatever is described in the document. Recording typically occurs during the transfer of ownership from one individual or entity to another. Recording deeds of mineral rights owners are then free to enter oil and gas leases to receive mineral royalty payments. This is for the valuable resources extracted and sold from the property.

Are recorded deeds public information?

Yes, more often than not, the recording of deeds is to be public information. While not just anyone can access them, deed recordings are necessary to be considered public information in the event of a legal dispute or future transfer of ownership.

Are unrecorded deeds valid?

Surprisingly, unrecorded deeds are still considered valid in many states across the country. So long as the buyer and the seller have agreed to terms, an unrecorded deed may still be valid if the new owner wants to pursue new ventures with the land itself. With public records, however, some difficult scenarios can arise if someone were to impersonate a deed owner.

When should I record my mineral rights deed?

We recommend recording your mineral rights deed as soon as possible after you purchase your new property. In doing so, the world will become aware of the new owner, and oil and gas companies may begin to contact you with lease offers. However, mineral rights deeds in some states may not be a legal requirement under any specific time period. Therefore, you can take several months or years before officially recording your deed.

If you have further inquiries about recorder of deeds especially for mineral rights, contact us here.

oil and Gas Revenue Checks

A Complete Guide to Oil and Gas Revenue Checks

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Oil and gas revenue checks are everyone’s favorite part about mineral rights ownership. Oil and gas revenue checks are a great way to earn passive income from an investment in mineral rights.

In this complete guide, we will cover some of the most frequently asked questions. It will be all about oil and gas revenue checks. This is to help current and future mineral rights owners understand what to expect. After defining a few terms, we will go into detail about some of the average statistics. These are statistics that surround oil and gas revenue checks.

What are oil and gas revenue checks?

First and foremost let’s define what we are talking about here. Oil and gas revenue checks are monthly states. They will give it to the owner or partial owner of active mineral rights. They call the Oil and Gas revenue checks “oil and gas royalties” or “oil and gas royalty statements.”

Today, they are still sending most oil and gas revenue checks in the mail. Typically, they show a full picture of the month’s operation, resource price, ownership percentage, and actual check dollar amount.

Who sends it out?

The operator or producer will send the Oil and gas revenue checks. In the largest oil and gas operations, companies will utilize either an in-house or third-party revenue distributor. Oil and gas revenue checks may be the only interaction between the actual extraction company and the person or entity. That person will receive the check.

How do you get it?

How to receive an oil and gas revenue check? One must have a stake in an active and producing oil and gas operation. Most commonly, this occurs when a mineral rights owner enters into an oil and gas lease agreement. This is for a company to locate, extract, and sell valuable resources from the owned property. They will mail the Oil and gas royalty checks via the US Postal Service in discreet packaging.

How often do they send these checks?

Across the United States, the industry standard for oil and gas revenue checks is a monthly recurring payment. Are you not a mineral rights owner? Then  have an overriding royalty interest in an oil and gas operation. With that, it may be possible that you only receive a one-time revenue check. This is after you participate in the process.

How much do you get with these checks as payments?

Technically, there is no limit on the amount of payment money.  The exact figure that you will receive is a predetermined amount. This is as defined in your mineral rights lease agreement contract. In most scenarios, they fix a percentage from the total sales revenue of an operation each month.

Most commonly, oil and gas revenue checks are payable to about 12.5% or one-eighth of the total monthly profit. More often than not, this is then divisible among multiple mineral rights owners on a large, active property. In some states, there are legal minimum oil and gas royalty compensation percentages.

What is the minimum amount of an oil and gas revenue check?

In most oil and gas leases, there will be a predefined amount of money. This must accumulate before a revenue statement is sent to a mineral rights owner. What if an operation has been slowed due to seasonality, weather, or other condition? Months in which production and sales do not meet the minimum threshold will generally cause producers to temporarily withhold payments.

What taxes are payable on these checks?

There are a considerable number of taxes that may be applied to any given oil and gas revenue check, with total value varying depending on your location. Most commonly, it is not unusual to see severance taxes, conservation taxes, state taxes, and more on a monthly oil and gas revenue check. Although it may not be significant, revenue checks may be taxed at rates up to 10% across the country.

Why are there deducted items from an oil and gas revenue check?

Unlike some products, oil, gas, and other natural resources must undergo a significant amount of modification and processing before becoming ready to market and sell. For this reason, oil and gas operations incur significant expenses between the extraction and sale stages. These process costs are divisible among stakeholders and credited to revenue checks based on actual expenses. Most commonly, deductions may represent costs associated with dehydration, compression, gathering, processing, and treating the minerals.

If you have further questions about oil and gas revenue checks, feel free to reach out to us here.

shut in well and royalty for oil and gas production

Shut-in Oil Well & Shut-in Royalties – Meaning & Explanation

A “shut-in royalty” may sound like it is describing a member of high society that spends a little too much time at home. After all,” shut-in” is a term that is commonly useable to describe people. People who are either voluntarily or unwillingly confined to a home, room, or even bed.

In the context of oil and gas, the term “shut-in” is useable to describe wells, operations, and royalties. This is related to mineral rights production. Below, we will define the meaning of these terms and answer some of the most frequently asked questions surrounding shut-in wells for oil and gas production.

What does a shut-in well mean?

A “shut-in well” is a petroleum industry term meaning any gas and oil well that is under closure off for further production or is incidentally lowering its potential output. These oil wells come in two forms. First are those that have been shut down in an emergency. Second, are those that influence the supply of oil or another natural resource.

What causes shut-in wells within the oil and gas industry?

Most commonly, shutting in of oil and gas well is the result of unsafe or unusual conditions. Usually, in the environment and economy. Namely, natural disasters are the leading cause for temporarily shutting in oil and gas operations.

Natural Disasters

There are a few different types of natural disasters that may cause oil wells to be shut-in. These are in areas of the country where you can find oil fields under large flat reserves of desolate land.

Near the shores in Texas and Louisiana, shutting in and worker evacuation are often the hurricanes and other tropical storms. In Oklahoma and North Dakota, it is much more common for oil and gas operations to have emergency tornado protocols.

Lower Oil Demand

During the global coronavirus pandemic of 2020, stay-at-home orders caused the demand for petroleum to dramatically decrease overnight. The supply of oil began to stockpile in barrels and distribution centers across the country. This is due to passenger cars, work vehicles, and truck fleets off of the road,

In response to this, many oil wells began to shut in wells to combat the oversupply of oil. This is happening in high-producing states like Oklahoma and New Mexico. Things like this tend to happen on a smaller scale throughout the normal operation of an oil well. This is to combat fluctuations in local markets.

Project Delays

How many project delays one can expect in every unique situation? Everyone that has involvement with an oil production site knows it. From machinery and labor failures to governmental and weather-related delays. Projects rarely fall on the expected timeline set forth by investors.

Shut-ins from unexpected project delays can halt oil and gas production for hours. Mostly, it takes days or weeks depending on the severity of the challenge.

Shut In Royalty

Although an oil or gas well shut-in may not affect most people in the United States, those that own mineral rights may be a bit keener to pay attention to mineral production in certain plants. If you own complete or partial mineral rights of an active plot of land, then your monthly oil and gas royalties may instantaneously affect any operations shutting in.

What is a Shut-in Royalty?

A “shut-in royalty” is a placeholder royalty payment to a mineral rights owner while the operations are temporarily shut-in. Essentially, what this means is that these assure oil and gas owners that they will receive payment. This is during operation shutdowns causable by natural disasters, company delays, or government ordinances.

Shut-in Royalty Clauses

In an oil and gas mineral rights lease agreement, most quality contracts will include this clause to guarantee some form of shut-in royalty. Most commonly, this is expressed as a real dollar value but may also come in an amount more closely related to recent extraction and sale operations.

Shut-in Royalty Provisions

Aside from the compensation amount, provisions on an oil and gas lease should include a timeframe in which mineral rights owners can expect to be compensated. Depending on the conditions, shut-in royalty payments typically fall within a 90-day timeline.

How can I guarantee shut-in royalties?

Every oil and gas lease negotiation is different, and there is no standard contract throughout the fifty states of America. Before you agree to permit oil and gas drilling on your land, it is best to ensure that there is a shut-in royalty clause or provision directly stated on your oil and gas lease. Within the clause, payment and timeline considerations should be addressed.

To get the most guaranteed earnings out of your mineral rights lease, it is strongly recommended to work directly with a professional, specialized oil and gas intermediary.

If you have further questions, feel free to reach out to us here. 

oil and gas unitization and pooling

Oil and Gas Unitization & Pooling – Explained

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We are all in this together, right? Sometimes bringing people together to operate as one can be a better overall solution. It is better than everyone fighting their own individual fight. This is especially true if everyone involved has one common goal. In this comprehensive guide, we will define and explain everything you need to know about oil and gas unitization, its consequences, and what to consider when pooling your oil and gas rights with neighboring tracts.

Oil and Gas Unitization

Unitization and pooling are useable to bring landowners and lessors together. This is applicable in the world of mineral rights such as oil and gas. It is to maximize the value of an oil and gas operation. Oil and gas unitization can be brought on by the landowners themselves, mineral rights operators, as well as local governments.

Oil reserves are below the earth. With that, it is very common that large crude oil supplies may span the jurisdiction. Usually of several property owners on the land’s surface area. In cases like this, gas and oil unitization is often necessary. This is for the resources to undergo extraction in a safe, fair, and efficient manner.

What is the Unitization of Oil and Gas?

For all accounts and purposes, oil and gas unitization means forming and combining into one singular entity. Unitization is a mathematical term with many real-life examples. Most commonly, however, unitization is used in the combination of mineral rights or mineral leases.

What is an Oil and Gas Unit?

An oil and gas unit is the end product of unitization. Essentially what this means is that anything that has been unitized forms together to create a new, single unit. Examples are two different parcels of land.

At oil and gas drilling sites, a unit describes the legal boundary of the total consolidated land area.

Oil and Gas Pooling

What is Pooling of Oil and Gas?

Oil and gas pooling is another term for the unitization of land or leases. With this, units refer to as “pools”. Gas and oil pooling is useable in the sense of combining efforts into one whole. Such as in carpooling, rather than referring to crude oil as a liquid. An example is a swimming pool.

The Declaration of Oil and Gas Pooling

Officially, oil and gas units must be documented in a legally binding contract often referred to as “the Declaration of Pooling.” This document may have a different title depending on the location, but a detailed description of the oil and gas unitization must be submitted to local jurisdictions before they are taken into effect.

The Consequences of Oil and Gas Pooling

Just as a mineral rights lease agreement can be a very complicated document, a declaration of the oil and gas pooling agreement should also be reviewed in detail before signing on the dotted line.

We have explained several of the positive consequences of pooling that make the practice entirely necessary. However, there also may be negative effects of gas and oil unitization for individual property owners. Most commonly, this includes lesser oil and gas royalty payments. Another is a quick depletion of total resource reserves.

Compulsory vs Voluntary Pooling of Oil and Gas

Are you getting offers to pool your oil and gas royalties with neighboring tracts? Then the decision may or may not be up to you as to whether or not the unitization will happen. For this reason, it is entirely necessary to determine the nature of your oil and gas pooling agreement. Do this before jumping to conclusions.

Voluntary Pooling – Voluntary pooling of oil and gas is ideal because it only exists to benefit the stakeholders of the agreement. Are you given the choice to join a neighboring unit? This may lead to oil and gas royalty payments without any direct extraction from your property.

Compulsory Pooling – Compulsory pooling, also known as mandatory pooling, is the forced unitization of oil and gas rights generally brought on by local governments. Forced pooling orders are often put in place to limit the total amount of oil and gas wells that can be drilled on the surface of a county or state.

Oil and Gas Pooling Clauses

In most modern oil and gas lease agreements, operators will include a “pooling clause,” which outlines both parties’ rights through the duration of the contract. With this, expectations can be made at the beginning of the pooling agreement so as not to erupt any unwelcome surprise later.

If your oil and gas lease agreement has a pooling clause that allows operators to unite your mineral rights with neighboring tracts, be sure that you understand the consequences of this both for better or for worse. In some cases, pooling oil and gas is entirely necessary in order to receive mineral royalties, however, it is important to understand that you will now be “sharing” your oil and gas rights.

If you have further questions about Oil and Gas Unitization, feel free to reach out to us here. 

mineral rights severance

Mineral Rights Severance and Severance Tax Explained

In order to start earning mineral royalty payments, you must first acquire mineral rights. Are you looking at your options? Then you may be able to purchase mineral rights as a part of a larger property transaction. Let simply say it is a standalone asset. Usually, there is a separation process of mineral rights from their surfaced rights. After that, the orphan subsurface is considerable a “split” or “severe”. In this article, we will outline everything you need to know about mineral rights severance. We will focus more on the United States.

What is Severance?

In the vernacular of today, severance is most useable to describe “severance pay”. Some call it “severance packages”. This is in which an employee continues to receive paychecks after the dismissal from an employer. But don’t worry we’re here to teach you about mineral rights.

The term severance means the act of ending a connection or relationship. Severance is useable to describe the end of a relationship. In this case, the separation of a property into two different owners.

Fee Simple Estates

A fee simple estate is the highest level of property ownership in the United States. Fee simple estates are also commonly referred to as “unified estates” or “unified tenure”. Those that purchase their property in a fee simple estate acquire the land’s surface. Moreover, it includes the subsurface, water rights, buildings, and other features.

Severed Estate

A severance estate, or a “split estate,” is a property that has division amongst multiple owners. In this sense, the land has been “severed” or “split”. The purpose is to best use its resources to fit the needs of separate parties.
Severed estates are very common in mineral rights and water rights transactions in which local regulations prevent new owners from acquiring shared resources. Existing fee simple owners can also sever their estate at any point in order to sell off their mineral rights.

Severed Mineral Rights

Severed mineral rights exist independently of surface property owners. When in possession of mineral rights severance, individuals and companies typically have permission to perform any reasonable action. This is in order to explore and extract minerals from the property. With this, severed estate owners must work in conjunction to find the best solution.

What’s next after the severance of a deed?  A  creation of a separate mineral deed takes place to accommodate the new property owner. The new deed can outline full or partial ownership of the property’s mineral rights, depending on the conditions of the contract.

Fragmented Mineral Rights

If there is a division of split-estate mineral rights among multiple owners, it is a bit redundant. Redundant refer to them as “severed severed” mineral rights. Instead, mineral rights divided among multiple parties are called fragmented mineral rights.

With oil fields and fossil beds taking up massive amounts of space below the surface of the earth, mineral rights can be split among an essentially infinite number of separate owners.

What is Severance Tax?

Although they share the common root term of “sever,” severance tax is not applied at the time when severed estates are established. No, instead, severance tax actually gets its name for when natural, non-renewable resources are “severed” from the earth.

What this means is that severance tax is applied at the time of mineral extraction, rather than when an estate is split. All national and state severance taxes are unavoidable, whether or not the operation ends up turning a profit.

Who pays severance tax for minerals?

At the time of extraction, severance tax is applied to the energy production company as well as any individuals or entities that hold mineral interests in the operation. Most commonly, severance tax is applied to crude oil, natural gas, and coal operations.

The severance tax is highly variable at rates for different materials and different parts of the country. Today, nearly all of the states that produce oil or gas have applied some sort of severance tax for operations within the state borders.

What is the severance tax on oil?

In 2021, the current national average severance tax on oil and gas is typically around 5 to 6% of the production’s gross value. Many states have tiered severance taxes that apply different rates for operations of varied magnitude. Severance taxes are payable directly to local governing bodies.

Throughout the country, they define severance tax by a few different terms. However, the most common of which is “production value tax.”

Wrapping Up

In conclusion, it is very easy to get terms confusing. This is when considering estates severance and severance taxes are payable on active mineral rights. We hope that this article is helping you define these terms as it provides information on ways in which severance works in the realm of mineral rights and oil and gas royalties.

If you have further questions about mineral rights severance, feel free to reach out to us here.