There has been a great deal of publicity around royalties involved with the shale gas—stories of instant millionaires (or “shaleionaires,” as 60 Minutes called them in 2010), stories of producers reducing or even eliminating some royalty payments as the vast oversupply of natural gas took hold in the last couple of years, stories of long, excruciating negotiations to reach a royalty/lease agreement, only to find out that the seller’s side of the table didn’t actually contain the owner of the rights, and stories of neighbors turning on each other when they got radically different deals based on timing or whom they were dealing with, and so on. Unless you have been directly involved in leasing and royalty work, a lot of it can be confusing. So today we begin a blog series to illuminate the world of mineral rights, oil & gas leases and royalties.
In this world it seems like there are lots of arguments in both directions from both sides of every issue. What we’d like to do here is simply get to the factual fundamentals and explain the basics: How do mineral leases work, what are royalties, why are they important, who pays whom for what, and what are some of the issues that are coming up these days? To that end, what follows is a description of the players and commercial processes involved in natural gas development and production, especially in the era of shale gas. Many of the same players and processes are involved in the development and production of shale oil, but most of our emphasis is on gas to keep things reasonably simple.
Everyone knows that to get gas or oil out of the ground, a producer drills a well—and as has been publicized a lot recently, if the target is shale, that well goes down and then sideways, often passing under the property of multiple owners (see Tales of the Tight Sand Laterals). The “producer” usually has joint investors in the well, and the property owners can also have a piece of the action. So let’s look at who they are and how the commercial transaction works.
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About the song
“You Never Give Me Your Money” is the first song of the climactic 16-minute medley at the end of Abbey Road, the Beatles’ 11th and last studio album, released in September and October 1969. Abbey Road is viewed by many critics as the Beatles’ greatest work.
Comments
Mr Smead High School in Belmont County, OH striked $7,250/Acre from Gulfport as a signing bonus and with the 20% royalties, one of the highest per acre lease bonuses anywhere in the Marcellus or Utica. Only 20 acres though Still, better than a sharp hockey stick in the eye!
http://marcellusdrilling.com/2014/01/school-in-belmont-county-oh-gets-7250acre-from-gulfport/?utm_source=dlvr.it&utm_medium=linkedin
Do you remember this Simpsons episode when Principal Skinner striked oil suddenly making Springfield Elementary rich !
http://i41.tinypic.com/288pco8.png
Small correction to your article. Canada also has private ownership of mineral rights. These lands are referred to as Freehold lands. Government lands are Crown lands.
Yes, this has been pointed out by a couple of folks, along with similar exceptions in Australia, Trinidad, and India. In Canada, according to the government's summary of mining regulations, property owned before the early 1900s generally included the Freehold mineral rights. Subsequent to that, apparently most has gone to the Crown, with the result that 90 percent of the land in Canada has mineral rights that rest with the Crown. There were similar evolutions from private to state-owned in Australia and Trinidad, with India being the major case of going the other way. Just last year, the Indian Supreme Court overturned a lower-court decision and ruled that private ownership of mineral rights is allowed under the Indian Constitution. Thanks for the clarifacation, and I'll touch on it in the next installment.
All good and well, but ... the Sgt Pepper album was far and away the Beatles' best work, and if you add in its influence, it is their best by a mile. Or kilometer, your choice.
Anyone know what the average us royalty is thought to be? I remember reading somewhere that it was 19.7%, but could not find the reference or source. Appreciate if anyone knows a reasonable estimate.