Question on Oil and Gas development.

[Bigguy]

I’m writing a sequel to “From The Delta Mud.” The setup for this one is that this guy makes it big in the dotcom industry. Around the turn of the century he sells out and buys back the family farm, lost in the late 80s. What he doesn’t know is that the bank has separated the mineral rights from the surface rights, and still owns them. I’m sure you can figure out where I’m going here. Here are my questions:
Who would be more likely to discover any mineral resources. Do oil and gas companies have an idea of where to find product and contact owners, or do owners request surveys?
If the owner of the mineral rights decides to go into production, what is a realistic way he would notify the owner of the surface rights? I’d assume a lawyer hired by either the oil and gas company, or the owner of the mineral rights.
How lengthy, detailed, and hostile, are the pre-producrtion negotiations likely to be?

Any thoughts, or corrections about misconceptions from knowledgeable sources are welcome. Please feel free to PM me, or send me an email. guy@guywheatley.com.

Thanks for any help.

[Spartan1980]

I’m writing a sequel to “From The Delta Mud.” The setup for this one is that this guy makes it big in the dotcom industry. Around the turn of the century he sells out and buys back the family farm, lost in the late 80s. What he doesn’t know is that the bank has separated the mineral rights from the surface rights, and still owns them. I’m sure you can figure out where I’m going here. Here are my questions:
Who would be more likely to discover any mineral resources. Do oil and gas companies have an idea of where to find product and contact owners, or do owners request surveys?
If the owner of the mineral rights decides to go into production, what is a realistic way he would notify the owner of the surface rights? I’d assume a lawyer hired by either the oil and gas company, or the owner of the mineral rights.
How lengthy, detailed, and hostile, are the pre-producrtion negotiations likely to be?

Any thoughts, or corrections about misconceptions from knowledgeable sources are welcome. Please feel free to PM me, or send me an email. guy@guywheatley.com.

Thanks for any help.

The oil companies hire (or have their own land department) brokers to obtain oil & gas leases who do title research and procure the leases. The mineral and surface owners are identified in this process. The surface owner can't keep exploration from happening but they do receive compensation for damages.

I doubt any mineral owner is ever going to drill his own well, it costs from 8 to 18 million to complete a single well bore these days. The pre-production process will involve a title opinion after leasing and prior to drilling, then another title opinion on how to divide the proceeds equitably. So yes, it's very detailed. Not a lot of hostility and most mineral owners don't live on the land much anymore and there are likely many owners with fractional ownership of the minerals to the drill tract.

[willie]

Mineral rights ownership and oil lease history in some if not all states are found in the courthouse, usually in the chancery clerk or judge office. That's true in my case.

[holmes168]

I’m writing a sequel to “From The Delta Mud.” The setup for this one is that this guy makes it big in the dotcom industry. Around the turn of the century he sells out and buys back the family farm, lost in the late 80s. What he doesn’t know is that the bank has separated the mineral rights from the surface rights, and still owns them. I’m sure you can figure out where I’m going here. Here are my questions:
Who would be more likely to discover any mineral resources. Do oil and gas companies have an idea of where to find product and contact owners, or do owners request surveys?
If the owner of the mineral rights decides to go into production, what is a realistic way he would notify the owner of the surface rights? I’d assume a lawyer hired by either the oil and gas company, or the owner of the mineral rights.
How lengthy, detailed, and hostile, are the pre-producrtion negotiations likely to be?

Any thoughts, or corrections about misconceptions from knowledgeable sources are welcome. Please feel free to PM me, or send me an email. guy@guywheatley.com.

Thanks for any help.

Did some logistics work for the Big 4 frac companies a few years ago. They pretty much know where every pocket of oil is in the world.
The rest of pretty much correct on how the company’s find out who owns the mineral rights.

[RoyGBiv]

A bit off topic but related.. Something I found interesting when leasing out my mineral rights a few years ago.. When there are several rights holders in close proximity, there's little to stop exploration companies from signing deals with a few rights holders and sucking out all of the gas/oil from underneath all of them.

1. If I am tapping a pocket of gas, how do I stop my extraction rig from taking yours if I've not bought it from you?
2. With fracking and horizontal drilling, how would a rights holder know that their gas was gone?

[fixer]

Who would be more likely to discover any mineral resources. Do oil and gas companies have an idea of where to find product and contact owners, or do owners request surveys?

Both. But the typical situation is for what the companies call Landmen to do research on the legalities and begin negotiation on everything from the % the landowner gets to right-of-way.

Oil companies, at their core, have exploration departments absolutely stacked with experienced geologists and petroleum engineers. Their day job is to know where the hydrocarbon is, is not, and where its going to be. They have extremely sophisticated models of the geology they use for this.

Bottom end, low-rent, oil companies (there are a bunch here in Tx) use educated guessing based on where the majors are operating.

Local abstract and title companies also have extensive records of mineral rights because it is an inevitable topic during real estate transactions.

If the owner of the mineral rights decides to go into production, what is a realistic way he would notify the owner of the surface rights? I’d assume a lawyer hired by either the oil and gas company, or the owner of the mineral rights.

Don't really understand this question but I'll hazard a try anyway...the company Landmen will contact you. The decision is do I or don't I want to do this? If so then what terms do I negotiate?

If someone refuses to produce the oil, and decides later, then they contact a company for contact with their landmen to begin discussions.

How lengthy, detailed, and hostile, are the pre-producrtion negotiations likely to be?

Its all dependent on the landowner. If they are difficult then the company will move on. They don't have just one option. Companies also have a business case to stick to. If the landowner is greedy and wants 90% (like most 3rd world countries whose govt actually claims all mineral rights) then the negotiation isn't going to go far.

[fixer]

A bit off topic but related.. Something I found interesting when leasing out my mineral rights a few years ago.. When there are several rights holders in close proximity, there's little to stop exploration companies from signing deals with a few rights holders and sucking out all of the gas/oil from underneath all of them.

1. If I am tapping a pocket of gas, how do I stop my extraction rig from taking yours if I've not bought it from you?
2. With fracking and horizontal drilling, how would a rights holder know that their gas was gone?

The owners technically would know based on production reports that their gas or oil was being produced elsewhere. However there isn't anything wrong with two entities producing in the same reservoir. Same thing as water wells. Multiple wells in same water reservoir.

Not to mention the wells are always on a decline of somesort. So it'd be tough to show that such is occurring. Wells scale up, pressure dies off, asphaltines grow, etc. There are dozens of variables.

The reservoirs have volume that far surpass production capability of a single oil company. So they can't suck out all the oil. Where I work, wells were first drilled and produced in the 1930s and are still going. This despite the intense amount of production going on in Permian by over 100 oil companies both large, small, and super-major.

Horizontal drilling is a major PITA. Oil companies want the most oil for least PITA. It'd be the rare and truly exceptional situation for a company to go horizontal from a nearby location with hostile intent. But that is a possible outcome if landowner negotiations aren't fruitful and if the company has a nearby option. These companies have a business case to stick to so it isn't a balls to the wall situation. Some times companies will "get out" and wait on the situation rather than horizontal drilling. Once the companies deploy capital the returns have to match or exceed expectations or the very next day they are monkey-hammered in the market.

One of the considerations for mineral rights holders is the companies model of operating. If they just get in and "exploit" the well until it hits a certain decline rate then yeah the well will die off sooner than later depending on the size of the reservoir. If the company has experience with water flooding or CO2 floods (EOR) then the well will produce for much longer. This benefits both parties.

[MistWolf]

My uncle leased right of ways to an oil company to drill oil on his land. He told me he really didn't want to do it, but the situation was they'd get the oil regardless by drilling at an angle from his neighbor's land, so he figured he might as well get paid for it.

My uncle made sure he held the mineral rights when originally bought the land, but that would not stop the oil company from getting his oil.

From what I understand, most land is sold with the mineral and water rights held by another entity.

I'm not sure how you're going to create a plausible conflict based on the protagonist fighting to keep the oil company from drilling for oil. I could see a conflict arising when it becomes apparent that the oil drilling has contaminated the water.