Mineral Rights 101
Understanding Activity Around your Properties
Not all activity is treated equally. Permits and rigs are the most common activity. A permit is a regulatory filing with the state indicating interest in drilling a well, and it must be approved for drilling to commence. However, not all permits are drilled. On average, less than 60% of permits were drilled in 2019. There are multiple reasons for this, but some companies drill higher percentages of their permits than others. For example, a large operator in Reeves county permitted 115 wells in 2019 but only drilled and completed 90%. Permits are filed for new drills, recompletions, and other activity. MineralIQ pre-filters permits to new-drill as these are the permits that will generate new revenue for mineral owners. When a permit is filed, it is important to understand that your minerals might not fall underneath the unit that will be paid on if a well is drilled. Until a rig shows up and starts drilling there is not much a mineral owner needs to do. If you would like to learn more about the specifics of the permitted well, you can click on the well API number for more information.
Mineral owners need to begin diligence once a rig shows up on a permitted well location. MineralIQ is the only mineral tracking platform that tracks the actual location of drilling rigs daily. This is due to Enverus having GPS units on drilling rigs, ensuring owners have the most up to date information. MineralIQ will inform users which permits are being drilled daily. To determine if you will receive royalties on the well being drilled, owners can do one of three things:
- If the well being drilled has the same Well Operator and Well Name as a well within your portfolio (meaning you are currently receiving royalties on it), there is a high likelihood you will also be paid on this new well.
- You can reach out to the landman or owner relations of the Well Operator to determine if your lease is included in the well being drilled. Ask for the drilling plat to be emailed to you. The drilling plat will help you determine how much of your lease is included in the new well.
- MineralIQ will provide the drilling plat for certain wells, if available.
If your minerals are not underneath the new well being drilled, all is not lost. A well being drilled within two miles of your current minerals—MineralIQ limits the data we show you to a radius of two miles—will increase the value of your minerals. Mineral buyers look at offset activity as an indicator of the potential of your minerals to produce. Mineral buyers will discount the value of a potential, future well being drilled using a discounted present value, sometimes referred to as PV-10 (or present value discounted 10%).
The journey for a mineral owner does not stop at the well being drilled. MineralIQ knows the difficulty of sifting through oil & gas information. Many mineral owners have had to try and find information on government websites such as Railroad Commission of Texas or other free data providers. The problem is that these sites expect owners to know exactly what they are looking for in the dozens of pages filed per well. MineralIQ uses a timeline on every well detail card to let you know where the well is its lifecycle (example below). Once a well is drilled it can take up to a year for the well to be completed. Completing a well is when an operator stimulates the rock to allow for oil & gas to flow. After completion, a well will start to produce oil & gas after being connected to pipelines or stock tanks. Well Operators will start to send out division orders sometime between drilling and first production. This is the first task that a mineral owner must take to begin to receive checks. Realize that the decimal stated on your division order is generally binding if you sign and return. Ensure your decimal is correct before signing. Reach out to MineralIQ if you have questions.
After your division order is signed and returned, the well is producing, and first sales have been made, an owner should receive a check three to four months later. Royalties on your minerals are generally paid in arrears, so there is an expected lag time between first production and first check. Warning: If a well is producing for more than six months and you have not received a division order, click on the operator to determine if your minerals were underneath that well. After a well is producing and your checks are being mailed, there is not much to do as an owner except continue to audit that you are receiving all of your checks and that you are not seeing excessive post production charges.
MineralIQ has auditing features to ensure that you are receiving your checks every month. If a payor fails to send you a check, you will notice a yellow caution symbol in the payor card. If it has been more than 60 days, a red “X” will appear. Reach out to the payor by clicking on their name to determine why this is occurring. Your checks will continue until a well is plugged and abandoned (P&A). You will notice on the well timeline that MineralIQ tracks when a well reaches this final point.