Frequently Asked Questions

What are oil and gas royalties?
Oil & gas royalties are the mineral owner’s share of income from producing wells.

What is a Division Order?
A Division Order is a document issued by the operator drilling your minerals that with the legal description of the oil and gas property, and the mineral owner’s address, tax ID, and decimal interest in the property. The mineral owner is asked to sign and return the Division Order. The operator uses this information to pay oil & gas royalty income to the mineral owner.

What is the purpose of my Owner Number?
Your owner number is specific to you and is tied to every well connected to you by the operator. Always use your owner number when corresponding with your oil and gas lease operator.

What happens if I change my address or marital status?
Most operators have a change of address form on their website for you to fill out and email back. Include your owner number, old address and new address with zip code, and be sure to include your signature or the signature of your appointed agent. For your protection, address changes are not accepted by telephone. Send a copy of your marriage certificate to update your name as a result of marriage.

What happens when the interest owner of an oil & gas property dies?
Once notified, the deceased owner’s revenue will be held in suspense until the proper heirs can be determined. Upon notifying your operator’s oil and gas landman department, they will send you information describing what must be provided to transfer the interest to the proper heirs.

Can I set up Direct Deposit?
Yes, most oil & gas operators provide an electronic funds transfer (EFT) option. EFT payments are only available for accounts drawn within the United States. If you elect to receive electronic payments, you will no longer receive your payment detail by mail. To set up direct deposit, return the enrollment form provided by your operator with a voided check to the address provided on the form. If you have enrollment questions, please email or call the land department of your operator.

When are royalties paid?
Once clear title of oil and gas minerals are established, most royalty owners will be issued a monthly check, unless the amount due is less than $100. Smaller amounts are accumulated and paid when $100 has accumulated. Most operators generate and mail revenue checks on the last week of each month. If your account is in a pay status and if the account has reached your minimum pay status, a check should be issued. If you have not received your check by the 15th of the following month, call or email your operator’s land department.

What is the difference between a royalty owner and a working interest owner?
A royalty owner shares in production revenues, while a working interest owner shares in both production revenues and expenses.

What type of annual statements will I receive?
Royalty interest owners receiving more than $10 and working interest owners receiving more than $600 annually receive IRS Form 1099. This summarizes your total payments and tax withholdings for the previous year.

What do I do if my check is lost, stolen or becomes outdated?
Contact your operator’s accounting department to stop payment if your check is lost or stolen. Please have the following information ready when you call: your name, owner number and check date. Your operator will stop payment on your check and usually issue a replacement within 10-days. If your check is outdated, void the check, and send it back with a written request for a new check.

Why does my monthly payment sometimes vary?
Many factors contribute to your payment, including: market conditions, oil and gas minerals development, fluctuating commodity prices, regulatory or contractual changes, production volumes, seasonal conditions and well downtime.

Why does my payment differ from others in my family?
This occurs because ownership between family members may not be not equal, or because one party has not provided their operator with a Taxpayer Identification Number (TIN), or because some family members may own interest in other properties in addition to those commonly owned.

Why are the decimals on my Division Order and check detail different?
This occurs due to special marketing arrangements or other contractual agreements. The value is still proportionally correct.

How do I clear the title to my mineral rights? How long does it take?
To properly manage and develop your mineral assets, it’s imperative you define your mineral ownership and legal standings subject to previous conveyances and oil and gas leases. Researching your two chain of titles—ownership and leases—is done by researching through the county abstract company and courthouse where the minerals reside. Before an oil company will lease you or drill your minerals, they will need to complete your chain of title (if you cannot provide it to them) so they know their legal rights and your legal rights to enter into an oil and gas lease and drill your minerals. Finally, your lessee’s attorney will examine title to all mineral rights and submit a Title Opinion reflecting current ownership. This process can take several months to complete.

Taxpayer Identification Number
Federal law requires that individuals and partnerships provide a certified Taxpayer Identification Number (TIN) for the owner account. For individual owners, your TIN is your Social Security Number. Other entities should provide Employer Identification Numbers. If the appropriate TIN is not received, your operator is required to withhold 28 percent from your payment for federal income taxes.

When are oil and gas royalty payments suspended?
For your protection, payments are suspended upon a title dispute, the assignment of interest, notice of death, transfer of property, or in the event of no known address. Keeping your contact information current in your county records and with your operators can prevent this inconvenience.

2017 Annual Report

This was a transformative year for our mineral management service company as we bid adieu to long valued employee, Gaylan Pinkerton, who returned to her calling in the human resources industry. We will forever be grateful for her help in growing R. King & Co. these past 11-years.

It also proved to be one of our busiest years serving twelve new family clients, managing and developing their oil and gas minerals in Texas, New Mexico, Oklahoma and Louisiana. But most importantly, two of the most experienced petroleum landmen in the country joined R. King & Co.—David Nolen and Steve Cranford.

As you may have read in About Us, David Nolen is recognized as one of the top oil & gas landmen by two of the most renowned organizations in our industry: The American Association of Professional Landmen and The Independent Producers & Royalty Owners Association. Over his 40-year career, David has negotiated oil and gas leases covering over 250,000 acres in thousands of transactions across a dozen states. He is an invaluable resource for our clients, “seen it all”, and fun to work with.

Steve Cranford is the quintessential Texas oil man. He grew up roughnecking, acquired his degree in Petroleum Land Management at the University of Texas, and managed extensive leasing and drilling projects across five states for 25-years. For 12-years he led JPMorgan Chase Private Bank Oil & Gas Group through several boom-bust cycles where he supervised their oil and gas operations in New York, Houston, Dallas, and San Antonio. Responsible for acquisition and divestiture of oil and gas properties worldwide, Steve brings a depth of leasing, banking, and A&D experience to R. King & Co. clients.

Our twelve new clients this year all proved to have challenging projects to solve. Nearly every one involved clearing title on mineral tracts to establish their legal standings in a current lease, watchdog royalty payments, or help them develop new income from their unleased oil & gas minerals.

Like all clients, each has an interesting origin story to their family’s mineral assets. One client’s grandfather was a professional gambler in North Dakota in the 1950s and ‘60s who took his winnings in mineral and royalty interests from farmers riding the train from Minot, North Dakota, to vacation winters in Seattle, Washington. Fast forward 50-years, his grandchildren now own producing minerals in all 12-counties of the Bakken Basin.

Another client is a publicly traded company in New York whose founder / grandfather acquired hundreds of mineral and royalty interests in four states beginning in the 1920s, eventually founding Republic Pictures in the 1930s where he invented the western film genre in Hollywood. Roy Rogers, Gene Autry and John Wayne were Republic’s first cowboy stars. In nearly 100-years, these assets have undergone a lot of transactions leaving many gaps in their chain of title. R. King & Co. is methodically creating updated runsheets of their ownership and leasing histories to define each mineral tract going forward.

In this way, we’re able to discover which tracts are leased, producing, and unleased. The leased and producing tracts we watchdog to protect our clients from incorrect royalty payments. And watch for any violations of lease terms related to our client’s surface and mineral rights. The unleased tracts we proactively market to competing oil companies to negotiate new leases with favorable terms. In this flow of service, we transform our client’s dormant minerals by maximizing their assets with new bonus and royalty income.

We also enjoy serving many small clients which we take particular care to meet their budgetary constraints with the highest quality results. One client was a single mom working at McDonald’s who inherited a section of land from her grandmother in Ohio. When she received an offer to lease her minerals, she googled for a minerals management consultant to help her. She found R. King & Co. and asked if we could negotiate on her behalf, but she couldn’t afford to pay us. So we agreed to be paid from part of the bonus we negotiated for her. As a result, we increased her royalty by 25%, tripled her bonus payment, and secured a more favorable and protective lease. All our clients are treasured, but clients we make big positive impacts make us feel the best.

2017 was also the year OPEC implemented production cuts to raise the price of oil. Combined with a growing world economy, strengthening demand for oil and gas worldwide, and the U.S.A.’s ingenuity to lower costs and “drill, bay, drill”—we expect the rest of this year to see more of the boom-bust cycles inherent to the oil & gas industry.

What is an Oil & Gas Minerals Manager

Mineral owners in the United States and Canada are not often trained in the oil and gas industry, but need expertise to help them protect and maximize their family’s mineral assets.

Professional minerals managers provide valuable services to their clients researching chain of title, establishing legal standings in existing oil and gas leases, negotiating new oil and gas leases, and watchdogging oil companies for payments and lease compliance.

Oil and gas minerals managers come from three primary professions: Trustees, Lawyers, and Petroleum Landmen. Although each provide similar services, they differ in their training, expertise, and pricing. To help decide which one is right one for you, we have described their unique value-add.

Some of the best mineral managers have worked as roughnecks when they were young. They have experienced the oil business from the ground up. They understand the mechanics of exploration and production. And they’re experienced in executive land operations, courthouse title work, and lease contracts. Many CEOs of major oil companies were roughnecks and then trained as lawyers or petroleum landmen.

It’s common to inherit mineral and royalty interests from parents or grand-parents in trusts set up to be managed by bank trust officers. Trust officers provide various services, but they are essentially asset managers with strict fiduciary duties to be loyal, impartial, transparent, and accountable to you.

Often employed by banks or trust companies, trustees charge for their services in two ways: 1) By the hour, and 2) A percentage of the annual income generated by your assets. In some cases, they charge an annual % of the total value of your assets. These % charges can be very costly to mineral owners. But in return, mineral owners gain a peace of mind having a professionally licensed fiduciary manage their minerals for them.

Charging for their time, trustees offer a menu of services, each corresponding to a specific fee. Researching oil and gas production history in the mineral region might be $350 per hour, while filing and other clerical duties may cost $55 per hour. Negotiating leases may cost $450 per hour. Copies may be $0.50 per page. Answering an email or talking on the phone with your trust officer carries a specific fee.

Trustees may be compensated for their time in developing your minerals, but they are prohibited by law from earning any profits actively marketing or developing your mineral interests. Trustees are held to such a high level of standard and are subject to such severe liabilities for breach of trust that most trustees will limit themselves to managing your minerals only, and do not provide development services.

To ensure you receive the highest bonus payment and most favorable lease terms that the market will bear, trustees will seldom generate or conduct a formal bidding process like lawyers and petroleum landmen by inviting competing oil companies to lease your minerals. But they can answer the phone, research the competitive market in the region of your minerals, and negotiate a lease offer for you. With their entrepreneurial hands tied safely behind their back as a fiduciary only, they are passive managers—not proactive developers of your minerals.

Culturally, they are super conservative. Trustees are not paid so much to grow your assets, but to make sure the value of your minerals don’t diminish. As a result, they may be able to protect your minerals, but they won’t maximize your mineral value. They will be happy and feel successful if they earn you a 1% annual gross return on their watch.

The unique value proposition of trustees is a good fit for financial institutions, large family offices, and high net worth individuals seeking peace of mind, more interested in conserving their assets than growing them.

Similar to trustees and petroleum landmen, lawyers also charge by the hour—normally the highest rate of all three. And while fiduciary trustees are discouraged from developing the assets they manage, lawyers are not. Under a menu of services and a client agreement, lawyers may provide both management and development services.

Developing minerals, however, takes months and sometimes years to achieve a lease. Paying legal fees of $350 to $550 per hour for months is not practical for most individuals. So, it’s more common for public companies and large private agribusinesses that own tens of thousands of mineral acres—and who are subject to public legal scrutiny and shareholder oversight—to afford lawyers.

Culturally, lawyers are trained to be adversarial, not cooperative. As a result, they can run off more business than they close. They operate from fear, protecting you from liability and worst case scenarios by eliminating your risks with lengthy, burdensome contracts.

Lawyers will often hire petroleum landmen to develop and negotiate their client’s leases with oil companies, while they focus on the management side.

Petroleum Landman
Minerals managers with a petroleum landman background are usually individuals operating from their home or small office with little operating costs. As a result, they charge far less than trustees and lawyers, usually $50 to $175 per hour. Several universities provide Petroleum Land Management degrees—an inter discipline mix of business, geology, petroleum engineering, and oil and gas law.

Landmen are generally far more experienced in managing and developing oil and gas minerals than trustees and lawyers. Most are career oil men and women. It’s typical they worked for a major oil company in the land department gaining real world experience for years. As a consequence, they are trained to run title in the courthouse and negotiate oil and gas leases. They are fluent in lease amendments, ratifications, pooled unit agreements, division orders and managing day to day operations of the assets they’ve been given responsibility to manage and develop.

Landmen tend to be good communicators with people from all walks of life. Because they have low operating costs, they can customize their fees to the budget of their client. It’s not uncommon for a small mineral owner to not have the budget necessary to pay a minerals manager for the services they need to complete their chain of title, negotiate a lease offer, or transform unleased minerals into income producing assets.

Fortunately, some landmen have the flexibility to perform their development services at no or little charge—in return for earning part of the bonus and royalty income they generate for their clients. Landmen who perform these tasks at their sole cost and risk may provide these services for a premium. This way, the client who has little budget and the landman with expertise, both benefit.

Unlike trustees and lawyers, landmen are more flexible in their fees and ability to assume risk. They are culturally more entrepreneurial, so they make great developers of minerals. And with their big company training and negotiating skills—they have unique value-add qualities for clients of all sizes.

Allocation Wells

054Oil and gas companies in the state of Texas must obtain a permit from the Texas Railroad Commission (RRC) in order to commence drilling operations. Operators applying for permits must conform to certain regulations which set forth spacing and density requirements. When leases cover smaller tracts of land, operators exercise pooling rights, combining the leases into a larger unit that will meet the spacing and density requirements.

A well written oil and gas lease requires the lessee (operator) to obtain the express consent of the owner of the royalty interest in order to pool that interest. Without that consent granted in the lease or other agreement, the operator has no right to pool the interest. In recent years, operators have circumvented this requirement by applying for and receiving permits to drill “allocation wells”.

The term “allocation well” is used in the oil and gas industry to refer to a horizontal well that is drilled across lease lines without pooling the tracts on which the well is located. Originally, these wells were permitted by the RRC based on the operator’s assertion that it has production sharing agreements (PSAs) with the royalty owners. The PSAs provide that the production from the well is allocated between or among the tracts crossed by the well lateral, for purposes of calculating royalties due, based on the number of feet of well lateral on each tract compared to the total lateral length of the well.

The PSAs have advantages and disadvantages for royalty owners. The royalty owner will get royalties on production from a new well that might not be drilled unless a production sharing agreement is signed to allow drilling across lease or unit boundaries. The disadvantage is that production from one well serves to hold all the acreage in both units for as long as it produces.

More recently, the RRC has issued permits for allocation wells without requiring the operator to obtain production sharing agreements or pooling agreements from royalty owners in the tracts crossed by the wellbore. In effect, this allows operators to force-pool tracts, which in Texas is only allowed under limited circumstances and requires an application, notice to affected parties, and a hearing.

The right to consent – or not consent – to the pooling of one’s royalty interest has been long-recognized by Texas courts, and is a significant right for all royalty and mineral owners in Texas. Texas does not have a forced-pooling statute, like those in Oklahoma and Louisiana, that force mineral owners into pooled units against their will.

The RRC staff’s issuance of permits for allocation wells was challenged by royalty owners in DeWitt County. They protested a permit application by EOG to drill the Klotzman Well 1-H in the Eagleville Field. A hearing was held in the Klotzman case and the examiners for the RRC ruled that the commission rules do not authorize the RRC to issue allocation well permits. The Commissioners overruled the examiners, but did not provide any basis for their decision.

Several DeWitt County royalty owners have joined to file a lawsuit against the RRC in Travis County District Court, asking the court to reverse their decision on permitting such wells. The outcome of this ruling will affect all royalty owners in Texas. If operators are granted permits to drill allocation wells in the absence of pooling agreements with the royalty owners, the rights of royalty owners to negotiate pooling provisions in their leases will be seriously eroded.