Forensic Analysis for Mineral Rights?

Accounting and Taxes
1

Hi folks!

I’m wondering if there is a professional role that analyzes mineral rights/ownership interests and the selling/leasing/transferring within such rights. We have over 700 different wells under a trust, which has been handled by a relative for the past 13 years. We were never given an annual accounting over those years and were pretty much kept in the dark until the acting Trustee decided she was done and transferred it all over to my sibling. That transfer btw, consisted of one box of papers. Most of it serving little to no purpose. No lease agreements. No division orders. No deeds. No tax filings. No accountings. We’re talking 13 years of an Estate turned into a Trust and managed for 13 years… and it all fits into one box?

Since then, I noticed that the Trust’s bank account seems as though some of the money coming in is being funded from another account. Which is odd right? I believe we have about 700+ wells/rights spread throughout OK, LA, NM, KS, TX and CO. I have been looking into obtaining information to help me gauge our assets (aside from the companies that send us checks, we really have no idea as to what we own, where or if it’s even being leased or not) So far, I have found TexasFile.com to be my best resource, as you can search by name and conduct statewide searches. This has been extremely helpful. I just wish every state had the same system. OK has limited county search; and you have to know the API or Property Description. And, well to be honest; I haven’t tried any others yet… (If anyone has any advice or can point me in the right direction as to how to search any of the other above-mentioned States; that’d be great!)

Anyway, I’ll get back on subject. From what I can see from my research so far; we are missing properties that my other relatives have, which was, at one point divided evenly among 4 individuals. It also looks like we hold a lower percentage than the others on those that we do have?!

I believe that some of our royalties or ownership interest has been shaved off the top over the years, if not outright sold from underneath us or transferred elsewhere while our trust was being handled before my involvement. Unfortunately, given all the wells we’re dealing with; it’s extremely difficult to say for sure.

Does any one have a recommendation as to someone I can hire who could look deeper into this? Is there a Forensic Accounting Analysis specifically for Oil & Mineral rights? My hope is to assess how much damage or theft we’re dealing with here BEFORE hiring a lawyer. Any lawyer is going to conduct a forensic analysis right out the gate anyway; so I figure I might as well cut out the middle man until I am certain that I need one.

Thank you in advance for your help and advice! This forum is the best!

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RoyaltyRookie, unless you have unlimited resources, I’d resist the temptation to run detailed title on 700 parcels. Your instinct is probably correct, that this effort would resolve most of your questions, but it would take a lot of bonus and royalty money to cover the costs. After some years of neglect, it’s probable that some of your accounts are just “in suspense”. This can be from a changed address, lost mail or an uncashed check, and usually it’s relatively easy to clear these up.
One way to approach the situation is to use the state oil and gas gis maps to see which areas of possible ownership have production. Then concentrate your investigation on one of these properties. If you end up getting into pay status, great, you can cover the cost of those $2 print/view charges. If not, the experience and knowledge you gain will give you insight into the rest of the properties. It will take some time, but you aren’t going to undo years of neglect in a day. There will be plenty of opportunities to enlist local professional help along the way, since on-line information is more limited in some counties and states.

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Another research tool I’ve used (in Texas) is a name search at the appraisal district . Not all CAD’a have mineral rolls online, but it is a good way to get a quick list of wells, with the decimal interest for that owner, and to check for delinquent taxes, too. If there is quite a list, you may want to copy and paste into an excel spreadsheet as you create a well list.

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No one can conduct a forensic or other accounting without information about the wells, DOI, legal descriptions etc. You, other beneficiaries and your attorney or landman will have to gather specific information before a financial audit can be conducted. One basic question is exactly what name or names are (were) on the oil company checks and where are (were) they being mailed or are the funds being deposited directly into a bank account? If direct deposit, whose name and tax id is on the bank account? What is the name and address on each 1099 form? Were royalties still being paid to the deceased because the executor and trustee failed to notify the oil companies of the death? Were royalties being paid to Estate of ABC? Were royalties being paid to ABC Trust? What is the federal tax identification number reported on each 1099 form? Someone had to be filing tax returns in the name of the payee (ABC or Estate of ABC or ABC Trust). Is the trust still in existence as a legal taxpaying entity or have distribution deeds been filed into the individual beneficiaries? The current trustee can ask IRS for several years of recent tax returns for ABC Trust. One suggestion - Go to the County Appraisal District and look up the name of the deceased ABC, the Estate of ABC, the ABC Trust, the name of the trustee, etc to see who is being taxed on producing minerals and/or surface. Or names of family members who may own the same interest. Set up a spreadsheet for each state with a separate page for each county and add information about wells, land descriptions, etc. You may want to have different workbooks for land information and for wells. You are going to be very busy for a long time. Your only time restraint will be to stay within the statute of limitations to file a lawsuit for records and/or recompense from any party who has committed fraud or malfeasance.

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Thank you all for your response. I really appreciate the advice. I feel like I should probably clarify a few things regarding my initial post: A. Our trust account is receiving about $7000/mo on average right now. Part of the reason for my concern is that we have been averaging this amount since October of last year. The price per barrel last October was about $77. I think it’s safe to assume that everyone on this forum is aware that the cost of oil today, or better yet, June of '22 was around $122. Our payments have not increased throughout that time much, if at all.

B. I do know what companies are paying us via direct deposit or mailing a check and have filed a change of address with all 20-25 of them. However, I am finding that there could our should be up to 60 different companies with whom we held leases with in the past year or two alone. And you’re correct; I have been very, very busy. One of the companies Texas Records shows our trust as leases too, as recent as 2021 and for years prior; has informed me that they don’t have anything under our name? I have an owner ID #, valid proof that we received deposits from them for at least two years, the RRC#, lease #, land description, and name of the well (along with the 500+ other wells in TX). Still, nothing on their end?

How is that even possible???

C. I am signed up on Energy link and was invited to be a beta user on MineraliQ recently, which has all of our wells listed and shows our portfolio worth, etc. . As far as Texas goes; I know our assets. I also know what assets we should have or once had but no longer do. For example, I can tell you that in 2016, we had 28 wells in Howard County. 2021, only 4.

Catching my drift now?

I have recently discovered that the original trust mother was a beneficiary of; my grandmother’s, was dissolved in 2014… Or so we were told?! According to Texas Records however, it looks like there’s about 3/4 different names for this trust, which held leases last year! None of which list my mother or the three of us; her heirs.

What I hoping to find is how many leases (and bonuses) did we receive money for over the past 13 years and how much were they? Because we never received any “extra” money at any point; so where did that money go?

I am currently contacting all companies and asking for the division orders; which I am going will show whether or not our interest amount changed. But so far, I haven’t been able to get any lease amounts from anyone.

Is this something that I could find through the county clerk?

And the problem there is that I don’t live in Texas; so hopefully I can research this remotely?

Thank you for the advice and information. Anything and everything helps!

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I only have familiarity with Texas, but Oil and Gas leases are filed at the County Clerks office, and most websites allow you to filter down to the instrument type and date range.

You can look up well data at TRRC for production data, operator, if well is inactive or shut-in and so forth. One operator can convey a well to another operator, so sometimes a well had another payor in the past.

A lease usually has a primary term of 3 years, so a 2021 lease may not have a well drilled yet. And if they do not drill within that primary term, you have the opportunity to negotiate a new lease.

Hope this helps answer a some of your concerns - best of luck!

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The leases are recorded in the names of the original parties - lessor (mineral owner) and lessee. That recording does not change when the mineral ownership changes (due to sale, dissolution of trust, death, etc). If your Grandmother established the trust during her lifetime, then there will be deeds out of her name to the trustee, or to the trust. If the trust was established through her will, then probate will be filed. Sometimes there will be an order into a trust and sometimes the assets will remain in the name of the estate. Generally trusts have a limited lifetime, such as specified # of years or until the death of a beneficiary. If the trust was dissolved around 2014, then there should be deeds into the beneficiaries, whether out of the ABC Trust or out of the Estate of ABC. Is it possible that the trust sold the minerals? Then you will find deeds out of the estate or trust and into unrelated third parties. It is all a question of tracing the title out of your grandmother and into subsequent entities or people, county by county and state by state. Once you see the chain of title in one county, it will give you lead on how to search other counties. A good landman can help you with this. If you think that there was some bad behavior by the trustees or other persons, then it is imperative that you consult an attorney to determine at what point of time you need to file lawsuit to preserve your rights and hopefully get restitution.

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A good place to get OK information is www.okcountyrecords.com. It is free to look. Doesn’t cost much to join and print. You can hunt under your mother’s name, the trust name, etc. Every legal event should be filed in the county where the minerals are located. I use the advanced search option as it tends to work a bit better. Look for leases, deed, Mineral deed or various spellings of each. Amazing how many typos happen.

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Ms. Barnes,

Question: Is there a website (Texas) where one can look and see if there is a well or if a company is leasing land for drilling but there are no disbursements due to not finding legal owners? Or if disbursements are being made and to who? Who owns the mineral rights?

Any help would be appreciated.

Thank you in advance for you time,

Alex Griss

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Various answers.
You can go on the Texas Railroad commission website to look up your abstract and see if there are any wells on your minerals. If you post in the Texas Minerals and your county, usually someone well help you. You can find the operators that way and find out if you should be paid.

You can go on the TX Treasurer’s office to see if there are any unclaimed funds in your name or your ancestors’.

The most important thing that you need to do is file your name and address and a copy of any probate or title documents in the counties where your minerals are. That is how the landmen find you. That is the official repository of information.

You can search on www.texasfile.com for leases and deeds. A small fee to print if I remember correctly.

Those should get you started.

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Thank you @M_Barnes so much for this information. You have a wealth of knowledge in this field and the fact that you take the time to share it with those who don’t is so commendable!

I have dabbled with the Texas Railroad Commission website but it’s kind of confusing. I think I’ll have to dive in a little deeper so I can familiarize myself enough to utilize the many resources it seems to have.

Thanks again!

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12

Produced oil can be hedged at a fixed price. Could there be minimum royalty payments in any of the leases?

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In my experience, yes, almost anything can be negotiated in a lease, including a minimum payment, maybe for a period of time. The lease or any subsequent addendums to it is the place to find out information about royalty clauses.

I read the other day where an O&g company had hedged by agreeing to $3 natgas for all of 2022. No one can predict the future, and at the time $3 was probably reasonable. That type of information will not be found in the lease.

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MIneral owners do not usually get the benefit (or the loss) from hedged prices. Some companies have long term contracts with certain carriers and are locked into those prices. Other contracts are more short term and flexible. We are not privy to that information unless it is granted in the original lease (which is rare).

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Interesting. How would a mineral/royalty owner be paid if a company has hedged its production at $60/barrel but WTI for the month is $90/barrel? Are you saying the oil company would have to pay the mineral/royalty owner more than it receives from its sales?

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Mineral owners are not affected one way or the other over hedging contracts. Hedging is basically a “loan” and hedges are not well specific. The contracts are paper in nature, just like buying puts or calls on stocks.

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How would a mineral/royalty owner be paid if a company has hedged its production at $60/barrel but WTI for the month is $90/barrel?

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Oil is sold under long term contract with purchaser with price determined by on based on area average price over 30 days and several adjustment factors. This is why prices vary by markets, such as Permian vs North Dakota. Hedging is buying or selling futures contracts on the financial market, with goal of protection against price swings. Hedging is not directly related to specific wells. Mineral owner is paid on the purchaser contract price. Financial gains and losses on futures contracts are booked at corporate level.

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@TennisDaze My post is awaiting approval. Meantime, Fixed-Price Physical Contracts? " The use of a fixed price rather than a floating price. The use of the term “fixed price” does not necessarily mean that there is one price during the term of the contract. Rather, the price per unit is specified in advance for each delivery period (usually monthly) during the term of the contract."

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I was trying to help the OP come up with approaches which might help explain the conundrum, not get far off in the weeds. How about minimum royalty payments? BTW, do the bolded elements below square with your understanding? If an oil company has a fixed price physical contract, could that explain why payments to royalty owners do not increase commensurately with the price of oil, e.g., oil payments same whether Brent, WTI, whatever, is $50 or $100?

"FIXED-PRICE PHYSICAL CONTRACTS Fixed-price physical contracts are traditional purchase and sale transactions and can be used to hedge price risk in lieu of swap or option contracts. The primary distinguishing features of fixed-price physical contracts are:

„ The use of a fixed price rather than a floating price. The use of the term “fixed price” does not necessarily mean that there is one price during the term of the contract. Rather, the price per unit is specified in advance for each delivery period (usually monthly) during the term of the contract.

„ Considerations related to physical delivery of the commodity."

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