Say one owns a royalty interest (not minerals). Why would the Operator's landman go to great lengths to find an heir of an heir of an heir (who doesn't even know he owns the interest and didn't even know the person he inherited it from!)? Is there a legal reason? Landmen are not cheap, nor is the title attorney who was called in to interpret the royalty deed language from decades ago. Why spend all that money? The owner doesn't even know he owns it. (I'm glad they found him, just curious what are the legalities here... oil companies are not known for being altruistic.) This particular situation was in Texas but same question applies elsewhere.
The operator may have needed a ratification or something. Is there nothing they asked you to sign? Did they just show up and hand you a check and say there would be more in the mail every month?
Dear Neverybilly,
There are real reasons for finding a royalty owner.
Some companies -- the good ones -- do everything that they can to get everybody on line to pay that is deserving of an interest in production, just because it is the thing to do and they want to keep a great reputation amongst the public.
Another real reason is that the royalty interest is in a drillsite tract and the interest cannot be pooled without the royalty owner ratifying the lease or the pooling transaction.
Buddy... "Another real reason is that the royalty interest is in a drillsite tract and the interest cannot be pooled without the royalty owner ratifying the lease or the pooling transaction."
So, "the interest cannot be pooled" -- what does the company get out of this? It books reserves based on proved-up leasehold, not royalty interests owned by others. Right? I don't get it. But I sure am curious. There has to be a "profit" motive here. I just can't see why they'd spend money on something like this... landman, attorney... please shed more light if you know it.
P.S. Or, is anyone aware of any laws whereby a company is compelled to search for all royalty owners?
In Arkansas, before a mineral owner is forced pooled into a drilling unit, the oil and gas company must identify all the mineral owners and show a "Resume of Efforts" to locate and negotiate with each owner. The AOGC will not force pool these owners without that resume. I am not sure about other states.
On the other side of the right to pool is the obligation to distribute revenue in accordance with the pooling provisions. In many states, KS, OK, ND, NV, in my personal experience, operators must prove they have exhausted reasonable attempts to distribute revenue to the proper owners. If the owners can not be found, the operators are obligated to send the revenue to the recoverable funds division of the state of last residence. The operators can not keep the revenue in those states. Neverybilly said:
Buddy... "Another real reason is that the royalty interest is in a drillsite tract and the interest cannot be pooled without the royalty owner ratifying the lease or the pooling transaction."
So, "the interest cannot be pooled" -- what does the company get out of this? It books reserves based on proved-up leasehold, not royalty interests owned by others. Right? I don't get it. But I sure am curious. There has to be a "profit" motive here. I just can't see why they'd spend money on something like this... landman, attorney... please shed more light if you know it.
P.S. Or, is anyone aware of any laws whereby a company is compelled to search for all royalty owners?
Dear Neverybilly,
If his interest is not pooled, and is a drillsite, then his interest is not dilluted by the size of the drilling unit. This changes somewhat for horizontal wells, but the net effect is the same. A non-pooled interest in a drillsite is always a situation that the operator wants to avoid. Now, I am talking about Texas, only.
Read my articles on pooling in Texas or a more complete explanation.
Neverybilly said:Buddy... "Another real reason is that the royalty interest is in a drillsite tract and the interest cannot be pooled without the royalty owner ratifying the lease or the pooling transaction."
So, "the interest cannot be pooled" -- what does the company get out of this? It books reserves based on proved-up leasehold, not royalty interests owned by others. Right? I don't get it. But I sure am curious. There has to be a "profit" motive here. I just can't see why they'd spend money on something like this... landman, attorney... please shed more light if you know it.
P.S. Or, is anyone aware of any laws whereby a company is compelled to search for all royalty owners?
Gary or minerals management,
That is not true in regards to Oklahoma as they are not obligated to send revenues to a "recoverable funds division". Operators can and normally do hold all unpaid revenues. It's posted on the OCC web site if you care to read it.
I guess that unless someone is legally compelled to do the right thing, it won't happen?
I try to find people for 2 reasons: 1) It cleans up the books to have everyone in pay, and 2) It's pretty cool to deliver the news to people that you have money waiting for them.
Despite the prevailing attitude on this site, most of us in the industry are not evil execs lighting cigars with hundred dollar bills and clubbing baby seals just for fun.
Neverybilly said:
"oil companies are not known for being altruistic."
"There has to be a "profit" motive here. I just can't see why they'd spend money on something like this... landman, attorney... "
Neverbilly,
Finding and properly paying royalty owners is less about a "profit" motive than it is about avoiding costly legal disputes for underpayment of royalty in the future.