How do we determine who owns the mineral rights for our property? This is not something that a homeowner can readily do without incurring significant expense. The fact that the gas company has sent you a lease package or has expressed interest in your leasing your property indicates that it has made a preliminary determination that you have some mineral rights.

How might individual homeowners independently research who owns the mineral rights and what are the range of expenses that might be incurred? You could start with your own deed and deed of trust when you purchased your property. These may contain some information about whether there are previous mineral reservations. Your title policy might also have this information. The fact that none of these documents contains this information does not indicate that you do or don’t have a mineral right.  You could hire an attorney to give you a title opinion, but it would be several thousand dollars likely for this service. You might be able to get an abstract plant to let you research their records. This will likely cost several hundred dollars, and the abstract plant does not have to let you look at their records. Abstract plant records are a good indication, but are not perfect.

Do oil and gas companies, or their agents, attempt to verify mineral rights ownership prior to making a lease offer?

Yes, they will have a preliminary opinion before they offer to lease your land.  They will have an attorney’s title opinion before they pay any money to you as your royalty payment. This opinion will state what every landowner’s interest within a unit is in decimal terms and will state the nature of the interest (royalty, overriding royalty, working interest, etc.).

What is the meaning of bonus, royalty, primary term and Pugh clauses? Bonus payment is the amount of money received at the time you sign the lease. Typically it is based on a per acre or per lot figure. This is a one time payment.  Royalty is the amount of production that the homeowner receives from a well. It is usually stated as a percentage figure or a fraction. (i.e. a ¼ royalty or a 25% royalty) This payment is paid regularly, usually on a monthly basis.  Primary term is the length of the lease. The lease terminates at the end of the primary term unless one of several conditions exist. If the land is included within a producing unit, the lease will typically be extended for however long production occurs from the unit.  Pugh clause is a clause which operates to return to the mineral owner any lands which are not included in a producing unit at the end of the primary term. Pugh clauses can be both horizontal and vertical.

How does a lease impact our mortgage, insurance, property taxes?  This lease may need to be approved by your mortgage company. You should check with it first to determine if this is the case and whether its consent is required to lease. Insurance is not likely to be affected by the leasing of your property.  Property taxes may vary from city to city, so you should inquire with Southlake to determine whether there will be a tax consequence if you lease your property.

What is the personal tax consequence of accepting any offer? The income you receive from mineral production is typically taxed as revenue by the IRS. You should inquire about your specific tax consequences with an appropriately qualified professional.

What is the transferability or assignability of the lease? Whoever you lease your property to will typically have the right to transfer or assign its rights under a lease to someone else or to another company without your permission.

What happens if I sell my house while in the lease term? There is nothing to prevent you from selling your house during the lease term, but if you do not reserve the mineral interest you own, that mineral interest will be transferred to your purchaser, and the royalty payments will go to your purchaser as well.

Are there city ordinances that might impact our decisions? The City of Southlake is revising ordinances to address drill site permits and drilling activities. These include requirements that the drill site be located some minimum distance from buildings, residences, and/or schools, and may limit drilling activities to certain hours of the day.  The average setback for drilling ordinances is 600 ft.

Do we know where a drill site might be located?  Right now it is not certain where the drill site will be located. The gas company must obtain a permit from the Texas Railroad Commission to drill a well. As the process moves forward, the gas company will file the necessary permits, and they may also advise landowners of their intended site.

How could drilling impact our quality of life?  Drilling ordinances set forth minimum distances from residences and other structures, which limits the impact to quality of life.

Who is liable if any home is damaged due to this process? If you can prove that the damage is due to the drilling process, the gas company would likely be held liable for such damages as would anyone else who caused damage to your property.

What is the average royalty amount per month, how long does it last and what expenses are incurred by the homeowner? Royalty payments are determined by the amount of production, the amount of land included within a producing unit, the amount of the royalty, and the amount of land that an individual landowner has included in the producing unit. Production varies from well to well depending upon a number of different factors. Wells also decline in production over time due to a variety of factors as well. Because of all of these variables, it is not possible to state an average royalty payment.

However, if you assume that a Barnett Shale gas well contains 640 acres and initially produces 2,000,000 cubic feet of gas per day and gas is sold at $8.00 per thousand cubic feet, then the production from that well should create a revenue stream of $16,000.00 per day. If a landowner has a .5 acre lot included in the 640 acre unit and his lease provides for a 25% royalty interest, the land owner will receive 25% of 1/1280 of the $16,000.00 which is $3.125 per day. This would mean a royalty payment of approximately $94.00 per month. If gas prices rise or fall, so would the amount of these payments. Also, as production from the well increases or decreases so would the amount of these payments.

What happens if my neighbors sign leases, but I do not? You will not receive any bonus or royalty payments, and the oil company cannot take your minerals.

These questions and answers are intended to provide general information only. These answers should not be relied upon by any individual as the individual homeowner’s ownership circumstances and interests may be unique or sufficiently different than the answers to any one or more of these questions or materially different from those contained herein.  DAGG claims no authoriship for these questions or answers.