FAQ’s
Frequently Asked Questions:
What is or what are “minerals”?
ANSWER:
“Minerals” In Louisiana primarily means the hydrocarbons (coal, lignite, oil and gas) found in formations under the surface of the ground. Typically, frugacious minerals (they move around) like oil and gas found in liquid and gaseous forms can be produced by drilling a well bore and either allowing the minerals to flow through the formation toward the well bore and then to the surface or to be pumped to the surface. Minerals also include lignite, gravel, sulphur and non-ocnventional minerals. Such minerals, unless produced through a wellbore, should be excluded from the typical Oil, Gas & Mineral Lease.
What are “mineral rights?”
ANSWER:
“Mineral Rights” refers to the legal right to exploit the minerals contained in the ground below the surface. In Louisiana, Mineral Rights are defined by the Mineral Code. These rights may be sold or leased.
If I own a house on some land or lot, do I own minerals?
ANSWER:
It is quite possible for the owner of land, either acreage or a town lot, to own his minerals. Legally these are the minerals below the surface of the ground he owns. The owner has the legal right to develop the Minerals as he sees fit, subject to the obligation to follow the Conservation Laws of the State. One of those laws concerns how large a tract is required to properly develop and efficiently drain the minerals. In the case of the Haynesville Shale, the Conservation Department has usually approved section sized units (each section is one mile on a side). In other words, to drill a well to that formation, the Conservation Department would only permit the well if the applicant had control of the majority of the minerals and by establishing the Unit, all surface owners will be paid in the proportion to their surface acreage bears to the whole unit area (usually a section, about 640 acres).
How do I find out if I own my minerals?
ANSWER:
You need to have your “Mineral Title” examined by an attorney to be absolutely sure. However, the quick answer is that if you bought your land and no minerals were reserved, you probably own the Minerals. In Louisiana, if the Minerals under your land were reserved or sold more than ten years ago and your land is not producing oil and gas (it is considered producing if it is included in a producing unit, either voluntary or compulsory), after the ten years have passed from the date of the sale or reservation, your Minerals have “Reverted” to you as the surface owner. Texas does not have this reversion principle. Once Minerals are severed from the land, they do not return unless they are repurchased by the surface owner.
How do I find out if there are minerals underneath my house or on my lot?
ANSWER:
You cannot find out for sure until the land is drilled, either by a vertical or a horizontal hole. You can also learn a lot by underground seismic tests, but even that is not absolutely conclusive. The cost of both operations is prohibitive for the owner of a small tract.
If I had a home and sold it, did I also “sell away” my minerals or rights to my minerals?
ANSWER:
Unless you reserved the Minerals, you sold them with the house or land. The reservation creates a servitude, which is a legal term meaning that there is a separate estate created apart from the land itself and that estate can be developed for Minerals separately from the surface ownership. This servitude prescribes (is freed and the Minerals return to the owner of the surface estate) by non-use for ten (10) years. Use includes drilling on or production from the land, or any unit where lands are joined together to share production. Such use suspends the running of the prescriptive period for as long as the use continues. At the cessation of use, the ten year clock begins running again.
Can “mineral rights” move with whoever owns the land? If I move away, can I take my “mineral rights” with me?
ANSWER:
Yes, if you reserve the Minerals, you take ownership with you.
Who can tell me how much my minerals are worth and how long I have rights to them?
ANSWER:
You will own Minerals underneath your land until they are severed either by sale in place (the servitude) or by development wherein the Minerals are separated from the ground and sold in liquid or gaseous form. How much they are worth is a more difficult question. Usually, Minerals are bought and sold at “field prices,” established by bargain or contract. Spot prices are established by buyers or speculators in major commodity markets for a certain grade of product. This filters down to the field. The margins determine what producers can pay in the field. Lessees (those who lease the privilege to exploit and produce Minerals) can start the process with what they pay for the Leases to the landowners who own the Minerals.
I have land that I built a house on and have since raised a family – I’ve been on my land for over 20 years. Do I still have minerals and mineral rights?
ANSWER:
Unless you have sold them or a predecessor in title sold them or reserved them, yes.
Do “mineral rights” ever expire or can they be taken away from me? Can they be bought or sold to someone else throughout the course of my life?
ANSWER:
The surface owner does not lose the Minerals by not developing them. They just wait in the ground until the owner wishes to exploit them. He can exploit them himself or lease them to another person or company who will exploit them. Mineral rights can be bought and sold as in the Mineral Servitude described above. The exception is that if a Unit is declared by the Conservation Department, you will be developed with the Unit even if you have not signed any Lease or sold your Minerals.
Do you have to see an attorney for your specific mineral rights situation? Is there someplace that I can go to research my own mineral rights?
ANSWER:
You can obtain the instruments to your own title from the Parish Clerk of Court; however, reading and understanding these complex title chains is not for novices. We suggest if you really do not know what your title is like that you consult with an attorney who practices in this area of Law.
If an oil company wants to lease my land to drill – are they using my mineral rights when I lease my land to them?
ANSWER:
Yes. If they do operate and produce Minerals, they are using them. The Lease itself is not a use. It is merely a “farmout” of your rights to develop the Minerals. Operations under the Lease are a “use” in the sense of the servitude.
Can “mineral rights” ever be shared with someone else? Like my husband or wife?
ANSWER:
Yes, they can be owned in indivision with someone else, e.g., spouse, co-heirs, or other co-owners. This is called co-ownership. In this case, each of the owners owns rights to every molecule within the subject property. Are “mineral rights” considered part of my estate and taxed like my house or other assets? Minerals owned by you at your death that have been produced before you die and are no longer speculative are valued for estate and inheritance tax purposes based upon formulas calculating what the Minerals in place would produce in monetary terms in the future. In Louisiana, Minerals are not taxed every year for Ad Valorem property taxes. In Texas, Ad Valorem taxes are assessed on producing Minerals. It is strongly suggested that you consult with Tax Advisors regarding the tax consequences of mineral development.
If I do own minerals on my land can my rights be taken away somehow? Can my mineral rights ever be lost?
ANSWER:
Minerals can be lost in the same ways surface lands are lost, Sale, seizure, foreclosure.
My parents passed away and left me portions of their land they bought in their lifetime; I think they did own the rights to all of their minerals and they held their land for many years – now that they are gone, do their “mineral rights” transfer down to me because I am their child?
ANSWER:
Yes. Minerals are heritable just like all other types of property.
How much minerals do you have to own before you can get 25% royalty on anything produced from your land?
ANSWER:
The Royalty you get on your lease is a matter of negotiation.
What happens if nobody drills any wells on my land for years and years? Nothing? Is there any sort of time limit on ‘producing’ minerals? Is there any sort of deadline to do that?
ANSWER:
Minerals do not have to be developed by the owner. However, the situation is different if the rights are owned by a Lessee. A lease expires (terminates) at the end of the Primary Term (plus any extensions). If no one drills and establishes production, the Lease dies and the Minerals are free to be leased again. If production is obtained, the Lease is preserved until production ceases for 90 days (most leases) without reworking or drilling operations. Continual drilling or reworking will preserve the lease.
What if I do not lease?
ANSWER:
You do not have to lease, however, there are advantages to leasing as opposed to foregoing the lease. First, the Lessee usually pays a Bonus for leasing. This is attractive because it is yours to keep, even if the Lessee drills a dry hole (or does not drill at all). Second you will get your royalty according to the amount negotiated in the lease from the day the well is first produced. This is your percentage or fraction of production and you do not have to bear any cost of drilling, completing, transporting or marketing the production. The Lessee takes all risks for drilling and production, if the lease is written correctly, and you pay no costs. Third, the Lessee is responsible for all costs of plugging and abandoning the well when production ceases and all other liabilities, should anything go wrong. If you do not lease (“non-consent”) and your land is in a Compulsory Unit declared by the Conservation Department (not automatic-you have to provoke it), you will be entitled to production after the operator recovers 100% of the costs of drilling, completing and equipping the well. You will be considered an Unleased Working Interest Owner. The operator will make all decisions for you. You will get your share of production, less costs of operations, over which you will have no control. You may also bear your share of liabilities should anything go wrong. Although if the operator makes a good well, you will probably get more dollars out of the well than a leased mineral owner will get with a royalty, you will also have other risks.
What is a Unit?
ANSWER:
The Unit is a means of sharing production from a land area. Most units are fixed (“declared”) by the Department of Conservation (Railroad Commission in Texas), called “Compulsory Units.” The Operator is usually the company with control of the majority of the surface acreage. Under the legal theory, since we cannot tell from under whose lands the Mineral is produced, all owners in the Unit are paid for production in relation to their surface area in the Unit divided by the total acreage in the unit.
What is a Unit Well?
ANSWER:
A Unit Well is the well within the Unit which produces Minerals for all Unit participants. There can be multiple unit wells and replacement or Alternate Unit wells. These are usually drilled after the unit is complete and may require additional approval of the Conservation Department.
What is a Section, a Township and a Range?
ANSWER:
Land in Louisiana is measured off into a grid of Townships and Ranges. Ranges are numbered in relation to the east/west distance from the Louisiana Meridian, a line running North and South through the State. Townships are the distance North and South, beginning with the Gulf of Mexico. Each square of a Township/Range is arranged into Sections (in the usual Township, thirty-six sections) each one mile on the side. There are fractional sections and unusual sections along the Rivers in the different Townships.
What is a Tax Geo (or GEOG) Number? (XXXXXX-XXX-XXXX)
ANSWER:
This is the code number for each tract in Caddo Parish, which is arranged by Township first, then the Range, then the section. Next are three digits specifying an area of like kind (of contiguous property) within the section, like a subdivision. The last four digits give the actual Tract or Lot number within a subdivision. Other jurisdictions have a different scheme, but they all relate to the location of the specific property. This is helpful in identifying the specific tract you own.
What is a “Pugh Clause”?
ANSWER:
A Pugh Clause is a protective device for landowners which terminates the Oil, Gas and Mineral Lease to lands or formations not developed by the end of the primary term.
What is “Favored Nations” clause?
ANSWER:
This is a lease provision that requires the operator or Lessee to pay the same or give the same terms to the Lessor as may be negotiated on lands adjacent to the leased premises (or within some other acceptable range).
Primary Term?
ANSWER:
This is a period of years during which the Lease is in full force and effect without operations. Most leases today are “Paid up,” that is, yearly rentals are paid in advance. Unless there are extensions in the lease (usually upon the tender of additional bonus money), the Lease automatically terminates upon the last day of the primary term.
Extension Term or Option Terms?
ANSWER:
Some leases contain extension terms so that if the Lessee had been unable to drill the leased premises, it can extend the term by payment of additional bonus. Many times the extension is a necessity due to the problems in amassing and developing this much land.
Damages?
ANSWER:
Payments made for surface damages, e.g., ruination of crops and timber, aesthetics, usability, etc., at the Leased Premises.
Top Lease?
ANSWER:
A Top Lease is a lease taken by a Lessee from a Landowner when there is already a lease on the property, but the Lessee wants to immediately take the rights to the land upon termination of the first lease.
What is a “Frac?”
ANSWER:
“Frac” is an abbreviation of Fracturing. This is a process done on the well at completion. This is an important part of the completion process because it takes a “tight” formation that will not easily give up the hydrocarbons and fractures the formation using tremendous pressure. The minerals can then flow through the formation to the Wellbore.
What is “Horizontal Drilling?”
ANSWER:
In Horizontal Drilling, at a certain depth in the vertical hole the Driller kicks the bit off a “shoe” and sends it out in horizontal fashion. Then with sophisticated controls, the well is drilled through the formation in a horizontal fashion, increasing the exposure of more of the formation to the well bore, thus dramatically increasing production over a vertical hole only.
What is an “MCF?”
ANSWER:
This is an abbreviation for a thousand cubic feet of gas. This is the common measure by which natural gas is sold and traded.
If I have a mortgage, does it affect my minerals?
ANSWER:
Minerals are mortgaged with the land if you own both at the date of the mortgage. However, usually the mortgage company did not include minerals in the security they demanded to make the loan. Therefore, they will usually release the money you get from the mineral development to you.
Why haven’t I been contacted about leasing my minerals?
ANSWER:
There can be many reasons why you have not been contacted yet. You may not own the minerals under your tract. Sometimes it is because your address is not on your tax record and this is one of the primary ways the oil companies get in touch with you. This could be important. You should know that your proper address is shown on the Tax Assessor’s records. If you are getting a Tax Notice each year, you should not have to be concerned. Usually, it is simply because the companies have not gotten to your immediate area yet. Once you are contacted, you should notify the Association so that we may follow up on your property.
How do I determine the area of my Lot on an Acre measure?
ANSWER:
Good Question. An acre is a square, 208.71 feet on a side (43,560 sq.f.). If your lot is square or rectangular, measure the length and width and multiply those figures. Divide the result by 43,560 (the square footage in an acre) and the result will be the acreage in your tract. For example, if your lot is 50 feet wide and 100 feet deep, you have 5,000 square feet. Divided by 43,560, is .115 of an acre. If your tract is irregular, check your plat of subdivision or contact a surveyor or engineer to make the calculation to be sure.
How do I calculate what my bonus will be when they quote a per acre bonus?
ANSWER:
Multiply the acre measure times the per acre bonus quoted. For Example, using $8,000 per acre quote times .115 acre (from example above) = $920.00.
How do I calculate my Royalty?
ANSWER:
First, you can go to the web and Google “Royalty Calculator.” That will give you a helpful tool. You will need to know the Acreage in your tract, your Royalty %, the total acreage in the Unit, the Gas Price and the production of the well for a day. Enter that data and the calculator should give you the answer. If you want to do it yourself: Assume a 25% Royalty, One acre in the tract, a 640 acre Unit and 2,000,000 Cubit Feet per day production, $7.50 per MCF gas price. Gross Revenue of the well is 2,000 MCF/d X $7.50 = $15,000.00
Your share of Gross Revenue is 1/640 X 25% = .000390625
Your Royalty per day is: $5.86
Per Month (30 days) is: $175.78
Don’t forget your share of Severance Tax will be deducted before you get your check. Both of these methods are using broad assumptions (like decline curves) which may vary widely from the actual results experienced by your land. Also, wells do not always produce each and every day of the month, depending on many factors. Gas wells decline in amount produced month by month over their lifetime (the decline curve). The Operator may rework and stimulate production several times during the process. You will see ups and downs month by month, but generally, the pay will decline over the lifetime of the well. You can hope that multiple Unit wells are brought on from time to time. This is typical in a good and productive area, but there are so many variables, it would be hard to illustrate here.
Why is the Association a Non-Profit corporation?
ANSWER:
The idea for the association is that only Members get the information the Association supplies. However, Membership may last only until the services of the Association are no longer needed. It is unlikely that Members will continue after their land begins to produce and Royalty checks start.
We also believe that when the Play is over and the need for the Association is winding down, it will probably be dissolved.
A Non-profit corporation conveys its assets to another non-profit in the event of dissolution. We viewed the task of trying to find and pay any dissolving dividend to the Members as unmanageable and a practical impossibility. Therefore, we decided to make it a non-profit primarily for that reason.
Additionally, we believe we are providing a service to a broad base of citizens and we hoped that non-profit status would result in savings on publicity (for community service announcements) and facility rentals for meetings. Further, a non-profit entity is not taxed by various levels of government on its income. Taxes would merely add to the load of providing the services. The employees and contract service providers will be paid as will many other expenses like administrative expenses, office supplies, printing, advertising and other necessary purchases to run this organization. There are many non-profit entities in the city which charge for their services and pay their employees. Hospitals are one example. There are other entities like the Symphony, which has members who pay dues and who pay for specific services (like tickets to performances) and which also pay their employees and contractors.