Oil Stuff

If any of you out there understand everything you have read or been told about oil and gas production, you are a better man than I am.  Just when I think I have it figured out, we get another piece of information and it continues to add to the confusion rather than clarify the facts.  here is what I think I know. (I Think) Many of you may want to stop here and move on to another blog. 

Way back when, many people went out into the countryside and purchased the Mineral Rights to a lot of the land.  Even though the oil is beneath the ground and in no way tied to the ground above, the rights were purchased in terms of acres.  There may, and probably is, someone that owns the ground above the minerals but they have purchased the ground without the rights if a previous owner sold those rights. 

Up until just a little while ago, I thought that the mineral rights were somehow tied to the location of a well and have kind of been proved wrong.  The mineral rights are really an expression of the portion of the minerals produced in the one mile section listed.  For example, if you own 640 acres of mineral rights, you own 100% of the minerals produced in that mile section.  If you own 320 acres you own half of the rights. 

Now, the real interesting thing happens when there is someone that wants to start developing the field to obtains gas or oil.  Generally, an oil company would explore an area and then if they thought it was a good place to drill, they would contact the mineral rights owner(s) and a Lease would be worked out.  The company would generally drill the well for 11/12ths of the production.  The mineral rights owner would benefit only if there was oil ad gas produced from the well.  that 1/12th of the production could be a little or a lot.  When oil was $13 a barrel, it was often cheaper to buy imported oil and have it delivered to the refinery. A lot of those wells were capped and no money exchanged hands.

If you think this is complicated, just remember that when the mineral rights were bought and sold, most of the time it was by one person. Those owners have for the most part died and their heirs are now eligible for the funds produced.  Fine, you say, but what about the wells that were drilled, and then capped and not produced?  Now that oil is nearer to $80 a barrel, many of those earlier wells are now brought back into production and the owner(s) of the mineral rights may be as few as four or five owners or as many as 30.  I don't know if you ever took Biology where you counted generations of mice but the portion of the original can work its was, to a much reduced amount quickly.   

One thing I didn't throw in to this mix is that in a lot of cased the company that drilled the wells may sell their part of the production for shares to an independent producer to maintain the wells and to see that the oil gets to the delivery point so it can be sold.  The independent producer will get a portion of the minerals and this causes all sorts of trouble as many of these guys are not the best capitalized and run.  In a lot of cases they don't care who the money goes to, they just take their cut off the top.  The remainder they send to the State who takes 10% off the top.  

We met a fellow that was as bored as I was.  he did his best to help explain a lot of what i wrote above and he said that for many reasons greed just rears it's ugly head in this and all sorts of fraud happens.  he told us about a young man that when his father died, told the oil company that he was his father and for years received his father's portion instead of sharing it with his sister.  When he died, the family did some work and found out what the man had done and the sister was awarded all the proceeds until the difference was made up.  The kids of the man were shocked to find out that there was no money for them until that was paid back.  They had to be told by a lawyer that their dad had been a thief.   Kind of an ugly way to have your reputations smeared.

Oh well, in a lot of cases, you can spend an eternity trying to figure out just what has happened and who is owed what.  It makes my head hurt.  For the record, this is just what I understand and there may be new twists I don't even know about.



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