Frequently Asked Questions About Mineral Royalties Fraud.

The following Frequently Asked Questions constitute answers to general questions that come up often about mineral rights and mineral rights royalties. This information does not constitute legal advice from Smith Stag, LLC. If you have any questions concerning your rights in relation to mineral rights royalties on land you own or for a venture that you are an investor in, please contact us now.


What is the Haynesville Shale in Louisiana? The Haynesville Shale is a massive geologic formation of sedimentary rocks containing natural gas that underlays northwestern Louisiana, southwestern Arkansas and eastern Texas. Several large gas and oil companies have begun work in the area to explore the shale formation and drill for natural gas based on findings indicating a potentially large supply of gas trapped within some portions of the shale.

The Haynesville Shale formation is of a type once considered too costly to explore, but rising energy costs and newer extraction processes have led to a rush of activity as energy exploration companies have begun to lease property in northwestern Louisiana in preparation for possible drilling and production. In light of that, the perceived value landowners are able to get for selling leases has risen sharply.

What are mineral rights? Landowners need to be aware of the difference between mineral rights and surface rights. Mineral rights are the ownership and usage rights to sub-surface minerals such as oil, gas, coal and metal ores under the land. Surface rights are the rights for land for agriculture, residential housing, commercial, and other purposes. In Louisiana and many other states including Texas, mineral rights can be leased and sold separately from surface rights.

What are mineral rights royalties? Mineral rights royalties are the mineral owner's proportionate share of production as reserved in an oil and gas lease. The proportionate or percentage of production that the landowner can receive can vary and can fluctuate based on the overall venture’s operating expenses and a variety of other factors.

What is a Division Order? A Division Order is a document that the well operator or oil and gas company issues. It describes the property in detail, the operator, the legal description, the owner's remittance address and owner’s tax ID information. It also defines the owner’s percentage interest in the property. The owner is required to sign and return the division order to be put on record. This information is used by the operator to remit ongoing profits or revenue to the owner.


How do I know if I own mineral rights on my property? If you own a piece of property, it doesn't mean you automatically own the mineral rights under the surface of the property. Most landowners in Louisiana and other Gulf Coast states own the mineral rights to their property, but the best way to be positive that you own the mineral rights to your property is to have a land professional or attorney conduct a title examination.


How much can I expect to receive for my minerals rights? All mineral interests are just as unique as the property itself. The value of a mineral interest is defined in similar ways as any other commodity or natural resource; value is based on various factors such as location, leasing activity in the area, and well and production activity in proximity to the mineral interest. Also, current market conditions within the oil and gas industry are also considered when determining a price paid for leasing or the purchase of mineral rights.

What is the 10 year prescription rule? How does this work? In Louisiana, there is a prescriptive period of 10 years, and this means that the minerals revert (prescribe) back to the current surface owner under certain conditions. Starting from the effective date of sale and going forward for 10 years, if there has been no well drilled, or if production has ceased for 10 years, then the mineral buyer loses the minerals and the mineral interest is returned to the current surface owner at the end of Year 10. But if a well is drilled and is producing within this 10 year period, then the minerals remain with the buyer for the life of the production until the production has ceased for a 10-year period.

What is the difference between a royalty owner and an interest owner? A royalty owner shares in production revenues free of costs, while a working-interest owner bears the costs of development and operations. A working-interest owner can often see greatly reduced returns than royalty owners under certain conditions.

Why does my monthly payment sometimes vary? Many factors determine the amount of each monthly payment you receive, including, but not limited to market conditions, fluctuating commodity prices, regulatory or contractural changes, production volumes, seasonal conditions and well downtime.

How are routes for proposed pipelines determined? Construction, environmental and landowner considerations are the forefront of the routing process. Where possible, the route is selected to avoid public impacts while minimizing environmental issues, such as the number and location of water body crossings, scenic waterways, byways, wilderness, national parks, and monuments. Where possible, the proposed route will run parallel to existing pipeline and power line corridors and/or property lines and boundaries.

Will a pipeline on my land affect property values? And, will it affect my insurance rates? Property values are generally based on the actual use of the land. Construction of a proposed pipeline will not change the general use of the land, although certain building structures and landscaping cannot be built on the right-of-way. According to a 2001 study funded by the Interstate Natural Gas Association of America (INGAA), the presence of a natural gas pipeline had no significant impact on the sale price or demand for properties located along a pipeline right- of-way. And, to our knowledge, a natural gas pipeline would have no impact on landowner insurance premiums.

What is an easement and how will I be compensated? An easement is the same as a right-of-way, which allows the pipeline company the right to use the land to install the pipeline, but an easement does not transfer title of the land to the company. The landowner continues to maintain ownership of the property, although certain land-use restrictions are associated with a right-of-way. All landowners are compensated for an easement, and the pipeline company will work with landowners to determine fair market value for the easement.


What about damage to trees, crops, fencing, etc.? There is (should be) a clause in the language of the Agreement/Grant specifically addressing the damage to, compensation for and restoration of such things. If the language is not specific enough to satisfy the landowner, he/she can and should make the concern(s) known to the negotiator. Damages for surface use and pipeline right-of-way are also considered non-taxable items. Make certain that the funds issued for this are identified as "damages" for IRS purposes. By executing this agreement, this substantiates as your "receipt" of being reimbursed for damages.

Why should I consider granting an easement in the first place? The current drilling and production activity in North Louisiana has resulted in an ever-growing number of new wells drilled. If a landowner has been approached for the granting of a pipeline right-of-way, the chances are that he/she are being asked for the right to transport the very natural gas (or oil) from which he/she expects royalty payments.

How do I clear the title to my mineral rights? How long does it take to receive my first check? If petroleum can be produced in commercial quantities on your land, it is time to clear the title to mineral rights. You should consult with an attorney or other land professional to assist you in handling this. The Department of Conservation must receive official notice of the first well completion. After a well is drilled and completed, the oil and gas company must have an abstract of title prepared, in which copies of the property's records are obtained by the abstractor. Then, the abstract of title is provided to an attorney for examination of title to all mineral rights in the well. Prior to an attorney rendering the final title opinion, any ownership questions or discrepancies must be resolved. This process can take several months to complete. Once finalized, the title opinion reflects the current ownership of the surface and mineral interests. From this, the well operator prepares a division order for each royalty owner in the well. The royalty owner should check his division order received, to verify the ownership decimal interest is shown correctly. This entire process, from abstract of title to delivery of division order, may take anywhere from 6 months to 1 year after completion of the drilling of the well.

When are royalty payments suspended? For your protection, payments are suspended upon a title dispute, the assignment of interest, notice of death, transfer of property, or in the event of no known address. Keeping your information current can prevent this inconvenience. If you any questions about your royalty payments, you or your attorney should contact the operator of the well.

What is the Haynesville Shale in Louisiana?The Haynesville Shale is a massive geologic formation of sedimentary rocks containing natural gas that underlays northwestern Louisiana, southwestern Arkansas and eastern Texas. Several large gas and oil companies have begun work in the area to explore the shale formation and drill for natural gas based on findings indicating a potentially large supply of gas trapped within some portions of the shale.

The Haynesville Shale formation is of a type once considered too costly to explore, but rising energy costs and newer extraction processes have led to a rush of activity as energy exploration companies have begun to lease property in northwestern Louisiana in preparation for possible drilling and production. In light of that, the perceived value landowners are able to get for selling leases has risen sharply.

What are mineral rights? Landowners need to be aware of the difference between mineral rights and surface rights. Mineral rights are the ownership and usage rights to sub-surface minerals such as oil, gas, coal and metal ores under the land. Surface rights are the rights for land for agriculture, residential housing, commercial, and other purposes. In Louisiana and many other states including Texas, mineral rights can be leased and sold separately from surface rights.

What are mineral rights royalties? Mineral rights royalties are the mineral owner's proportionate share of production as reserved in an oil and gas lease. The proportionate or percentage of production that the landowner can receive can vary and can fluctuate based on the overall venture’s operating expenses and a variety of other factors.

What is a Division Order? A Division Order is a document that the well operator or oil and gas company issues. It describes the property in detail, the operator, the legal description, the owner's remittance address and owner’s tax ID information. It also defines the owner’s percentage interest in the property. The owner is required to sign and return the division order to be put on record. This information is used by the operator to remit ongoing profits or revenue to the owner.


How do I know if I own mineral rights on my property?
If you own a piece of property, it doesn't mean you automatically own the mineral rights under the surface of the property. Most landowners in Louisiana and other Gulf Coast states own the mineral rights to their property, but the best way to be positive that you own the mineral rights to your property is to have a land professional or attorney conduct a title examination.


How much can I expect to receive for my minerals rights? All mineral interests are just as unique as the property itself. The value of a mineral interest is defined in similar ways as any other commodity or natural resource; value is based on various factors such as location, leasing activity in the area, and well and production activity in proximity to the mineral interest. Also, current market conditions within the oil and gas industry are also considered when determining a price paid for leasing or the purchase of mineral rights.

What is the 10 year prescription rule? How does this work? In Louisiana, there is a prescriptive period of 10 years, and this means that the minerals revert (prescribe) back to the current surface owner under certain conditions. Starting from the effective date of sale and going forward for 10 years, if there has been no well drilled, or if production has ceased for 10 years, then the mineral buyer loses the minerals and the mineral interest is returned to the current surface owner at the end of Year 10. But if a well is drilled and is producing within this 10 year period, then the minerals remain with the buyer for the life of the production until the production has ceased for a 10-year period.

What is the difference between a royalty owner and an interest owner? A royalty owner shares in production revenues free of costs, while a working-interest owner bears the costs of development and operations. A working-interest owner can often see greatly reduced returns than royalty owners under certain conditions.

Why does my monthly payment sometimes vary? Many factors determine the amount of each monthly payment you receive, including, but not limited to market conditions, fluctuating commodity prices, regulatory or contractural changes, production volumes, seasonal conditions and well downtime.

How are routes for proposed pipelines determined? Construction, environmental and landowner considerations are the forefront of the routing process. Where possible, the route is selected to avoid public impacts while minimizing environmental issues, such as the number and location of water body crossings, scenic waterways, byways, wilderness, national parks, and monuments. Where possible, the proposed route will run parallel to existing pipeline and power line corridors and/or property lines and boundaries.

Will a pipeline on my land affect property values? And, will it affect my insurance rates? Property values are generally based on the actual use of the land. Construction of a proposed pipeline will not change the general use of the land, although certain building structures and landscaping cannot be built on the right-of-way. According to a 2001 study funded by the Interstate Natural Gas Association of America (INGAA), the presence of a natural gas pipeline had no significant impact on the sale price or demand for properties located along a pipeline right- of-way. And, to our knowledge, a natural gas pipeline would have no impact on landowner insurance premiums.

What is an easement and how will I be compensated? An easement is the same as a right-of-way, which allows the pipeline company the right to use the land to install the pipeline, but an easement does not transfer title of the land to the company. The landowner continues to maintain ownership of the property, although certain land-use restrictions are associated with a right-of-way. All landowners are compensated for an easement, and the pipeline company will work with landowners to determine fair market value for the easement.


What about damage to trees, crops, fencing, etc.? There is (should be) a clause in the language of the Agreement/Grant specifically addressing the damage to, compensation for and restoration of such things. If the language is not specific enough to satisfy the landowner, he/she can and should make the concern(s) known to the negotiator. Damages for surface use and pipeline right-of-way are also considered non-taxable items. Make certain that the funds issued for this are identified as "damages" for IRS purposes. By executing this agreement, this substantiates as your "receipt" of being reimbursed for damages.

Why should I consider granting an easement in the first place? The current drilling and production activity in North Louisiana has resulted in an ever-growing number of new wells drilled. If a landowner has been approached for the granting of a pipeline right-of-way, the chances are that he/she are being asked for the right to transport the very natural gas (or oil) from which he/she expects royalty payments.

How do I clear the title to my mineral rights? How long does it take to receive my first check? If petroleum can be produced in commercial quantities on your land, it is time to clear the title to mineral rights. You should consult with an attorney or other land professional to assist you in handling this. The Department of Conservation must receive official notice of the first well completion. After a well is drilled and completed, the oil and gas company must have an abstract of title prepared, in which copies of the property's records are obtained by the abstractor. Then, the abstract of title is provided to an attorney for examination of title to all mineral rights in the well. Prior to an attorney rendering the final title opinion, any ownership questions or discrepancies must be resolved. This process can take several months to complete. Once finalized, the title opinion reflects the current ownership of the surface and mineral interests. From this, the well operator prepares a division order for each royalty owner in the well. The royalty owner should check his division order received, to verify the ownership decimal interest is shown correctly. This entire process, from abstract of title to delivery of division order, may take anywhere from 6 months to 1 year after completion of the drilling of the well.

When are royalty payments suspended? For your protection, payments are suspended upon a title dispute, the assignment of interest, notice of death, transfer of property, or in the event of no known address. Keeping your information current can prevent this inconvenience. If you any questions about your royalty payments, you or your attorney should contact the operator of the well.

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