Short Commercial about NARO
• What does this statement mean?
• Who are we?
• NARO was founded in 1980
Due to Windfall Profits Tax
• We have grown into an educational/advocacy
organization
• NARO has two “parts”
The Association a 501 c (6)
The NARO-Foundation a 501 c (3)
NARO State Chapters
Arkansas-NARO
NARO-Appalachia KY, OH, WV
NARO-New York
NARO-Pennsylvania
NARO-Louisiana
NARO-Rockies CO, MT, ND, NM, UT, WY
OK-NARO
NARO-Texas
Annual Convention
Educational Opportunity for Mineral/Royalty Owners
Two days of seminars
2011 Was in Long Beach, CA
2012 will be in Dallas, TX November 1-3
MISSION
The mission of NARO is to encourage and
promote exploration and production of minerals
in the United States while preserving,
protecting, advancing and representing the
interests and rights of mineral and royalty
owners through education, advocacy and
assistance to our members, to NARO chapter
organizations, to government bodies and to the
public.
Royalty Owners Bill of Rights
1. Royalty owners have the right to be paid according to all terms contained in
their lease contract and by law.
2. Royalty owners have the right to access information possessed by the
operator or payor in order to verify correct payment according to their
contract or by law.
3. Royalty owners have the right to seek redress if good faith negotiations to
correct violations of lease terms fail.
4. Royalty owners have the right to be heard in matters regarding oil and gas
energy policy, proposed legislation or regulatory issues which would
positively or adversely affect their interests
How Many Royalty Owners?
•
How many citizens are royalty owners, if you take our membership in each
state as a percentage of a total and then multiply by the estimated 8.5
million royalty owners you get a rough idea of how many royalty owners
live in each state.
AK 13,600 AL 33,150 AR 255,000 AZ 144,500 CA 510,000 CO 654,500
CT 17,000 DC 17,000 DE 2,550 FL 161,500 GA 85,000 HI 8,330 IA
33,150 ID 35,700 IL 76,500 IN 27,200 KS147,900 KY 11,050 LA
125,800 MA 30,600 MD 35,700 ME 5,525 MI 44,200 MN 47,600
MO 110,500 MS 39,100 MT 47,600 NC 67,150 ND 24,650 NE
19,550 NH 13,600 NJ 47,600 NM 161,000 NV 44,200 NY 127,500
OH 30,600 OK 1,691,500 OR 51,000 PA 119,000 RI 5,525 SC
22,100 SD 5,525 TN 59,500 TX 2,975,000 UT 39,100 VA 85,000 VT
2,550 WA 39,100 WI 39,100 WV 19,550 WY 30,600
Total nationwide: 8,440,755.
Mineral Management 101
Program Outline
• Ten Duties of Mineral Owners
• Four Major Events for Mineral Owners
– Ownership
– Leasing
– Division Orders
– The Royalty Check
10 Duties (Responsibilities) of Mineral Owners
1- KNOW what you own
2-KNOW what information you need and
where to get it
3- KNOW what is going on in your area of
interest
10 Duties (Responsibilities) of Mineral Owners
4-KNOW what the future impact the small print
in the oil and gas lease/division order will have
on your royalty payment
5-KNOW who has it (your lease, your well, your
production)
10 Duties (Responsibilities) of Mineral Owners
6-KNOW what questions to ask and to whom to
ask them
7-KNOW your limits
10 Duties (Responsibilities) of Mineral Owners
8-KEEP copies/originals of everything and
organize it
9-KNOW that you must remain vigilant and DO
something
10-PLAN
4 Major Mineral Owner Events
• OWNERSHIP
• Leasing
• Division Orders
• The Check
Types of Ownership
• Non-Producing
– Mineral Ownership
• Producing
– Overriding Royalty Ownership
– Working Interest
– Royalty Ownership
Mineral Ownership
• Rights of Mineral Ownership
– Enter the land to explore, drill, produce and
otherwise carry on mining activities.
– Lease those ownership rights to another party.
– Ownership exists in perpetuity. Unless “Dormant”
– The minerals sit “in place” until developed; most
mineral owners cannot afford to drill a well.
Types of Ownership: Producing
Working Interest (WI)
Investors in the well who share the actual costs
incurred in drilling, completing and producing
Production income is distributed proportionately
Overriding Royalty Interest (ORRI)
Carved from the WI; non-cost bearing
Types of Ownership: Producing
• Royalty Ownership/Interest (RI)
– Begins with Production
– Ends with Production
– Does not have to be owned by the “Mineral
Owner” but it usually is
– Is based on the fraction retained in the lease and
your ownership
– Gets you the checks in the mail
Ownership
Components of Ownership
• Legal Description (Gross acres)
• Amount of Mineral Acres Owned
(Net mineral acres)
• Type of Ownership
Legal Descriptions
Legal Descriptions
• The publicly recognized unit of land
measurement for your property
• Mineral Ownership can be
– A portion of that description
– All of that description
4 Major Mineral Owner Events
• Ownership
• LEASING
• Division Orders
• The Check
Leasing
Many printed forms are available but
THERE IS NO SUCH THING
AS A
“STANDARD LEASE” FORM
Leasing
The Oil and Gas Lease is
• the basic instrument in oil and gas
development
• a legal instrument executed by a mineral
owner granting the exclusive right to
another to explore, drill and produce oil
and gas from a particular piece of land
Leasing
VIRTUALLY ALL
LEASE TERMS ARE
NEGOTIABLE
Negotiations
• The Lease Bonus
Paid by the Lessee at the time the lease is executed
Usually is calculated on a per acre basis
Usually is paid by separate draft or check
Is not recited in the lease
Example: Ownership
Lease Bonus
Total Bonus Paid
=
=
10 NMA
=
$50 per acre
$500
Negotiations
• Retained Fraction (Royalty Rate)
If production is established
the Fraction agreed upon
will be the royalty rate paid on production
Example: Retained Fraction 1/8
3/16
1/5
1/4
=
=
=
=
12.50%
18.75%
20.00%
25.00%
Lease Clauses that can Bite Your
Pocketbook
“To pay Lessor for gas (including casinghead gas) and all
other substances covered hereby, a royalty of 3/16 of
the proceeds realized by Lessee from the sale thereof,
less a proportionate part of the compressing,
dehydrating, transporting, and marketing or otherwise
making such gas or other substances ready for sale or
use, said payments to be made monthly.”
Lea$e
Clause$ to Protect
“Commencement of a well according to the terms of this
lease will require that a drilling rig capable of drilling to
a total depth be on location and drilling on or before
expiration of the primary term, and that the drilling of
said well be continued with due diligence until
completion. Construction of a well location without
actual drilling as detailed above will not be deemed
commencement of a well.”
4 Major Mineral Owner Events
• Ownership
• Leasing
• DIVISION ORDERS
• The Check
Division Orders
• Issued by the Company AFTER production is
established
• States the decimal interest on which you will
be paid
• Is the link to information on your check stub
Division Orders
NADOA
Model
Form Division
Order
Model Form Division Order
Model Form Division Order
Interest Verification:
The Decimal Interest
80/640 x 3/16 = .0234375 RI
Shift Gears
Why do we need oil and gas?
AND
Why Now?
Can’t we just put up windmills and solar panels?
New York Electricity Consumption
Energy Source
•
•
•
•
•
•
•
•
•
Nuclear
Natural Gas
Hydroelectric
Coal
Petroleum
Geothermal
Solar/PV
Wind
Bio Mass
Source EIA 2009
2008 Trillion Btu
454.8
375.1
268.3
131.8
26.6
0.0
0.0
22.1
31.5
California Electricity Consumption
Energy Source
• Natural Gas
• Nuclear
• Hydroelectric
• Coal
• Petroleum
• Geothermal
• Solar/PV
• Wind
• Bio Mass
Source EIA 2009
2008 Trillion Btu
830.8
332.2
272.2
21.1
18.5
125.4
6.3
57.0
77.5
Texas Electricity Consumption
Energy Source
• Coal
• Natural Gas
• Nuclear
• Wind
• Petroleum
• Hydroelectric
• Bio Mass
• Geothermal
• Solar/PV
•
•
Source EIA 2009
2008 Trillion Btu
1480.4
1415.1
434.8
195.3
16.1
10.3
4.4
0.0
0.0
Let’s be Honest
• Anyone building any new nuclear plants?
(Well…?)
• How about new dams for hydro?
• Coal- and oil-fired plants?
Fossil fuels provide 83% of U.S Energy
U.S. Energy Information Administration
U.S Petroleum Consumption
EIA Estimates 2010
TRANSPORTATION SECTOR
13 Million Barrels (42 gal/bbl) Per Day =
546,000,000 gallons/day
“You gotta be careful if you don't know
where you're going, otherwise you might
not get there“
Yogi Berra
www.naro-us.org
Web site with current NARO information
Also link to NARO Message Boards