Ownership, Title and

Document Training
Agenda
• Types of mineral rights vs ORRI vs WI etc
• Common title issues
• Units and ownership
Who pays to drill and produce wells? Who profits?
These are rarely the same people
Working Interest
(Pays the bills!)
Who owns the working interest?
• Working Interest (or “WI”) in a well or,
more commonly, a lease is typically
owned by oil and gas (O&G) companies
but is also rarely owned by mineral
owners who wish to forego leasing their
minerals and instead choose to participate
in wells drilling their minerals
• It’s rare that a single O&G company holds
100% of the WI in a lease or well
• Every well has an “operator”, an O&G
company that typically holds the majority
WI (meaning they pay majority of the
costs associated with bring oil and gas to
the surface
• The operator makes all decisions and
manages work performed on the well
Example breakout revenues associated Revenue Interest
with a bbl of oil and gas (Gets Paid!)
NRI ORRI
NRI Who owns the revenue interest?
25% • Revenue Interest (or “RI”) is often owned by
Mineral Owner NRI
everyone associated with a well or lease,
Working Interest ORRI
including: O&G companies, mineral owners,
O&G Company “Y”
(“OBO” Partner) and anyone that may have received/bought a
WI
75% fraction of interest in a well or lease
O&G Company “X” throughout the life of the well or lease
(Operator) • Net Revenue Interest (or “NRI”) refers to the
mineral owner (including estates, O&G
companies, state and federal governments)
• An override royalty interest (often written as
“ORRI”) may be sold off or “carved off” by
anyone (excluding government minerals)
• Mineral owners are not responsible for
wellbore costs and maintenance unless they
Note: 75% and 25% is just an example. NRIs are
choose to participate in wells drilled into their
often negotiable but typically range 12-25% property (this is rare!)
Who pays to drill and produce wells? Who profits?
These are rarely the same people
Working Interest
(Pays the bills!)
Example: Company “X” is the majority
working interest owner in a drill spacing
unit (or “DSU”) and wants to drill a new
well. They send notice to everyone with a
right to “participate” in the new well
requesting funds for their portion of the
DSU, which is anyone with working
interest in the well and primarily means
other oil companies with minority
interests.
Remember: At no point do any mineral
nor ORRI owners pay any costs
associated with producing a well unless
they are unleased mineral owners and
choose to participate (very rare).
Example breakout of costs and revenues Revenue Interest
associated with a bbl of oil and gas (Gets Paid!)
NRI ORRI
NRI Example: Bill Jones Sr leased his minerals
25%
Mineral Owner NRI decades ago. They have since been “held”
Working Interest ORRI via constant production since he leased
O&G Company “Y” them. Bill Jr inherited his father’s minerals
(“OBO” Partner)
WI and now wants to sell a fraction of
75%
interest in the producing wells without
O&G Company “X”
(Operator) selling any of his minerals. He is able to do
this by selling an ORRI. The buyer will be
entitled to a piece of what Bill Jr receives.
Remember: Selling an ORRI only
impacts the seller’s economics. No one
else is impacted when an ORRI is
offered. Anyone with RI in a well or
lease, including oil companies, may
Note: 75% and 25% is just an example. NRIs are
often negotiable but typically range 12-25% carve off an ORRI from their interest.
Common Issues: Did not go through probate

Probate is a legal process that takes place after someone

dies. It includes:
• Proving in court that a deceased person's will is valid (usually a routine matter)
• Identifying and inventorying the deceased person's property
• Having the property appraised
• Paying debts and taxes, and
• Distributing the remaining property as the will (or state law, if there's no will)
directs

Probate requirements vary by state and estate size and in some cases can be
bypassed with an Affidavit of Heirship
Common Issues: Mineral/royalty reservation?

• When a mineral owner sells the surface but keeps the minerals:
Common Issues: Sold but still getting royalties

In order for someone to stop getting royalties, they or their buyer has
to inform the operator that they have sold. Sometimes buyers and
sellers don’t do this and the seller continues to get royalties even after
they have sold

Solution: amend the existing documents to create a mineral reservation

What’s a Pool or Unit?
• Government authorities recognized that oil and gas wells drain a
significantly large area, which drains the reserves of multiple
properties

• Regulatory and government institutions established laws that require

POOLING and UNITIZATION to pull together multiple mineral owners
into a UNIT where it is legally allowable to drain all reserves from
within
 Janie’s Jack’s
Land Land UNIT
120 acres 15 acres 160 acres

Susan’s Bill’s Vishal’s Kendrick’s Jose’s

Land Land Land Land Land
5 acres 5 acres 5 acres 5 acres 5 acres
Gross, Net, and Unit Acres
• GROSS ACRES is the total amount associated with the piece of land

• NET ACRES is the actual amount that the mineral owner owns

• UNIT ACRES is the amount of acres within a unit

 UNIT
160 acres

Janie’s Jack’s Owner Net Acres Percentage

Land Land Janie 120 75%
Jack 15 9%
120 acres 15 acres
Susan 5 3%
Bill 5 3%
Vishal 5 3%
Kendrick 5 3%
Jose 5 3%
Total 160 100%

Susan’s Bill’s Vishal’s Kendrick’s Jose’s

Land Land Land Land Land
5 acres 5 acres 5 acres 5 acres 5 acres
 UNIT
160 acres

Joseph’s
Land
20 acres
Owner Gross Acres Net Acres Percentage
Janie 120 80 50%
Janie’s Joseph 120 20 13%
Land Jack’s Jenny 120 20 13%
80 acres Land Jack 15 15 9%
Susan 5 5 3%
15 acres Bill 5 5 3%
Jenny’s Vishal 5 5 3%
Land Kendrick 5 5 3%
Jose 5 5 3%
20 acres Total 160 100%

Susan’s Bill’s Vishal’s Kendrick’s Jose’s

Land Land Land Land Land
5 acres 5 acres 5 acres 5 acres 5 acres
What’s a Division Order?
• DIVISION ORDER is the calculation of the ownership decimal interest
that each mineral owner has within a UNIT

• DECIMAL INTEREST defines the percentage of how much a mineral

owner gets paid from the production of oil and gas from the wells
 What’s a Division Order? Part 2
DIVISION ORDER = $$$$$$$

Owner Net Acres

Decimal Lease Royalty Rate
= X
Interest
Unit Acres

Owner’s cut of What percentage of

profits from wells How much of your land
is in the producing unit profits an owner receives
based on lease
 UNIT
160 acres

Janie’s Jack’s Owner Net Acres Percentage

Land Land Janie 120 75%
Jack 15 9%
120 acres 15 acres
Susan 5 3%
Royalty: 10% Royalty: 15%
Bill 5 3%
Vishal 5 3%
Kendrick 5 3%
Jose 5 3%
Total 160 100%

Susan’s Bill’s Vishal’s Kendrick’s Jose’s

Land Land Land Land Land
5 acres 5 acres 5 acres 5 acres 5 acres
Royalty: 20% Royalty: 20% Royalty: 20% Royalty: 20% Royalty: 20%
 Example Pooling and Unitization Order
Gross Net
acres acres

Owners
Unit
acres
 Example Oil & Gas Lease

Owner

Gross acres

$ Royalty $
 Owner’s cut of
profits from wells
Owner Gross Acres Net Acres Percentage Royalty Decimal Interest
Janie 120 120 75% 10% 7.50000%
Jack 15 15 9% 15% 1.40625%
Susan 5 5 3% 20% 0.62500%
Bill 5 5 3% 20% 0.62500%
Vishal 5 5 3% 20% 0.62500%
Kendrick 5 5 3% 20% 0.62500%
Jose 5 5 3% 20% 0.62500%
Total 160 100% 100% 12.03125%

How much of your land What percentage of

is in the producing unit profits an owner receives
based on lease
How Does an Owner Get Paid?
Gas Well Gas Pipeline Gas Market
 Royalty Payments

Gross Net
Royalty - Fees = Royalty
Payment Payment

Money from selling Money in an

oil and gas Bills, Bills, Bills
owner’s pocket
Fees…
Gas Market
Gas Well Gas Pipeline

Gathering fee
Processing fee
Marketing fee
Compression fee
Price deductions
Transportation fee
Taxes
Royalty Payment Example
Gross Royalty Payment
Type Price / Rate ($/Mcf) Volume (Mcf) Revenue ($)
Gas Sale $2.00 100 $200.00
Gathering Fee ($0.40) 100 ($40.00) 75% REDUCTION
Compression Fee ($0.06) 100 ($6.00)
Transportation Fee
Marketing Fee
($1.00)
($0.04)
100
100
($100.00)
($4.00)
(PAIN)
Net Royalty Payment $50.00

Net Royalty Payment

Documents ***IMPORTANT***
• Documents provided by owners contain important information, such
as volumes, prices, and fees

• This information is used to confirm public data in order to come up

with an OFFER
Document Types ***IMPORTANT***
• ROYALTY STATEMENT – monthly statement provided by the operator
to the mineral owner

• 1099 MISC – document provided by the operator to the mineral

owner in order to be filed yearly for tax purposes

• BANK STATEMENT – monthly statement from mineral owner’s

personal bank account
Document Info ***IMPORTANT***

Variables Royalty Statement 1099 MISC Bank Statement

Gross Royalty Payment YES MAYBE NO
Fees YES MAYBE NO
Prices YES NO NO
Volumes YES NO NO
Net Royalty Payment YES MAYBE YES
Royalty Statement Example

Gross Fees Net

Royalty (54% Reduction) Royalty
Payment Payment
1099 Example
Gross or Net
Royalty Payment????

Fees
Fees
Net Royalty Payment

Gross Royalty Payment

Bottom Line ***IMPORTANT***
UNDERWRITING NEEDS:
1. ROYALTY STATEMENTS
2. BANK STATEMENTS
3. 1099 MISC

NO DOCS = NO OFFERS

MORE ASSUMPTIONS = LOWER OFFERS /

HIGHER CHANCE OR REVISED OFFER