MINERAL RIGHTS OWNERSHIP
Letter from the Managing Partner
Dear Investors,
I have been intrigued by mineral rights ownership for some time now. I have industry partners who have made a lot of money investing in minerals over the years. I wanted to share with our investors some information about what mineral interests are and the role they play in the production of oil and gas in the US.
As I'm sure you know, there are a lot of ways to get involved in the oil and energy sector. One of the lesser known and lesser understood methods is the ownership of the minerals lying right under the surface of the earth. An enormous amount of wealth has been generated throughout the years by understanding and owning these mineral rights.
Individuals, entities, and family offices from countries outside of the United States and Canada can own US minerals. Actually, the United States and Canada are the only places in the world that private individuals can own minerals. In most instances in other countries, the government retains ownership to all the mineral rights. In the US, mineral owners have the right to buy, develop, lease, bequeath, and sell their interests. Owners may realize substantial monetary gains from producing properties in the form of lease bonuses and royalty payments or from sale or lease of the minerals, in our case oil and gas. Best of all, ownership rights to the minerals never expire.
Public and private oil companies are always in search of, and pay substantial bonus premiums for, lands to lease that may have oil and gas production once developed. Competition is fierce for the minerals underlying good producing properties, or that which is "ahead of the drill bit".
Mineral owners are the ones who receive lease bonuses and royalty checks from producing properties. In addition to the lease bonus, owners can get from 12.5% to 25% of the gross revenues generated from production. Mineral owners incur no expenses for drilling, completion, operations expenses or dry-hole costs as one would on a drilling and development deal.
Transference of US mineral interests along with surface rights began back in the 1600's when the original 13 colonies were granted stateship by the British. The British government did not retain any interests in the land. Accordingly, when the first 13 colonies were established, the government did not reserve the minerals as the land was granted to those colonies to create what were the first thirteen states of the United States.
Mineral interest purchases, ownership, management and disposition of the same are basically parts of a real estate transaction. Along those lines, Thomas Jefferson, in executing one of the largest real estate "deals" in history, did a surface rights and mineral rights transaction that US citizens are still benefitting from today. In 1803 he engineered the Louisiana Purchase, a $15,000,000 land acquisition from Napoleon Bonaparte and the country of France. Jefferson acquired the surface and mineral rights covering all or parts of what is Texas, Oklahoma, Louisiana, Arkansas, Colorado, Kansas, Missouri, North and South Dakota, Wyoming, Iowa, Minnesota and Nebraska.
Mineral rights ownership, as they relate to oil and gas, began to take shape and gain their initial financial importance with the drilling of what is considered to be the first commercial oil well in the US by Colonel Edwin Drake in 1859. Drake drilled to about a 70-foot depth just outside of Titusville, PA and "brought in" a well producing approximately 25 barrels of oil per day. Not a "gusher" by today's standards, but very important. By 1871 the area around Titusville was producing almost 6,000,000 barrels of oil per year. Oil quickly became a treasured commodity as it was the primary fuel used ushering in the expansion of the Western United States by oil-consuming railroads.
Even before the "discovery" of oil, natural gas was drilled, produced and piped through hollowed out logs from a 27-foot-deep well to Fredonia, NY to light the city. This gas was piped in as early as 1826.
Today, mineral rights can be severed, or separated from, the surface rights to the land. The surface rights owner has air rights over the land and from the surface down to "plow-depth". Below that, the mineral owner's rights take over.
Often known and owned more by institutional type investors, mineral rights should be a consideration for the private individual or family office given the opportunity and after execution of proper due diligence.
Highest regards,
Jack Nichols
Managing Partner
Mineral interest purchases, ownership, management and disposition of the same are basically parts of a real estate transaction. Along those lines, Thomas Jefferson, in executing one of the largest real estate "deals" in history, did a surface rights and mineral rights transaction that US citizens are still benefitting from today. In 1803 he engineered the Louisiana Purchase, a $15,000,000 land acquisition from Napoleon Bonaparte and the country of France. Jefferson acquired the surface and mineral rights covering all or parts of what is Texas, Oklahoma, Louisiana, Arkansas, Colorado, Kansas, Missouri, North and South Dakota, Wyoming, Iowa, Minnesota and Nebraska.
Mineral rights ownership, as they relate to oil and gas, began to take shape and gain their initial financial importance with the drilling of what is considered to be the first commercial oil well in the US by Colonel Edwin Drake in 1859. Drake drilled to about a 70-foot depth just outside of Titusville, PA and "brought in" a well producing approximately 25 barrels of oil per day. Not a "gusher" by today's standards, but very important. By 1871 the area around Titusville was producing almost 6,000,000 barrels of oil per year. Oil quickly became a treasured commodity as it was the primary fuel used ushering in the expansion of the Western United States by oil-consuming railroads.
Even before the "discovery" of oil, natural gas was drilled, produced and piped through hollowed out logs from a 27-foot-deep well to Fredonia, NY to light the city. This gas was piped in as early as 1826.
Today, mineral rights can be severed, or separated from, the surface rights to the land. The surface rights owner has air rights over the land and from the surface down to "plow-depth". Below that, the mineral owner's rights take over.
Often known and owned more by institutional type investors, mineral rights should be a consideration for the private individual or family office given the opportunity and after execution of proper due diligence.
Highest regards,
Jack Nichols
Managing Partner