Executive viewpoint
The United States is a global leader in guaranteed individual rights, and property rights are of supreme interest to its citizens. The ownership of property purchased in the U.S. extends to the associated resources, as well, including mineral rights, air, timber, riparian, and surface rights—together known as a fee simple estate.
Over the last century, mineral resources have garnered enough attention for property owners to begin selling or leasing their mineral rights separately from their surface ownership. This practice was spurred on by technological advancements in the oil and gas industry, such as horizontal drilling and hydraulic fracturing, which began to figure more prominently, as exploration in shale deposits across the country greatly increased the number of acres available to produce economically.
Traditionally, mineral rights have been a relatively low-tech industry. They have been comprised mostly of paper land records—which only became digitally available over the past two decades—and an inefficient system for determining their worth. Things changed when the state of Texas began to digitally upload its ad valorem tax rolls, which eventually led to the creation of a digital database for every mineral rights owner in set appraisal districts. This allowed buyers and sellers of mineral rights to more efficiently examine the property records to determine ownership.
Embracing a digital future. What do owners of mineral rights stand to gain by embracing a more digital future? As it turns out, quite a lot. First and foremost, it provides clarity of ownership, as well as a better determination of worth. That allows for improved digitized historical documentation and tracked records, which can easily equate to smoother estate planning and the transitioning of generational assets. For those unfamiliar with the process, the cost of a comprehensive title opinion to determine the generational ownership, plus an engineering review, of the value of an asset can be an extremely expensive and time-consuming process. Thankfully, the digitization of mineral rights records has begun to accelerate over the past few years, which has helped create a more efficient market for all participants.
As the oil and gas industry developed technological advancements in exploration and production, the lease terms and obligations, themselves, became more complex. For instance, horizontal drilling on land that includes mineral rights now calls for much more detailed terminology and things that mineral owners need to look out for. In the past, vertical well drilling was completed in a conventional zone that did not require technologically advanced completion techniques, but horizontal drilling of wells that are 2 mi lateral into the earth increases resource recovery and land record complexity. This necessitates a more complete picture for determining mineral rights ownership and the terms contained in the underlying oil and gas leases.
Maximizing asset value. For mineral rights owners, it’s become much more than just maintaining these assets in paper files in a cabinet—it’s about knowing everything about the status of their assets in real time and getting the maximum value for their owners. As with almost any other asset or investment, they aren’t meant for owners to set and forget.
Hence, we now have specialized and proprietary software platforms capable of not only digitizing mineral rights records but also maintaining a real-time picture of their location and performance, which is continually monitored, updated, and thereby improved. Monthly royalty checks can now be uploaded, and new wells can be mapped, using division orders and other property documents. New lease arrangements with custom reporting allow owners to run reports, to make sure they receive timely and correct compensation under their oil and gas leases. Furthermore, thanks to digital mapping and market data, digitization allows owners and mineral managers to correct payment errors and even allows for the potential recoupment of escheated funds.
All combined, optimization of these assets that facilitates recovery of previously missed payments can add up to a lot of money. Today’s mineral management clients have become accustomed to receiving 24/7 performance updates on all other asset classes, such as stocks and mutual funds, so why should mineral rights ownership be any different? After all, when it comes to making comprehensive financial decisions, documentation that tracks oil and gas leases, relevant terms, and performance reports wasn’t meant to be relegated to a shoebox in the hall closet or a filing cabinet. The transition to a more digital future for oil and gas asset holdings makes good financial sense.
Seamless integration. Asset tracking and valuation is not the only area in the oil and gas industry benefitting from a more digitized future. Many industry players have invested heavily in advanced cybersecurity measures to safeguard financial record-keeping related to this asset class. Accounting, itself, is also undergoing a continual transformation, moving to a paperless future where royalty checks, documents, and other bookkeeping measures are becoming more digitized.
For those who have been slow to embrace this rapid digitization, outsourcing has become a popular avenue, thereby creating more space, time management, and internal efficiencies. Ownership of oil and gas interests has also become an increasingly complex challenge, as they are split generation-to-generation. Ultimately, it comes down to a realization that the oil and gas industry, itself, is becoming much more multifaceted and digitized, especially as it pertains to record-keeping, geological analysis, drilling, and production capabilities. Across the industry, it benefits stakeholders for information to be made more readily available—and accessible—to keep up with the progress and reporting capabilities that already exist with many other asset investment classes.
Failure to adapt to this digital future in a timely manner portends a much-dreaded outcome for owners of mineral rights—leaving money on the table when it comes time to lease, buy or sell. WO
