Blog Entry - April 17, 2017
Is a Mineral Manager right for you?
Did you just sign an oil and gas lease? How do you know you negotiated a good deal? Did you negotiate the terms? Have you considered your mineral interests in your estate plan? What happens to those minerals and royalty interests when your spouse or children control them? These are all questions that our clients have faced or will face at some point.
If your questioning is similar, maybe a mineral manager would be beneficial, either now or in the future. It’s never too early to plan for the “what-ifs” in life. As a mineral manager, I have talked to clients from all walks of life. Whether they inherited a tract of land or purchased acreage for their family, many people simply don’t understand oil and gas terminology. Even worse, they’re distracted by the large bonus check dangling in front of them.
Depending on how you came about your minerals, you may own interests all over the state or across the country. You may own the entire interest in large parcels or partial interests in small tracts. Managing mineral interests over a vast area can be quite daunting. Dealing with landmen and negotiating lease terms can be frustrating and time consuming. An attorney can negotiate your lease terms but that’s generally where the relationship ends. You, the mineral owner, are then responsible for clarifying and curing title disputes, verifying and executing Division Orders, receiving royalty checks, reviewing check details, verifying that your royalty payments are correct, disputing with the operator/payor if they’re not, and paying ad valorem taxes. The right mineral manager can handle all of these concerns, and then some.
If hiring a mineral manager is right for you, consider the following when discussing options with a management firm:
Experience – Your mineral manager should understand the oil and gas industry and should have previous experience working either for an operator or with an operator. Just like an insurance defense attorney that formerly worked as an insurance adjuster, you want someone that knows the ins and outs from the operator’s standpoint. If you know how and why a company is operating a particular way then it is a lot easier to resolve issues and find a way around the concern. Managers that have worked in the industry are generally members of industry-related organizations and have connections with employees at other companies and with different areas of interest. Having that inside relationship provides good contacts when you have questions or concerns about your producing minerals or when trying to market minerals to potential operators and lessees.
Education and Certification – Besides experience in the industry, your mineral manager should involve themselves in continuing education in order to keep tabs on changes and updates within the oil and gas industry. Legislation and technology are constantly updating and shifting the way oil and gas assets are leased, permitted, and drilled. Your mineral manager should understand these changes and keep abreast of new requirements and case law affecting the industry.
There are several organizations that provide ongoing educational material and certifications. The American Association of Professional Landmen (AAPL) and National Organization of Royalty Owners (NARO) are two entities with strong educational requirements for all certified members. The AAPL offers a Registered Professional Landman (RPL) and Certified Professional Landman (CPL) designation. Both of the AAPL designations require a training course and multi-discipline exam. NARO offers a Certified Mineral Manager (CMM) designation which requires a training course and passing three separate exams. The examinations for both organizations are rigorous and extremely thorough. Either will guarantee that your mineral manager has additional knowledge and ongoing education in order to retain and continue their certification. These additional certifications are not required for a mineral manager, but are highly recommended.
Auditing – Different states allow for differing look-back periods for auditing purposes. Currently, Texas and Oklahoma allow a four year look-back period while Louisiana allows for three years. This look-back period allows the mineral owner time to review check detail and deductions for accuracy and consistency over time. When reviewing check detail you will notice where operators will often adjust royalty amounts for a myriad of reasons – price changes, volume variances, incorrect decimal estimate, and incorrect deductions amounts (i.e. transportation, marketing, etc.). It is only fair that the royalty owner be able to review and demand correct payment where there is error on the part of the operator. If you are not paying attention, you may be losing money.
Since 2007, Argent Mineral Management has recovered over $20 Million in unpaid and underpaid royalties for clients. The Texas court system has repeatedly placed the responsibility on the mineral owner to be an active participant in their mineral extraction and production. Requesting a professional audit of your mineral interests will provide peace of mind, but could also recover unpaid income.
In addition to auditing royalty payments, you should also be aware when payments are placed in suspense. If there is a change of address or death in the family, an operator has a responsibility to suspend funds until the correct payee is determined. Suspended royalties are often escheated to the state after three to five years. At that point, you will be dealing with the state to retrieve your royalty income. A mineral manager can prevent royalty income from becoming suspended and should be able to retrieve any money escheated to the state on your behalf.
Communication and Reporting – You should be able to communicate directly and easily with your mineral manager, either by phone or email. If your manager is difficult to contact, it may be time to reach out to a new management firm.
Additionally, mineral managers should be accounting for all income and expenses related to wells located on or through your mineral interests. You should be receiving a reporting of all well activity either monthly, quarterly, or annually, depending on your agreement, and you should be able to request an accounting at any point in time.
Additional Management Options – Does your mineral manager work independently or with a trust department or wealth management firm? There are independent mineral managers with no ties to banking institutions which may be exactly what you’re looking for; but if the whole of your assets require trust management, investment services, estate planning, or other real estate management options, a larger organization may be more beneficial. A reputable firm with sustainability and history may be more appropriate if you have minor children, children who would be in need of a Special Needs Trust, if you plan to leave your interest to multiple heirs, or if you plan on setting up your minerals in a charitable trust as part of your estate plan.
Whether you have a single tract of land or hundreds of acres throughout the county, make sure your mineral interests are properly managed. If you have questions about your mineral interests or how your minerals fit into your estate plan, contact the experts. Argent Mineral Management has 5 offices across Texas, Oklahoma and Louisiana and can provide full managerial services from lease negotiations to royalty accounting. Argent Mineral Management is a wholly owned subsidiary of Argent Financial Group, which specializes in wealth management, mineral management, investments, retirement, and estate planning. If you’re looking to maximize your mineral interests through an investment portfolio or retirement options or if you have concerns about your current royalty payments, contact one of our Property Managers or visit us on our website www.argentmineral.com.
Argent is the largest independent, trust-based wealth management firm domiciled in the South. Responsible for more than $14.5 billion of our clients’ assets, we have the scale and sustainability to meet the unique needs and goals of individuals and families, businesses, foundations and public entities.