Cartoon Of the Week

Less than 1% of America's population is fortunate enough to have mineral interest under America's shale basins and they have racked up over a half trillion dollars of free royalty income and lease bonuses since 1993 and the onslaught of shale gas in the Fort Worth Basin.

Mineral transactions in Texas are of public record and it's easy to research all royalty burdens on shale oil leases. The times I've done title work in courthouses throughout S. Texas the past six to eight years I always look at new mineral leases and/or assignments of old leases, most all of which are Eagle Ford related, and am often surprised at ORRI's (overriding royalty interests) carved out of leases with funky looking corporate/partnership names as Assignees that can't be traced any further. Odd thing, that, particularly when public corporations are involved.

Damages to land, water use fees, property tax provisions for large drilling pads, egress restrictions, fences, road maintenance, rentals, gate guards, surface restoration, who pays what to get product to the market, down to the nickel, is all often enough to choke a horse.

Continuous drilling provisions required to earn, or retain, acreage, however, are one of the most onerous addendums to Lessees and Assignees. For the most part those continuous drilling provisions are tied to applicable field rules, which shale oil operators are always changing to facilitate downspacing. Stupid is as stupid does.

But onerous continuous drilling provisions, mandated by royalty owners, are part of the reason the shale industry continues to outspend revenue, that they're dealing with well interference and reduced EUR, that sweet spots are being over-drilled and GOR is rising, that so much gas is getting flared (some of which is actually entitled to royalty) and a host of other problems. Problems that are leading to premature depletion of America's last remaining hydrocarbon resources. Overleveraged overproduction lowers prices, which in turn reduces free royalty revenue. Stupid is as stupid does. The entire gig, top to bottom, is completely out of control.

A word of advice: don't debate what's good for America's long term hydrocarbon future with royalty owners. They could care less about profitability, long term shale debt, flaring, exports, etc. and they'll tear your head plum off. The 'Drill Baby Drill' mantra was coined by American royalty owners.