I have been telling a story (here
and here)
through case studies about how the money generated in Denton by fracking
largely drains away from Denton. I have another case study in the works, but...
Now it is time to step back and see the big picture.
How much are the mineral properties in Denton worth? If we include the
operators’ share, the total is about $84.5 million. But let’s just focus on the
amount that the actual mineral owners hold. That total is $24.7 million. Now, how is that pie distributed? Mineral property owners with a Denton mailing address hold $6.75 million, which amounts to just 27%. The City of Denton holds half that. And half of the remainder is held by corporations with Denton addresses (like Ril Mineral Holdings, which is Rayzor Ranch). That leaves about $1.7 million in the hands of actual Denton families (and by the way, 50% of this wealth is concentrated in the hands of just 13 families/individuals). That is a whopping 6.8% of the total pie of wealth held by all mineral owners (again, not even including operators – if we include them, the share held by Denton families would be less than 2%).
What does this chart look like for land ownership in Denton? Is it basically the same? Does this chart just show that most land is owned by people who live elsewhere?
ReplyDeleteI wonder about that $60m owned by operators. They bought those rights from some land owner, who decided to get their reward in a single payment instead of royalties spread out over years. They don't show up here, but they got paid for their minerals.
Also, taxable values are gamed to keep taxes as low as possible until extraction is in full swing. I wonder if the selection of wells that are being heavily pumped now, with extremely low gas prices, are affected by who owns them. Savvy owners might be choosing to wait until prices rise, while operators and government agencies have an incentive to get cash now. Knowing who owns extractable minerals is very difficult, but I think royalty owners of wells, operating or shut in, from RRC might be a better representation of total ownership of minerals.
Devin - can you point me to how to find royalty owners on the RRC site?
DeleteAlso, the operators I am treating purely as operators - that is, these are their roughly 70% leases - they did not buy these rights, so there is no missing transaction paid to mineral owners in that sense.
I cannot find it now. I remember seeing some sort of ownership percent and royalty rate some time ago dealing with UNT's well off Bonnie Brae. Maybe DOFF would have a link to it? I believe Nick Magruder printed a copy to give to Lane Rawlins at a 'lunch with the students' event.
DeleteThe RRC publishes ownership in pooled units with the permits, which you can view individually online. I doubt the agency collects that information in any way that you could request a data file, however. I cannot see how that would matter. The operator is supposed to set up the payments -- and thus the taxable accounts -- from the division of interest in the pool. The taxable accounts seems a robust number to me for comparison (even if the assessment is somewhat behind market conditions, you eventually pay), but I am interested in any solid argument that it wouldn't be.
ReplyDeleteFrankly, that would be quite a news story. Sorry, Texas, some people aren't paying their fair share of taxes.
I don't think it would be worth it to try to find this unrealized wealth Devin is alluding to, unless you were an economist or analyst that could reliably calculate a figure based on what's being held in reserves. Reams have been written over the years about how, and even if, reserves numbers can be meaningful.
You could qualify your analysis by reporting out the percent of wells in Denton that are shut in. But I disagree that it could be any "more representative" of ownership. Assigning a value to them would be speculative. You don't know why a well is shut in. Some are shut in because of other operational problems, not just market conditions.
That leaves the issue of how much some landowners might have received for cashing out their mineral interests early. I do not think that explains that interest-owned-by-the-operator number. The better question might be, how much of this mineral wealth has transferred to operators who have bought up tens of thousands of acres of leases that were negotiated four decades ago or more?
The 'unrealized wealth' I am alluding to comes from the DCF and production curve formulas for calculating ad valorem values. Wells shut in at the start of production don't have clear curves and taxes can be argued. As you said, it all comes out in the wash after the gas is sold, but it makes valuations gameable.
DeleteMore relevant to the topic, many recent land owners have sold their minerals and profited, and they are not represented in this pie chart.
I don't think any operators were buying minerals in Denton County in 1970. In Wise you will have an abundance of minerals long separated from surface rights, but in Denton there have been many people making money selling mineral rights in the past 10 years. Of course, they often didn't live on the land, or they sold the land shortly after they sold the minerals, but operators and absentee mineral holders were not granted mineral rights by God, they paid local someone for them at some point in history.
Good points, thanks. This may be so, though I wonder in some cases (e.g., Cole and Rayzor) if many of those people ever actually lived out here - they just inherited the minerals, perhaps, so there was no payment to a 'local.' Anyway what I am more interested in figuring out is how many people who actually live near the risks posed by fracking are compensated for bearing those risks through some financial reward gained by owning a share of the minerals that are being accessed. To really figure this out, we need to look well by well to see who lives nearby (if anyone) and which of those people (if anyone) are in on the money.
DeleteAdam - on the appraisal district website under legal description it gives you a percentage & then a letter. Royalty owners are identified by the letter r, overriding royalty owners are identified with a "o" & working interest owners use a "w".
ReplyDeleteBen - thanks. Do you know what overriding royalty owner means and what working interest owner means?
Deletea
Overrides are royalty interests that don't have all the processing /production fees deducted. Royalty owners have to give a portion of their share of the production that is sold back to the oil company. Working interest owners are all the partners in the well. Working interest owners are responsible for their portion of all the well expenses. Usually appraisal district will only show the total working interest going to the operator (somewhere in the neighborhood of (70% to 87.5%).
ReplyDeleteNice Post!!! you have shared nice information about of distribution of wealth among mineral owner. thank you for sharing nice blog with us..
ReplyDeleteOverriding Royalties by UNI Royalties
THANK YOU FOR DOING THIS RESEARCH!!!!
ReplyDelete