Thursday, August 29, 2013

Royalty Underpayments

I've blogged a lot lately about the amount and distribution of appraised value held by various mineral owners with some stake in active wells in Denton. I found that just about 6.5% of the total value (I've been calling it 'wealth') is in the hands of actual Denton residents. These are not actual royalty payments (they are the values on which the mineral property owners are taxed). But I think it is fair to assume this is a decent proxy for the distribution of royalty payments. Abrahm Lustgarten at Propublica has a recent piece titled "Unfair Share: How Oil and Gas Drillers Avoid Paying Royalties." He sheds some light on the shady practices used by the industry to avoid paying mineral owners as much as possible. In one case, he found they were withholding about 90% of the royalty payments one farmer was owed (or so he thought!) according to his lease. The industry is required to pay at least 12.5% of oil and gas sales to mineral owners. But through a series of slick bookeeping practices and money-shuffling they find ways to actually dole out a lot less than that. So here are two ways fracking fails to benefit locals economically: 1. The split estate means that surface dwellers (paying the costs) don't get the economic benefits, because they don't own the minerals. 2. Even when they do own the minerals, the industry has armies of accountants to make sure they pay out as little as possible.


  1. So, it's one great, big scam. Go figure.

  2. How about when UT & Texas A & M own the minerals? Do we benefit from that?

    1. I think we probably do benefit in such instances. I also think we benefit when municipalities and school districts own minerals. But of course it depends on how the funds are used.

    2. We probably benefit kind of like I benefited. $80k lost in property value and 5 years later I'm still in the hole.

      Add up all the externalities and the generations of contamination and the only ones benefitting are the industry executives and large landowners. Even Ben who thinks he is benefitting will be left high and dry someday.