Short Commercial about NARO

• What does this statement mean?• Who are we?

• NARO was founded in 1980Due to Windfall Profits Tax

• We have grown into an educational/advocacy organization

• NARO has two “parts” The Association a 501 c (6)

The NARO-Foundation a 501 c (3)

NARO State Chapters

Arkansas-NARO

NARO-Appalachia KY, OH, WV

NARO-New York

NARO-Pennsylvania

NARO-Louisiana

NARO-Rockies CO, MT, ND, NM, UT, WY

OK-NARO

NARO-Texas

Annual Convention

Educational Opportunity for Mineral/Royalty Owners

Two days of seminars

2011 Was in Long Beach, CA

2012 will be in Dallas, TX November 1-3

MISSION

     The mission of NARO is to encourage and promote exploration  and  production  of  minerals  in  the United  States  while  preserving,  protecting, advancing and representing the interests and rights of mineral  and  royalty  owners  through  education, advocacy and assistance to our members, to NARO chapter organizations, to government bodies and to the public.

 

Royalty Owners Bill of Rights

1. Royalty owners have the right to be paid according to all terms contained in their lease contract and by law.

2. Royalty owners have the right to access information possessed by the operator or payor in order to verify correct payment according to their contract or by law.

3. Royalty owners have the right to seek redress if good faith negotiations to correct violations of lease terms fail.

4. Royalty owners have the right to be heard in matters regarding oil and gas energy policy, proposed legislation or regulatory issues which would positively or adversely affect their interests

How Many Royalty Owners?

• How many citizens are royalty owners, if you take our membership in each state as a percentage of a total and then multiply by the estimated 8.5 million royalty owners you get a rough idea of how many royalty owners live in each state.

AK 13,600 AL 33,150 AR 255,000 AZ 144,500 CA 510,000 CO 654,500 CT 17,000 DC 17,000 DE 2,550 FL 161,500 GA 85,000 HI 8,330 IA 33,150 ID 35,700 IL 76,500 IN 27,200 KS147,900 KY 11,050 LA 125,800 MA 30,600 MD 35,700 ME 5,525 MI 44,200 MN 47,600 MO 110,500 MS 39,100 MT 47,600 NC 67,150 ND 24,650 NE 19,550 NH 13,600 NJ 47,600 NM 161,000 NV 44,200 NY 127,500 OH 30,600 OK 1,691,500 OR 51,000 PA 119,000 RI 5,525 SC 22,100 SD 5,525 TN 59,500 TX 2,975,000 UT 39,100 VA 85,000 VT 2,550 WA 39,100 WI 39,100 WV 19,550 WY 30,600

Total nationwide: 8,440,755.

Mineral Management 101Program Outline

• Ten Duties of Mineral Owners• Four Major Events for Mineral Owners– Ownership– Leasing– Division Orders– The Royalty Check

10 Duties (Responsibilities) of Mineral Owners

1- KNOW what you own

2-KNOW what information you need and where to get it

3- KNOW what is going on in your area of interest

10 Duties (Responsibilities) of Mineral Owners

4-KNOW what the future impact the small print in the oil and gas lease/division order will have on your royalty payment

5-KNOW who has it (your lease, your well, your production)

10 Duties (Responsibilities) of Mineral Owners

6-KNOW what questions to ask and to whom to ask them

7-KNOW your limits

10 Duties (Responsibilities) of Mineral Owners

8-KEEP copies/originals of everything and organize it

9-KNOW that you must remain vigilant and DO something

10-PLAN

4 Major Mineral Owner Events

• OWNERSHIP• Leasing• Division Orders• The Check

Types of Ownership

• Non-Producing– Mineral Ownership

• Producing– Overriding Royalty Ownership– Working Interest– Royalty Ownership

• Rights of Mineral Ownership– Enter the land to explore, drill, produce and

otherwise carry on mining activities.– Lease those ownership rights to another party.– Ownership exists in perpetuity. Unless “Dormant”– The minerals sit “in place” until developed; most

mineral owners cannot afford to drill a well.

Mineral Ownership

Types of Ownership: Producing

Working Interest (WI)Investors in the well who share the actual costs

incurred in drilling, completing and producingProduction income is distributed proportionately

Overriding Royalty Interest (ORRI) Carved from the WI; non-cost bearing

Types of Ownership: Producing

• Royalty Ownership/Interest (RI)– Begins with Production– Ends with Production– Does not have to be owned by the “Mineral

Owner” but it usually is– Is based on the fraction retained in the lease and

your ownership– Gets you the checks in the mail

Ownership

• Legal Description (Gross acres)• Amount of Mineral Acres Owned

(Net mineral acres)• Type of Ownership

Components of Ownership

Legal Descriptions

• The publicly recognized unit of land measurement for your property

• Mineral Ownership can be– A portion of that description– All of that description

Legal Descriptions

4 Major Mineral Owner Events

• Ownership• LEASING• Division Orders• The Check

Many printed forms are available but

THERE IS NO SUCH THING AS A

“STANDARD LEASE” FORM

Leasing

• the basic instrument in oil and gas development

• a legal instrument executed by a mineral owner granting the exclusive right to another to explore, drill and produce oil and gas from a particular piece of land

The Oil and Gas Lease is

Leasing

VIRTUALLY ALL LEASE TERMS ARE 

NEGOTIABLE

Leasing

Negotiations

• The Lease BonusPaid by the Lessee at the time the lease is executed

Usually is calculated on a per acre basis

Usually is paid by separate draft or check

Is not recited in the lease

Example:  Ownership  =  10 NMA

  Lease Bonus  =  $50 per acre

Total Bonus Paid = $500

Negotiations

• Retained Fraction (Royalty Rate)If production is established

the Fraction agreed upon will be the royalty rate paid on production

Example:  Retained Fraction  1/8    =  12.50%3/16  =   18.75%                                     

                     1/5    =   20.00%                 1/4    =   25.00%  

Lease Clauses that can Bite Your Pocketbook

“To pay Lessor for gas (including casinghead gas) and all other substances covered hereby, a royalty of 3/16 of the proceeds realized by Lessee from the sale thereof, less a proportionate part of the compressing, dehydrating, transporting, and marketing or otherwise making such gas or other substances ready for sale or use, said payments to be made monthly.”

Lea$e Clause$ to Protect

“Commencement of a well according to the terms of this lease will require that a drilling rig capable of drilling to a total depth be on location and drilling on or before expiration of the primary term, and that the drilling of said well be continued with due diligence until completion.  Construction of a well location without actual drilling as detailed above will not be deemed commencement of a well.”

4 Major Mineral Owner Events

• Ownership• Leasing• DIVISION ORDERS• The Check

Division Orders

• Issued by the Company AFTER production is established

• States the decimal interest on which you will be paid

• Is the link to information on your check stub

Division Orders

NADOA

 Model

Form Division 

Order

Model Form Division Order

Model Form Division Order

80/640 x 3/16 = .0234375 RI

Interest Verification:The Decimal Interest

Shift Gears

Why do we need oil and gas? AND

Why Now?

Can’t we just put up windmills and solar panels?

New York Electricity ConsumptionEnergy Source             2008 Trillion Btu               

• Nuclear 454.8• Natural Gas 375.1 • Hydroelectric 268.3• Coal 131.8• Petroleum 26.6• Geothermal 0.0• Solar/PV 0.0• Wind 22.1• Bio Mass 31.5

Source EIA 2009

California Electricity ConsumptionEnergy Source 2008 Trillion Btu• Natural Gas 830.8 • Nuclear 332.2• Hydroelectric 272.2• Coal 21.1• Petroleum 18.5• Geothermal 125.4• Solar/PV 6.3• Wind 57.0• Bio Mass 77.5

Source EIA 2009

Texas Electricity ConsumptionEnergy Source 2008 Trillion Btu• Coal 1480.4 • Natural Gas 1415.1 • Nuclear 434.8• Wind 195.3• Petroleum 16.1• Hydroelectric 10.3• Bio Mass 4.4 • Geothermal 0.0• Solar/PV 0.0• •

Source EIA 2009

Let’s be Honest

• Anyone building any new nuclear plants? (Well…?)

• How about new dams for hydro?

• Coal- and oil-fired plants?

Fossil fuels provide 83% of U.S EnergyU.S. Energy Information Administration

U.S Petroleum ConsumptionEIA Estimates 2010

TRANSPORTATION SECTOR13 Million Barrels (42 gal/bbl) Per Day =

546,000,000 gallons/day

“You gotta be careful if you don't know where you're going, otherwise you might not get there“

Yogi Berra

www.naro-us.org

Web site with current NARO information

Also link to NARO Message Boards