Retirement

Trying hard to become retired but neither clients nor judges nor fate is cooperating much. Days tick off relentlessly as the Feb. 28 deadline to vacate the office looms like a grizzly awakened from hibernation who has spied his first meal of spring. Deadlines imposed by indifferent authorities creep forward relentlessly, competing for time against financial challenges and puzzles that for years were content to lie dormant but have chosen this time to turn urgent and threaten dire consequences. Not to mention other obligations ranging from those spawned by dad’s demise to the grind of simply dealing with life’s mundane daily challenges. I take little breaks when possible to read books, a recent one of which took an analytical look at the saying, “what doesn’t kill you makes you stronger”. The author noted that such things could leave you disabled or otherwise in a condition other than stronger, however much someone might argue about strength of character. So, I’d just as soon skip a third heart attack, thank you very much. Wish me luck. And, if anybody wants some impressive-looking law books to decorate their walls, I have quite a lot for the taking, as well as a few desks, chairs, etc.

Whenever I get this retirement behind me, I’ll likely add more thoughts about it here. There are several things I’d like to say about the legal profession, and about oil & gas, and about government agencies, and about politics, and about probably a few other things. For now, though, I just need to get this retirement thing behind me.

So long, good-bye, farewell!

Net Royalty Acres Anyone?

When you’re talking about a “royalty” interest you’re talking about something that’s created by a piece of paper called a lease. When you’re talking about a “mineral” interest you’re talking about something that’s created by nature under the land. When you’re talking about land you’re generally talking about acres. So, what are you talking about when you’re talking about “royalty acres” or “net royalty acres” or “mineral acres” or “net mineral acres”? I’ve heard all those terms used, and I’ve seen numbers associated with them, inconsistently. One of those numbers is the number “8” or, inversely, “1/8”. I have a problem with automatically using an “8” when talking about royalty acres or mineral acres, because it assumes a lease with a 1/8 royalty. Not all leases have a 1/8 royalty; it might be 3/16 or 5/32 or even 1/4.

What I learned (which I don’t claim was right) was that “royalty acres” was the product of multiplying the number of acres (of mineral interest) by the royalty specified in the lease. If you own 80 acres and the royalty is 1/8, you have 10 royalty acres; or if the royalty is 3/16, you have 15 royalty acres. But if you only own a 1/2 interest in the 80 acres of minerals you have 40 mineral acres, and you have either 5 net royalty acres or 7.5 net royalty acres depending on whether the royalty is 1/8 or 3/16. The landman, however, is calling it 5 net mineral acres. The landowner asks what that means and is told it’s 1/8 of 40 acres. But, the landowner responds, I thought you said the royalty is 3/16!

I recognize that a lot of people have been accustomed for a lot of years to think in terms of 1/8 when thinking about oil and gas leases and “mineral acres” or “net mineral acres”. When putting a value on a mineral interest, one could argue that royalty interest is irrelevant, as there may not even be a lease. On the other hand, if there is a lease and you’re thinking of selling your mineral interest, would you think it’s more valuable if it’s generating a 3/16 royalty than if it’s generating a 1/8 royalty? But, you might argue, if there’s a lease then you’re selling your royalty interest and, of course, you’d want more for a 1/8 royalty than a 3/16 royalty. And here, if you practice law, is where you roll your eyes around because you know about all the litigation that’s been spawned because of documents entitled “Royalty Deed” that were actually a mineral deed but messed up because they were thinking about that 1/8 and so the grantor conveyed “my entire 1/8” interest.

It’s getting worse each passing year because the “new” kids working in the division order departments of the crude buyers don’t have a clue about net mineral acres or net royalty acres and will tell a landowner who calls up with a question about their division order that the decimal number on it is their net revenue interest (NRI). So then they call the lawyer who drew up their dad’s will but has never seen an oil and gas lease and god only knows what they’ll be told.

I’d favor banning the use of “net mineral acres” and “net royalty acres”. When I see either of those terms in a lease that’s been presented to a landowner client, I have to call the landman or lessee’s lawyer to verify what he/she intends to mean by it. Then I’ll probably draw up something to add to it in order to avoid confusion in the future.

End of an Era

A long-time (over 30 years) client and friend opined recently that the oil industry in Eastern Kansas, possibly Western Kansas, as well, is on its death bed. He sees no hope of recovery. A few hardy souls might eke out a modest living, but the industry will never see the kind of activity that drove it in the past. Even if the price of oil can recover, the industry cannot. I had arrived at the same opinion myself, and several clients have been wondering how to get out without having to accept a fire sale price for everything they worked so hard to build up all these years. I expect they’ve missed the boat.

I intend to continue this article. I don’t have the complete article in my head yet, though. Since I don’t post very many articles, I decided the best way to motivate me to write this one would be to go ahead and publish the start of it. Don’t want to appear to be somebody who can’t finish things, right?