The number of natural gas wells in the 20 counties between Waco and the Red River, is growing daily. Fueling these wells is an unprecedented discovery period in an area known as the Barnett Shale. Increasingly, more north central Texans are finding the need to become versed in drilling procedures and mineral rights. Following is some information that might help drill a little deeper toward answers to questions about the Barnett Shale.

The Barnett Shale, which was an ocean bed several hundred million years ago, has almost no porosity. As a result, natural gas has been trapped in it for eons, but the drilling methods to release that gas have only been available in the last few years.

To drill for natural gas in the Barnett Shale, three main ownership rights exist through which to do business. They are royalty interests, overriding royalty interests, and working interests.

Usually, landowners also own the minerals under the surface of their land, although sometimes those mineral rights can become severed from the surface rights when a landowner sells the surface but retains the minerals by deed.  The mineral owner has the right to lease those minerals to an exploration company.  Typically, the mineral owner will receive a lease bonus for his/her minerals plus a royalty in consideration for leasing the minerals.  The lease bonus can be anywhere from a few hundred dollars to a few thousand dollars per acre, depending on how many acres the mineral owner has, and whether the acreage is in the middle of the trend or in the outer fringes; and it is paid at the time the lease is signed.  The size of the royalty interest can vary also, but is seldom more than 25% of the gross revenue from the property.  The lease normally has a primary term of three years, the amount of time the exploration company has in which to begin drilling a well.  If no well is drilled during the primary term, the lease will expire and the mineral owner can negotiate a new lease with another company.  If a well is drilled within the primary term, the lease will remain in force as long as the well is commercially productive.  During this productive term of the lease, the mineral owner will be paid for a share of the production from the well equal to his/her royalty interest.  The mineral owner incurs none of the costs of either drilling or operating the well, only his/her share of state severance taxes and marketing costs.

Similarly, an overriding royalty interest owner bears none of the costs to drill or operate the well.  Typically, the landman (or middleman) who negotiates the lease keeps an overriding royalty before assigning the lease to an exploration company.  So, if a mineral owner agrees to a lease with a royalty interest of 23%, it is likely that the landman will keep a 2% overriding royalty interest on top of the royalty interest and assign the exploration company the remaining 75%.  Unlike the mineral owner, however, all of the overriding royalty owner’s rights expire when the lease expires. 

The working interest owner is the exploration company that actually drills the well.  After agreeing to pay the mineral owner a royalty interest and the landmen and various middlemen an overriding royalty for helping acquire the lease, the working interest owner keeps whatever revenue is left, usually 75% or more.  However, the working interest owner pays for all the costs of drilling, completing and operating the well.