Texans cashing in on giant gas reservoir

/ Source: The Associated Press

As Patricia Bullard grabs the green metal fence surrounding a natural gas well, she’s relieved at its sturdiness. The fence stands vital to protecting competing interests — livestock and natural gas mineral rights — on this 2,000-acre ranch.

Bullard is among thousands of Fort Worth-area homeowners collecting monthly checks from energy companies drilling into their land above one of the nation’s hottest producing natural gas fields, the Barnett Shale.

Depending on production, the sale of mineral rights can mean paying for a child’s college education, buying a weekend home or beefing up a nest egg. Payouts differ each month, depending on production, the life of the well and the number of wells on the property.

Having mineral rights can mean extra income that quickly reaches the thousands each month; however, landowners must not be led into thinking they have newfound riches.

“It’s not a play check; it’s not fun money,” said Bullard, who is also president of the National Association of Royalty Owners-Texas. “That fund will diminish over time. It may take 20 or 30 years, but then again it may three months from now.”

Landowners sitting on minerals need to exercise caution and patience when negotiating a deal or risk coming up short, advisers say. They should not settle for anything less than 20 percent of all the hydrocarbons produced in the well, say negotiators.

“If you are not in the oil and gas business don’t be foolish enough to think you can negotiate with a company that has been doing it for 50 years,” said Keith Milberger, who negotiates leases. “Do not be convinced that you can save yourself money by doing it yourself. You need to know things like who the operator is, how financially strong they are, how big they are and who is doing the drilling for them.”

Not everyone will become a Jed Clampett, the character on TV’s Beverly Hillbillies who hit the oil jackpot with an errant gun shot into the ground.

University of North Texas finance professor Jim McDonald struck a 13-well deal with the Barnett Shale’s largest producer, Devon Energy Corp.

The royalties produced enough income for McDonald to help him put his five sons through college.

Even with his strong background in finance, finding the right help is crucial, McDonald said.

McDonald received help from UNT colleague John Baen, a real estate professor who also brokers deals with natural gas producers.

“You have a whole new language you have to learn,” McDonald said. “The lingo is quite different from a number of the other industries. Getting the right research person is a must if you are going to get the money that you are supposed to get out of it.”