Why Are There So Many Unclaimed Oil and Gas Royalties in Texas?
September 5, 2016
The process of leasing oil rights, then making royalty payments to owners should seem pretty straightforward. Energy companies contract with mineral rights owners, drill wells, and pay their agreed portion to the owners as part of a business arrangement that is very common in states like Texas. Yet sometimes actually paying the royalties to the right owners is a lot more complicated than it seems. As a result, there is currently a glut of nearly $475 million in funds representing unpaid oil and gas royalties being held by the state that is looking for the right owners to be paid.
Current Oil Boom Means More Royalties Unpaid
Evidenced by the growing amount of unpaid royalties being surrendered to the state by energy companies, Texas is experiencing two significant trends right now in oil and gas production. The state is currently experiencing yet another oil boom due to the continued location of minerals in new areas, which means that drilling and production are once again on the rise.
Due to this rise in production, more mineral owners are earning royalties than ever before. This increase in production has led to an increase in unpaid royalties caused by an inability to determine royalty owners. In the past few years alone, millions of dollars per year have been submitted to the state as unclaimed, with only a small percentage of that money ever being claimed.
Determining Mineral Rights Ownership More Complex
Title research of land and mineral ownership can be a complicated undertaking in Texas. It cannot simply be assumed that landowners are actually the holders of mineral rights to that land, since there are different ways that mineral rights can be transferred. Every day, gas and oil rights are sold separately from the actual surface land and family members inherit rights. Sometimes the problem is as simple as someone moving and not notifying the energy company where to send payments.
These points alone make researching ownership a challenging process. With exploration and drilling in newer areas, the problem gets even more complicated. As energy companies have expanded into untouched regions in Texas, many are realizing that much of the land is either unclaimed or have no valid records as to who owns the mineral rights. Companies can apply for court permission to drill by negotiating a neutral royalties deal that considers an unknown owner; however, that still leaves them owing royalties with no one to pay it to.
Companies are then required to hold this money for three years, after which it must be submitted to the state. The Texas Comptroller maintains an account of all unpaid royalties, holding these funds until someone comes forward to claim it. Most of the time, people don’t even realize it is sitting there waiting for them.
While this may sound like a problem only for owners of gas and oil rights, it actually makes the whole oil production process more challenging and time-consuming as well. Energy companies in the state lease all that they can through conventional means, then have to go back and determine how to legally deal with all the unclaimed parcels. The good news is that the state protects the rights and the royalties of absentee owners. Those who own, or could own, mineral rights in Texas may have a surprise waiting for them!
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