In our last episode, we covered the a la carte method of getting help with your mineral rights and royalties. Specifically, when and how to hire a landman, attorney or engineer for help.
In this episode we talk about choosing the four-course meal and hiring a full-service mineral manager to get help with all aspects of managing your property. In fact, this episode was also in response to a listener question. Carol wrote in asking for advice on hiring a professional mineral manager to help her with her portfolio.
” I would like to know what services are typically provided, what a typical fee structure is, what questions I should even be asking, independent mineral manager, vs. trust department mineral manager, etc. ?”
If you’ve ever wondered what types of services a professional mineral manager offers, how much their services cost, and how to go about finding the right mineral manager for you, then keep reading (or listening) to find out more. As always, this should not be construed as legal or financial advice and is being shared for educational purposes only.
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What Services Does a Mineral Manager Provide?
- Organize your records and help you understand what you own
- Expand revenue streams – Identify activity in area where you own minerals. Look for opportunities to lease minerals, help with negotiating oil and gas leases, etc.
- Royalty audits and revenue accounting
- Perform a royalty audit which is a look back at past royalties to make sure you were paid correctly.
- And on an ongoing basis they can track revenue to make sure you are getting paid correctly on future royalties and on any new wells that are drilled. Many will leverage mineral management software to help organize your properties and optimize revenue. Many will manage this data on your behalf and you will also have access to the minerals management software platform for maximum transparency. Allows you to be as hands on on bigger picture items and ability to drill down on details on your own while leveraging the minerals manager to handle the tedious data entry and other time consuming tasks.
- E.g. errors with decimal interest, excessive post-production costs, not getting paid on wells you should be getting paid on
- If they do find an error, they can also work with the operator to get underpaid royalties on your behalf.
- Help solicit lease offers, identify competitive lease terms in your area, and negotiate oil and gas leases.
- Help evaluate the value of property for tax purposes or to help understand the future potential of your acreage.
- Leverage these property evaluations to negotiate the highest sales price when selling non-core acreage.
Types of Mineral Managers
- Bank Trust Department: Many banks have staff experienced in managing minerals and royalties but also other types of property and assets.
- Independent Mineral Manager: Usually landman, petroleum engineer, or attorney background.
- Family Member: If you and your siblings and/or cousins own a big enough mineral portfolio and you have a family member with some expertise or time and a willingness to learn, it may make sense to have a family member manage the family portfolio. This might mean forming a family LLC to formalize the relationship and to agree upon a fee or salary to pay the family member taking on the Minerals Manager role. NARO offers the Certified Minerals Manager program to assist with gaining the knowledge necessary to manage personal or family mineral properties.
- Minerals Management Software: While this is not a mineral manager, per se, you can manage your own minerals using specialized software to automate the process to save you time. Many also offer more personalized services so you can get help when you need it. Mineral management software providers usually charge a monthly subscription or fee based on the size of portfolio or functionality you need.
There are other options out there if you want to play a more active role in the management of your mineral rights and royalties. You can hire out services as needed as covered in MRP 122: Managing Mineral Rights in Another State and How to Get Help. This might mean hiring a landman to help with title work, an attorney to help with probate or preparing a deed, or an engineer to get a valuation of your property. You can also hire a mineral manager for a fee to help perform a mineral audit to make sure you were paid correctly, but then take on the work of contacting the operator to resolve any issues on your own.
How Much Does a Mineral Manager Cost?
Costs can vary greatly but here are some ballpark numbers.
- Bank Trust Department:. It may vary based on the bank but I have seen some charge 6% of gross royalties for minerals/royalties and 8% if you have non-operated working interests. Plus, they may also charge a fee based on the number of tracts that you own (e.g. it is less effort to manage 1-2 tracts vs. 100 tracts so that fee takes this into account).
- Independent Mineral Manager: Pricing structures can vary widely. Some use a percentage based cost structure like bank trust departments and an increasing amount of companies are starting to offer flat fee options.
- Minerals Management Software: Pricing of minerals management software platforms can range from very expensive (hundreds or thousands of dollars per month) to free. Most full-service software packages charge money to use their system for more than one or two wells. There are several new services that are disrupting this space and offering a full-service package for less than $100/month with no contracts (you can cancel at any time).
What Questions to Ask a Mineral Manager?
You should get a very clear agreement of service of what they will provide and what they will charge for doing it. There are a lot of good companies and a few bad ones out there that manage minerals and royalties.
Get a quote for your specific needs. From how much they are going to charge you, to the specific products or services that are included. Also, ask if the contract is month-to-month that allows you to cancel at any time or if there is a minimum term?
Find out what types of services are included and what is not included. Find out what is included with their standard fee and how much do they charge for additional services not covered by the contract (is it an hourly rate, %, etc.)
Have an attorney review any paperwork or agreements before you sign them. Make sure the mineral manager is providing a service on your behalf and not taking custody of your mineral rights or that you are not transferring ownership to them. This should be be a big red flag. It might be ok to grant them limited power of attorney to do things like contact an oil and gas operator on your behalf but you should not sign over the ability to lease or sell your minerals.
Pros and Cons of an Independent Mineral Manager vs. Trust Department
Pros – Independent Mineral Manager
- Usually they are oil and gas industry veterans, who specialize in mineral rights, royalties, and non-operated working interests. This is their bread and butter.
- Because they usually have lower overhead and lower expenses, you may be able to find someone who is more affordable and who can provide more customized services. Many minerals managers charge by the hour only for work done for you. If they are getting a % fee, they are only somewhat incentivized to work to get you more money, only to the extent that it wouldn’t be an excessive time burden.
- They probably care more about you as a customer because you are helping put food on the table. Trust representative for a bank is going to get a paycheck whether or not they provide excellent service. There are many excellent trust representatives out there so this is only a generalization based on the incentive structure in place between the two options.
Cons – Independent Mineral Manager
- You have to know what you are looking for, have to potentially do more due diligence on the company and individuals to ensure they are trustworthy. They are likely not held to same ethics standards as if they were part of a trust department in a bank.
- You are essentially the one having to screen and interview the minerals manager to ensure that you are satisfied with their qualifications. The bank is presumably going to do this when they hire someone.
Pros – Bank Trust Department
- Trust officers are held by fiduciary standards which means they are legally bound to solely act in good faith and in your best interests.
- You might be able to access information related to your minerals portfolio along side your other bank accounts if you bank with the same company. They can help evaluate and advise on the role of your minerals and royalties as part of your overall portfolio.
- If you have significant assets outside of minerals and royalties, there may be benefits in having one trustee manage your entire portfolio. Bank have financial advisors/planners, bankers, and minerals managers under their umbrella and you can access all of them with the same organization.
Cons – Bank Trust Department
- Trustees are usually pretty conservative and will work within a set of standards to ensure you are getting paid correctly but may not look to proactively seek out opportunities to lease open acreage, such as conduct a formal bidding process and seek out additional bidders to get you additional lease offers.
- It may be more expensive than an independent minerals manager, especially if you have a large number of small interests.
Resources Mentioned in This Episode
- National Association of Royalty Owners (NARO) – Certified Minerals Manager Program. This is an “educational self-study course exclusively through the NARO Foundation designed to increase your knowledge of minerals management. The CMM Program has two levels – Associate and Professional.
- Several NARO State and National board members are professional mineral managers. No matter how you find them, be sure to interview a prospective mineral manager to see if they are a good fit for you and that you are comfortable with their qualifications.
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