From Courthouse
to Royalty Check

Geologists and engineers identify target acreage: formation depth and thickness, offset well production, existing spacing, and midstream access. The land department gets a map and is told to find out who owns the minerals and lease them.

Landmen search the county records, running the grantor/grantee indexes forward from the patent or other original grant. Each conveyance goes on a runsheet, and ownership is calculated into a mineral ownership report or limited title report. Leasing relies on this report. The attorney's opinion comes later.

The parties negotiate bonus per net mineral acre, royalty (commonly 1/8 to 1/4), primary term (often 3 years, sometimes with an option to extend), shut-in terms, Pugh clauses, and depth limits. The signed oil and gas lease (or a memorandum of it) is recorded and becomes part of the chain of title.

A drilling and spacing unit is established (or an existing one relied on), and the interests inside it are pooled, either by agreement or, where state law allows, by a compulsory (forced) pooling order covering owners who have not agreed. How pooling works varies widely by state.

Before the operator commits to drilling, a title attorney examines the abstract or runsheet materials and renders the DTO. It states ownership of the minerals and leasehold, addresses the operator's right to drill, and lists requirements: the defects to cure. This is the first of two opinions. It supports the decision to drill; a later opinion supports payment.

The landman works the DTO requirements with affidavits of heirship, probates or heirship determinations, releases of expired leases and old liens, ratifications, stipulations of interest, and corrective deeds. Some requirements are cured before drilling. Others are waived for drilling and deferred to the division order stage, which is one reason there are two opinions.

Many states require some form of location or siting review before or alongside the drilling permit: setbacks from homes and water, surface owner notice, environmental and wildlife considerations, local government input, and in some states public comment or a hearing. The review ranges from a formality in some states to a process of a year or more in others.

The operator builds access roads, the pad, cellar, and conductor, and stages surface equipment. Surface use agreements, bonding or financial assurance, and pre-drilling conditions of approval are handled. Then the rig moves in.

The well reaches total depth, is logged and evaluated, and production casing is run and cemented. The rig moves off and the well waits for completion, sometimes briefly, sometimes for months until a frac crew is available. A well in this state is a DUC (drilled but uncompleted).

Oil and gas are measured, marketed, and sold; production is reported to the state monthly (and becomes public record in most states, usually on a lag). Severance and ad valorem taxes accrue. Before revenue accounting can pay anyone, it needs each owner's decimal interest.

This is the second opinion. The attorney brings title forward to about first sales, covering every mineral owner, royalty owner, NPRI, ORRI, and working interest owner, and renders an opinion on each owner's decimal interest in production from the unit. Requirements waived for drilling are usually taken up again here.

Revenue accounting builds the pay deck from the DOTO and mails division orders asking each owner to confirm their decimal and payment details. A division order generally confirms the decimal and is not meant to change the lease; its exact effect varies by state. Owners with unresolved title defects stay in suspense until cured.