How to make the most out of your mineral rights: Geology
Joe Wilson is CEO of Infinity Resource Group, Inc., a professional mineral rights consulting firm in Parkersburg, W.Va., and a Registered Landman. David Pearl is managing director of a CNG patent holding company and president of a CNG fuel island development company. Your questions are welcomed by calling 412-535-9200 or by e-mailing joe@irg-energy.com.
Determining how much money you can make by selling or leasing your mineral rights is serious business. Many factors are weighed before an offer can be made or should be accepted. Both investors and mineral rights owners want to make as much money as they can, and when it comes to natural gas and oil, there is certainly enough to be made where everyone can make out fair and square.
Many factors are considered before a legitimate and realistic price for natural gas can be determined. A key factor is the geology of a site. Just because your neighbor may have made a lot of money selling or leasing his or her mineral rights doesn鈥檛 necessarily mean that you will. Think of it as a waterfront property. Your neighbor may be right on the shoreline, while the houses across the street and away from the shoreline are worth only a fraction of shoreline property. The same is true with mineral rights 鈥� except you can鈥檛 see what蘑菇视频 going on underground. Geologists map out what they believe to be going on below ground using very sophisticated equipment. The shale that produces oil or gas is hundreds if not thousands of feet below the surface and you never know what geological obstacles may lay between the land surface and the shale. The most commonly known shales in Appalachia are the Utica and Marcellus shales. But there are other shales in Appalachia, some of which produce oil or gas and some don鈥檛.
Shale is a fine-grained sedimentary rock that forms from the compaction of silt and clay-size mineral particles called 鈥渕ud鈥� or 鈥渕udstones鈥� except shale is distinguished from other mudstones because it is fissile (meaning the rock splits into thin pieces) and laminated (meaning the rock is thinly layered.)
Shales derive their color from other minerals that are mixed within the rock. Just a few percent of organic materials or iron can significantly alter the color of a rock, such as the presence of hematite can produce a red shale, limonite or goethite can produce yellow or brown shale, and the presence of mica can produce green shale.
Black or gray shale contain organic material that sometimes breaks down to form natural gas or oil. As the mud was buried and warmed within the earth some of the organic material was transformed into oil and natural gas. Due to its lower density, oil and natural gas migrate out of the shale and upwards through the sediment mass. The oil and gas are often trapped within the pore spaces of an overlying rock such as sandstone. These types of oil and gas deposits are known as 鈥渃onventional reservoirs鈥� because the fluids can easily flow through the pores of the rock and into the extraction well. Although drilling can extract large amounts of oil and natural gas from the reservoir rock, much of it remains trapped within the shale. This oil and gas is very difficult to remove because it is trapped within tiny pore spaces or adsorbed onto clay mineral particles that make-up the shale.
The pore spaces in shale are so tiny that the gas has difficulty moving through the shale and into the well. Drillers discovered that they could increase the permeability of the shale by pumping water down the well under pressure that was high enough to fracture the shale. These fractures liberated some of the gas from the pore spaces and allowed that gas to flow to the well. This technique is known as 鈥渉ydraulic fracturing鈥� or 鈥渉ydrofracing.鈥� Drillers also learned how to drill down to the level of the shale and turn the well 90 degrees to drill horizontally through the shale rock unit. This method is known as 鈥渉orizontal drilling.鈥�
In determining the value of your mineral rights, geological factors include the depth of the shale, porosity & density of rock formations, and the thickness of the Earth蘑菇视频 crust in reaching the shale. The Marcellus shale is younger than the Utica shale and therefore closer to the surface. In some places the Marcellus is 3,000 feet deep while the Utica shale can be 7,000 feet deep or more. Due to the greater depth, and other factors mentioned, it is more expensive to extract natural gas from the Utica shale than extracting gas from the Marcellus shale. Shale depths vary from place to place, and so it may be easier to reach the Marcellus shale at one location rather than in another location only a quarter mile away. Likewise the thickness of the shale varies from place to place. In some places the shale strata may only be ten to twenty feet thick, so it makes more sense for the driller to target areas where there is significant shale thickness. All of this affects the value of mineral rights.
It takes great engineering skill to determine the precise depth and width of the shale on any given property. Part of the economic risk in determining value is whether the pre-drilled planning is accurate in getting to the shale.
Every mineral rights owner has a unique geological formation beneath his or her property, sometimes owning only a portion of a shale stratum. Part of the services of a mineral rights consultant is to determine the best strategies available for the mineral rights owner based on their specific scenario.
In determining whether a landowner owns valuable mineral rights, it is advisable to seek professional advice from a mineral rights consultant for an evaluation of the mineral rights. Before making any decision regarding the disposition of your mineral rights, it is always advisable to consult your lawyer and tax advisor.