This client category includes Trusts and Foundations (with either individuals or corporate entities serving as Trustees and directors) and their agents, attorneys, and representatives, responsible for the management, supervision, and control of asset portfolios comprised in whole or in part of royalty and mineral interests (producing and nonproducing), leasehold interests (working interests and overriding royalty interests), or surface interests (referred to in this discussion as “Oil and Gas Properties” or “Properties”), which are affected by oil, gas, and mineral exploration, development, and production activities.
Regardless of the value of the Oil and Gas Properties and whether or not they represent a substantial component of a portifolio of assets owned by a Trust or Foundation, the fiduciary duties imposed on Trustees and Directors necessitates those Properties be properly managed.
Trustees may be subject to statutorily imposed responsibilities that exceed those provided for in the governing documents creating a Trust. MMC is available to assist the Trustee in meeting these fiduciary obligations.
Trusts and Foundations may maintain staffs, or ongoing or retainer relationships with a variety of professionals, in fulfilling their responsibilities to manage portfolios. The services provided by MMC will complement those services, and enable the client to meet its managerial responsibilities.
Continuing consolidation of corporate trust departments has resulted, in many instances, with the Trustees being removed from the locale in which managed Properties are situated. In an increasing number of cases, Trustees are selected to manage trust assets which include Oil and Gas Properties, but the size or value of those Oil and Gas Properties do not justify maintaining full time staff dedicated to their management. The same is true for Foundations. Whether a Foundation’s assets consist, in whole or in part, of Oil and Gas Properties, Directors may determine a need to utilize the services of a third party to assist the Foundation’s staff in effectively managing Oil and Gas Properties.
The services available from MMC to Trusts and Foundations include the following, which after initial completion may be conducted on a periodic basis as required:
1. Inventory Identification and Control.
Updating and preparation of a complete inventory of Properties and their status (whether producing or nonproducing). This inventory may then be monitored and periodically revised to reflect changes in the status of Properties (e.g., producing to nonproducing), and to track changes relating to acquisition and divestment of Properties. Depending on the information provided at the time Properties are transferred into a Trust or into a Foundation, a title report or opinion may be requested to establish and verify the Trust/Foundation’s ownership interest in the Properties.
2. Revenue and Expense Monitoring.
Oil and gas accounting statements can be processed and analyzed. In many instances, revenue receipts are incorrect, often by large amounts. Verification of proper ownership interests and a comparison and review of pricing and production information will be undertaken to verify that correct payments are being received. Oftentimes revenues may be “suspended” or held by a purchaser or disburser for various reasons. Companies responsible for disbursing revenue will be monitored to assure the proper and timely payments are made for all production attributable to Properties. Assessments can be made to determine if pricing advantages can be obtained through taking production “in-kind,” as provided for in oil and gas leases, and implementation of in-kind takes and marketing may be employed as being advantageous.
If the Properties include working interests, MMC can provide the analysis required to determine whether the client’s rights and obligations under Joint Operating Agreements are effectively protected and exercised, and whether Joint Interest Billings and Authorization for Expenditures are accurate.
While most Trusts and Foundations have well staffed accounting departments, their systems may not have the flexibility to deal with the peculiarities encountered in dealing with Oil and Gas Properties. MMC can provide the needed assistance in these areas.
3. Contract Negotiation.
An oil, gas, and mineral lease is the primary and controlling contract in oil, gas, and mineral transactions. With the changing environment in the industry, now, more than ever, a satisfactory lease contract is mandatory. An inadequate or improperly prepared lease may result in years of disadvantage. While most companies are ethical when dealing with property owners, they do attempt to negotiate transactions to their advantage. MMC will assist Trusts and Foundations or their agents, attorneys, or representatives, in the negotiation of lease terms which protect and enhance the value of their Properties. MMC remains abreast of leasing markets and can advise its clients as to lease terms which the “market” should bear. For Trusts and Foundations responsible for multiple Properties that are the subject of repeated lease proposals, MMC can prepare forms of oil, gas, and mineral leases, tailored to the client’s specific needs, desires, and concerns, which may be adapted for use in recurring lease transactions.
4. Division Order Analysis.
Companies which purchase production from producing wells, or make distribution of revenue attributable to such production, issue division orders prior to payment of revenues. MMC will review division orders received by a client to determine the accuracy of information pertaining to the Trust or Foundation’s interests in Properties. Amendments to (or in some instances replacement of) division orders will be recommended and implemented when lease provisions are not being met, an attempt is made to detrimentally modify the terms of a lease, or the division order submitted contains terms inconsistent with statutorily prescribed forms.
5. Monitoring Delay Rental and Shut-in Gas Royalty Payments.
Payment of delay rentals and shut-in gas royalties are a component of and may be a condition to the continuing validity of many oil and gas leases. MMC will review and verify, for timeliness and accuracy, delay rental and shut-in royalty payment receipts. When payments are late, are not paid, or underpayments occur, MMC will initiate efforts to secure releases of oil and gas lease contracts and return the affected Properties to an “available” status so a new lease (and additional revenue) can be obtained.
6. Monitoring Property Taxes.
Property taxes will be reviewed and analyzed. Because of the volatile pricing environment which the oil and gas industry is in, and due to frequently changing property tax rates and valuation assessment parameters, many Properties may be assessed excessive taxes. MMC can monitor those Properties which appear over-taxed, and when requested will protest valuations. Monitoring of tax due dates will be implemented to take advantage of possible discounts for timely tax payments.
7. Title Curative.
Many Properties may be in need of having documentation prepared or recorded in order to clear title defects to establish the Trust or Foundation’s title, to allow the Properties to be leased, or receive payments that are due, attributable to the Properties. In those instances MMC will examine the title, and either prepare, or with the assistance of the Trust or Foundation’s attorney, procure and record any necessary documentation to “clear” title to the affected Properties.
8. Environmental and Other Issues.
Environmental concerns, unitization and pooling contracts and agreements, drainage, and failure to develop issues, damage settlement negotiations, and geophysical (seismic) option contracts are becoming increasingly important in connection with the ownership of Properties. MMC has the capability of assisting in dealing with each of these matters to protect the Properties and maximize revenues attributable to them.
9. Valuation of Assets.
Experts in the fields of geology, engineering, and geophysics may be required for the proper valuation of Properties. MMC has available a network of highly respected petroleum specialists that can be called on, on an as needed basis, for valuation assistance.
10. Marketing of Property Interests.
A significant aspect of effective mineral management is the marketing of Oil and Gas Properties. Geological, geophysical, and engineering evaluations, when combined with active marketing can create additional leasing and drilling activity on the Properties. This activity provides the possibility of added economic gains to the Trust and Foundation. MMC can assist the Trust and Foundation in aggressively marketing Properties which are prospective for exploration and development.
If a decision is made to sell Properties, MMC can solicit offers from prospective buyers to seek the highest price for the Properties offered for sale.
11. Data Services.
For clients electing to utilize this service, MMC can supervise the implementation of fully automated and computerized accounting and land reporting programs to provide timely, accurate, and diverse reports to its clients. Monthly, quarterly, or annual reports can be generated according to a client’s needs. Having the ability to quickly evaluate and analyze accounting, acreage, and lease data, through comprehensive reports, places the Trustee and Director in a superior position to manage Properties and maximize revenues.