Author Archives: admin

A New Era of Ownership: The Power of Tokenization in 2025

Leave a reply

The way we think about ownership is transforming.

As we step into 2025, tokenization is no longer just a buzzword in blockchain circles; it is a profound shift in how we engage with assets, redefine accessibility, and democratize investments.

Boston Consulting Group forecasts tokenized assets will exceed $16 trillion by 2030, from well below $1 trillion today. This is because tokenization technology is not merely an innovation; it’s a gateway to a new era of economic inclusion and efficiency.

What is Tokenization?

At its core, tokenization is the process of converting an asset’s ownership rights into a digital token on a blockchain. These tokens represent real-world assets (RWAs) such as real estate, fine art, commodities, or even revenue streams. By breaking down assets into smaller, tradable units, tokenization allows for fractional ownership, opening the door to a broader range of investors and reducing traditional barriers to entry.

Imagine owning a fraction of a luxury property in Paris or a masterpiece by a renowned artist without requiring millions in your bank account. Tokenization makes this possible. It’s not just about accessibility—it’s about redefining the concept of ownership itself.

Types of Real-World Asset Tokens

Tokenization extends across a diverse range of assets, and 2025 sees an expanding portfolio of what can be tokenized:

  • Real Estate Tokens: These tokens represent fractional ownership of properties, allowing investors to diversify geographically and reduce financial risk. They also streamline processes like property sales, reducing costs and time.
  • Commodities Tokens: Gold, silver, oil, and other commodities can be tokenized, providing liquidity to markets that were traditionally slow-moving.
  • Equity Tokens: Equity in private companies can now be represented through tokens, democratizing venture capital and private equity opportunities.
  • Art and Collectibles Tokens: Rare artworks, vintage cars, or even sports memorabilia can be tokenized, offering investors the chance to own a piece of culture.
  • Debt Tokens: Debt instruments like bonds can be tokenized, making them more accessible and easier to trade.

Each category demonstrates the versatility of tokenization, allowing investors to engage with assets in ways that were once unimaginable.

Why Tokenization is Better Than Direct Ownership

Traditional ownership comes with a host of inefficiencies. Whether it’s lengthy paperwork, high transaction costs, or illiquidity, the barriers often deter potential investors. Tokenization, however, disrupts this model by introducing:

  • Liquidity: By tokenizing assets, markets that were previously illiquid gain new life. Owners can trade fractions of their assets in secondary markets, ensuring quicker access to capital.
  • Transparency: Blockchain technology ensures that every transaction is recorded on an immutable ledger. This transparency reduces fraud and builds trust among participants.
  • Accessibility: Tokenization reduces the cost of entry, opening doors for retail investors to access markets once dominated by high-net-worth individuals and institutions. By breaking down traditional barriers, it fosters broader inclusivity and plays a role in narrowing wealth disparities.
  • Efficiency: By digitizing ownership rights, tokenization streamlines processes, cutting out intermediaries and reducing costs.
  • Global Reach: Blockchain’s borderless nature allows tokens to be traded across jurisdictions, broadening the pool of potential investors.

The power of tokenization lies in its ability to make ownership more inclusive, efficient, and secure, all while maintaining the integrity of the underlying asset.

The Role of Plume Network

Central to the rise of tokenization in 2025 is the Plume Network, a blockchain meticulously designed to excel in real-world asset tokenization. Unlike conventional blockchains, Plume Network emphasizes adaptability to regulatory requirements, integrating compliance tools that simplify adherence to diverse global standards. Its architecture is uniquely scalable, enabling smooth handling of high transaction volumes, which is essential for the burgeoning tokenized asset markets. Moreover, its advanced cryptographic measures ensure unparalleled security, making it a robust and trusted platform in the tokenization landscape. Plume Network offers:

  • High Scalability: Its architecture ensures seamless processing of large volumes of transactions, a critical feature for markets dealing with tokenized assets.
  • Security: Leveraging advanced cryptographic techniques, Plume Network prioritizes the safety of assets and data.
  • Compliance: Recognizing the regulatory complexities of RWAs, Plume Network provides tools to meet compliance standards globally.

The Plume Network is not just another blockchain; it is an ecosystem purpose-built for the tokenization revolution. By addressing the unique challenges of real-world assets, it serves as the foundation for projects like Mineral Vault.

Mineral Vault and the Future of Tokenization

Mineral Vault exemplifies how tokenization is reshaping industries. While its focus is on mineral and royalty interests, its approach highlights the broader potential of tokenization. By using Plume Network, Mineral Vault offers:

  • Fractional Investment Opportunities: Investors can access mineral assets without requiring significant capital outlay.
  • Enhanced Liquidity: The tokenized model facilitates easier buying, selling, and trading of mineral rights.
  • Data-Driven Transparency: Comprehensive reporting ensures investors understand the value and performance of their tokens.

Projects like Mineral Vault underscore how tokenization isn’t just theoretical. By enabling investors to access mineral assets through a secure, tokenized framework, Mineral Vault has already begun transforming wealth management. Investors are now empowered with enhanced liquidity, greater transparency, and the ability to diversify portfolios in ways previously unavailable. This practical evolution is bridging gaps between traditional and modern investment paradigms, offering a glimpse into a more inclusive and efficient financial future.

Tokenization’s Broader Implications

Beyond investment opportunities, tokenization has the potential to reshape industries, drive economic inclusion, and foster entirely new paradigms of trust. For instance, by leveraging blockchain’s transparency, it builds systems where participants can verify asset ownership and transaction history in real-time. This transparency not only enhances security but also facilitates collaborations in industries like supply chain management and international trade, where trust is paramount. Tokenization also encourages decentralized models of governance, enabling stakeholders to have direct input and oversight, thus reimagining how trust operates in complex ecosystems. In 2025, its impact extends to:

  • Supply Chains: Tokenized assets improve traceability, ensuring accountability and efficiency across global networks.
  • Philanthropy: Tokenized donations provide real-time tracking of funds, ensuring transparency in how contributions are used.
  • Environmental Sustainability: By tokenizing carbon credits, companies can create more accessible and transparent markets for reducing emissions.

Tokenization is not just a financial innovation; it is a societal one.

Looking Ahead

As we embrace this new era, tokenization stands as a beacon of progress, breaking down barriers and unlocking possibilities. Through the Plume Network, Mineral Vault, and other emerging RWA platforms, the potential is vast, and the future is bright.

The question is no longer “if” tokenization will transform industries but “how far” it will go, and how it can bridge gaps to deliver societal benefits like economic inclusivity and reduced wealth disparity. In 2025, the power of tokenization isn’t just an opportunity; it’s a revolution.

Oil Barrel With Tokens

Why Tokenize Mineral Interests?

Leave a reply

In addition to opening the lucrative mineral interest asset class to a global investor base, Mineral Vault’s vision to tokenize mineral interests also resolves numerous issues plaguing mineral interest ownership & transfer in the United States presently. Let’s take a closer look:

Mineral Ownership Challenges Resolved By Tokenization

As of 2024, the process of ownership transfer in the mineral and royalty interest sector is extremely inefficient for several reasons, all of which are resolved by tokenization.  The major inefficiencies in the process are related to title verification and transfer administration.

Title Verification Challenges

When acquiring interests in mineral properties directly, prospective buyers face tremendous title verification challenges that prevent most non-professional buyers from participating in the marketplace.  These challenges include:

  • No title insurance product. The complete lack of a title insurance product for mineral & royalty interests means that title must be independently verified by the purchaser to their satisfaction. In layman’s terms, the buyer of a mineral property is likely to lose most or all of their money if the person they are paying to purchase the property later turns out to have not been the rightful owner of the property in the first place! To resolve this problem, generally “landmen” are hired to review courthouse records to create a chain of title, gather the related documents from the courthouse, and provide a summary “mineral ownership report”.  These can optionally be given to a title attorney who will review them in-depth and create a “title opinion” which is a more detailed report listing title inadequacies and any issues which should be addressed before closing.  Neither of these vendors provide any title guarantee or insurance and all title risk is borne by the purchaser of the mineral property.

 

  • Extreme title complexity. The complexity of the title review process is increasing exponentially as time passes and ownership chains become longer and longer, with an exponentially increasing ownership base, caused by the fact that deceased owners often leave their interests to multiple children or grandchildren, simply subdividing the ownership interest between them.  This phenomena doesn’t typically happen with surface interests, since it is difficult for more than one person to “use” or benefit from the surface interests — mineral interests, however, don’t have any utility other than the investment-like income they can provide from production.  As a result of the fact that mineral interests are often subdivided from estates (and therefore handled more like shares of stock than traditional surface real estate), most property parcels in high-production areas of the U.S. have between 20-50 distinct owners, each with a different percentage ownership in the property parcel.

 

THE TOKENIZATION SOLUTION: Title Verification Challenges

From the moment that mineral interests are placed on the blockchain and traded as tokens (whether individually or in aggregate, as in the initial Mineral Vault offerings), the blockchain resolves issues of provenance completely.  The blockchain is a verifiable, public ledger of ownership, meaning new owners can be 100% sure that the seller of the tokenized interest they are purchasing is in fact the rightful owner.

But what about title defects which arise from before the time the particular mineral interest was tokenized, debasing the token’s representative ownership in property from the very beginning?

At Mineral Vault, our thesis is that the party which tokenizes mineral interests in the first place should bear the risk of any title failures which predate the tokenization. Thus, for title failures occurring prior to tokenization of the assets, Mineral Vault has provided a title guarantee, ensuring investors are “made whole” relative to their original investment in the property if title failure happens*.

The result of the blockchain solution is that the title verification aspects of the ownership transfer process are completely seamless and void of the need for expensive landmen and title attorneys.

Transfer Administration Challenges

In addition to the title challenges associated with direct mineral interest investment, there are numerous administrative hurdles encountered by would-be owners:

  • Deed Drafting & Filing. Similar to the process for acquiring a surface interest, to purchase a mineral or royalty interest, at least one Mineral Deed, Mineral & Royalty Conveyance, Assignment, or similar document must be created by an attorney or other professional, then executed and notarized.  It must then be filed at the county courthouse wherein the property resides, a process which can take up to 2 weeks or more if the recordings must be mailed in.

 

  • Purchaser Notification & Pay Status Update. Upon successful filing of the deed/conveyance, a copy of the recorded document must then be provided to the purchaser(s) of the oil, gas, or other hydrocarbons actively being produced by the wells on the acreage acquired.  This document evidences the transfer and allows the purchaser to place the new owner “in pay” on the wells, meaning that the new owner begins to receive the royalty checks for revenue.  In practice, this process can take 3-6 months or more with many purchasers whose transfer departments are understaffed, overworked, and severely backlogged due to the increasing number of transfers happening each year.

    • The “purchaser” is often the operator of the well(s) in question but does not have to be, as some small operators do not purchase the hydrocarbons produced by the wells they drill themselves, but rather sign a purchase agreement with a separate vendor who handles the hydrocarbon pick-up/transportation from the wellhead and royalty payments to all mineral owners in accordance with the amounts picked up.  Note also that, if a well produces both oil and natural gas, for instance, there could be a different purchaser for each of the commodity types, meaning one for oil and one for natural gas.  In this scenario, both purchasers must be notified separately.

     

  • Tax Authority Notification & Tax Record Update. Also upon successful filing of the deed/conveyance, a copy of the recorded document must also be sent to the tax authority responsible for the property in question — for example, the Midland County Central Appraisal District (“Midland CAD”) for a property located in Midland County, Texas.  The tax authority will review the document and place the new owner “in-tax” on the property in question, ensuring that the new owner receives the property tax bills rather than the previous owner.  This is necessary to ensure that property taxes are paid (whereas they might not be if the bills continue to be mailed to the previous owner, who knows they sold the property) because if the taxes go unpaid for a long enough period, the properties can ultimately be sold out from under the new owner at the courthouse steps in a Tax Sale. Therefore, ensuring that the tax records show the new owner as the record owner for tax purposes is a critically important step in the transfer process.  In practice, the governmental tax authorities often use vendors to manage and update their tax records, many of whom are understaffed and unresponsive to update requests, meaning many tax record updates can take 3-6 months or more, similar to pay status updates.

 

THE TOKENIZATION SOLUTION: Transfer Administration Challenges

All of the administrative challenges described above are rendered totally unnecessary & void by tokenization.  From the perspective of all of the entities above (the county courthouse, the purchasers, and the tax authorities), the property is still owned by the same party, which is the tokenized entity (also referred to as the “Special Purpose Vehicle” or “SPV”), and only ownership interest in the SPV is actually being exchanged.  This in effect transfers ownership interest in the mineral property, but does so in a way which totally circumvents the need for the administrative steps traditionally required and thereby greatly improves property liquidity.

Conclusion

The application of blockchain technology to the mineral interest ownership tracking & transfer  process will introduce many desperately-needed efficiencies to an industry that is rapidly increasing in both scale and complexity.

In the future, after many Mineral Vault offerings and the resulting tokenization of a tremendous quantity of mineral & royalty interests, we believe tokenization can be the “grand / ultimate” solution to the crisis of mineral interest title & transfer in the United States.  In the process, we will not only resolve the title and administrative challenges described in this article, but we will also open investment in these assets to millions of new investors globally, further improving their liquidity.

*The “make whole” amount is an amount, in USD, determined by portfolio manager Mineral Vault LLC. The calculation shall be an amount of value attributed to the property at time of token issuance less any payments received on the property by token holders since that time.  See also the “Disclaimers” section of the website at mineralvault.io.

Field With Pumpjacks

Mineral Interests: An Overview

Leave a reply

In this post, we will delve into what mineral interests are, how they are monetized, and some legal framework.

What Are Mineral Interests?

Mineral interests, often referred to colloquially as “mineral rights”, are a significant and unique form of real estate interest in the United States. The United States is the only major country in the world where these interests are predominantly owned by private individuals and companies rather than by the government.

Mineral interests in a particular parcel of land grant the owner the entitlement to extract and profit from minerals found beneath the earth’s surface. These rights encompass a variety of natural resources such as coal, lithium, gold, and silver.  However, in the United States, the most prolific and valuable natural resources are oil, natural gas, and related hydrocarbons used for energy.

Mineral rights can be sold, leased, or otherwise transferred separately from the surface of the land, which means that the person or entity that owns the surface rights to a piece of land might not also own the rights to the minerals beneath it.  Therefore, there are two major ownership classifications for the mineral estate of a particular parcel of real estate:


  • Fee Simple Estate: Both surface and mineral rights are owned by the same party.


  • Severed Estate: Mineral rights have been legally separated from surface rights at some point, meaning the ownership is different for these two components of the parcel. The exact depth at which the severance occurred may vary, but a good rule-of-thumb is around 100 meters below the surface of the earth. In areas of the United States where ample oil & gas production is occurring, the vast majority of property parcels are severed.

Mineral Interest Monetization

Before any exploitation of natural resources occurs on mineral interests for a particular parcel, the mineral interests are said to be “non-producing”.  It is initially unknown whether any valuable mineral deposits exist within a particular mineral estate, and unless some such deposit is located in the future, the mineral interest will stay in “non-producing” status perpetually.  In this state, the mineral interest portion of the parcel is generally not subject to property taxes, as there is no proven or determinable value to any minerals which may or may not be present.

Typically, in the oil & gas industry, mineral interests begin the process of being monetized via the following sequence of events:

  • Step 1: Deposits are located. This occurs when an exploration & production (“E&P”) company, also referred to as an “operator” of wells, speculates that valuable oil, natural gas, or other hydrocarbon deposits may be present.  These deposits are located  by professionals (often, geologists or petroleum engineers) using various methods and technologies, but the presence or abundance of minerals present in a particular location are almost never known for sure until a well is drilled.  E&P companies are referred to as “upstream” companies in the oil & gas industry because they are actively involved in the extraction of natural resources from the earth.


  • Step 2: Mineral interests are leased. After a sizable mineral deposit is located, the E&P company contacts the owner(s) of a mineral estate in order to lease the mineral interest.  The owner(s) must sign a formal oil & gas lease (“OGL”) document which grants the E&P company the right to explore for and extract the hydrocarbons in return for an immediate lease bonus, a royalty percentage of the revenue from any extracted minerals (typically, between 12.5%-25%), and other compensation terms stipulated in the lease.  If no wells are drilled within the term of the lease, which is typically between 3-5 years, the the mineral interests again become unleased.


  • Step 3: Well(s) are drilled. Once an operator has received the necessary permitting from regulatory authorities, they can commence the drilling of one or more wells for the extraction of oil, natural gas, or other hydrocarbons.  The operator is responsible for 100% of the costs of drilling and therefore none of these costs are the responsibility of the mineral owner.  Upon successful drilling of the well(s), the operator will sell the produced hydrocarbons to a “midstream” company which buys, transports, and refines them into various substances, such as gasoline and diesel fuel, which can be used for energy. These  refined products are later sold to a “downstream” company, such as a chain of car refueling stations, which sells the refined products into the market. Sometimes, if the operator of the drilled wells is a very large oil & gas company, they will themselves have a midstream and/or downstream arm to their company and will therefore fill the role of “purchaser” of the hydrocarbons themselves. Whether or not this is the case, the produced commodities are sold at current spot prices as of the moment they are produced and taken away by the midstream company (or midstream division), less certain pre-agreed deductions and production-related taxes. Once a mineral interest reaches this “producing” state, it will now be appraised on an annual basis by governmental tax authorities for the assessment of an annual property tax on all mineral owners in the parcel.


Ownership of mineral rights in the U.S. is influenced by both federal and state laws. The federal government, through laws such as the Mineral Leasing Act and the Mining Law of 1872, sets basic guidelines, while state laws provide further regulations which in some cases vary significantly. States like Texas, Oklahoma, and North Dakota, for example, have their own elaborate sets of rules which cater to their rich mineral deposits.

As with any real property, mineral rights can be conveyed through leasing, selling, or inheritance. Transactions must comply with both state and federal regulations, which are numerous, and certain title and administrative challenges arise during the transfer process.

Additional information about the complexities of mineral rights transfers, as well as how tokenization resolves many of these issues, is available in our blog post Why Tokenize Mineral Interests?

Conclusion

Mineral interests are a complex but integral part of the U.S. real estate landscape. Understanding the different types of mineral interests (see our blog post Types of Mineral & Royalty Interests), along with the regulatory and economic contexts in which they operate, is crucial for anyone involved in this field.

The Future of Oil and Gas: Trends to Watch for Investors

Leave a reply

The oil and gas industry is at a pivotal moment, driven by a wave of technological innovations that promise to reshape its future. As investors look for opportunities in this evolving landscape, staying ahead of emerging trends is crucial. From blockchain-based tokenization to artificial intelligence (AI) and beyond, technology is driving transformative change. This blog explores the key trends that investors need to watch to stay competitive in this dynamic sector.

Tokenization: Revolutionizing Ownership and Investment

Tokenization is emerging as a game-changer in the oil and gas industry. By converting physical assets such as oil reserves or royalty interests into digital tokens, this technology enables fractional ownership, making investments more accessible and liquid.

For investors, tokenization offers unprecedented transparency. Every transaction is recorded on a blockchain, reducing the risk of fraud and ensuring accountability. Additionally, tokenization simplifies asset trading, allowing investors to buy, sell, or transfer ownership with ease. This democratization of asset ownership has the potential to attract a wider pool of investors, increasing market participation and liquidity.

A notable example of tokenization in action is the rise of platforms that enable trading in tokenized mineral rights, such as the Mineral Vault token on the Plume Network. Platforms such as these use blockchain to track ownership and ensure compliance, paving the way for more secure and efficient transactions. As tokenization gains traction, it could redefine how investors interact with oil and gas properties.

AI Applications in Oil and Gas: The New Frontier

Artificial intelligence (AI) is becoming a cornerstone of innovation in oil and gas, driving efficiency and reducing costs. From exploration to production, AI is transforming every stage of the value chain.

In exploration, AI algorithms analyze seismic data to identify potential drilling locations with greater accuracy, reducing the time and costs associated with traditional methods. During production, AI-powered predictive maintenance systems monitor equipment health, detecting issues before they cause downtime. This proactive approach not only minimizes operational disruptions but also extends the lifespan of critical assets.

Additionally, AI enhances decision-making by processing vast amounts of data to identify patterns and trends. For investors, this means more reliable forecasts and risk assessments, enabling smarter investment strategies. As the industry adopts AI at scale, it presents an exciting avenue for investors to capitalize on technological advancements.

Blockchain for Supply Chain Transparency

Beyond tokenization, blockchain technology is revolutionizing supply chain management in oil and gas. The industry’s supply chain is notoriously complex, with multiple stakeholders and a high risk of fraud or mismanagement. Blockchain addresses these challenges by creating a secure, decentralized ledger that tracks every transaction and movement within the supply chain.

For investors, blockchain ensures greater accountability and reduces inefficiencies. Smart contracts automate processes such as payment settlements and compliance checks, lowering costs and speeding up transactions. The result is a more transparent and streamlined supply chain, which ultimately enhances the industry’s profitability and attractiveness to investors.

Smart Grids and Renewable Integration

As the world transitions towards cleaner energy, oil and gas companies are exploring ways to integrate renewable energy sources into their operations. Smart grid technology is playing a pivotal role in this transition, enabling real-time energy management and efficient distribution.

Smart grids allow companies to balance traditional energy production with renewable inputs such as solar or wind power. For investors, this hybrid approach represents a sustainable growth opportunity. Companies leveraging smart grid technology are better positioned to meet regulatory demands and adapt to changing market preferences, making them attractive investment prospects.

To Conclude…

The oil and gas industry is undergoing a profound transformation, driven by technological innovations like tokenization, AI, blockchain, and smart grids. For investors, these trends offer new opportunities to engage with the sector in innovative and profitable ways. By staying informed and proactive, investors can position themselves at the forefront of this technological revolution, ensuring their portfolios remain future-ready in a rapidly evolving market.

Pumpjack At Dusk

Types Of Mineral & Royalty Interests

Leave a reply

Mineral & Royalty Interest Types

In the United States, mineral and royalty interests come in various types and represent ownership of, or profit-sharing rights in, the production of oil, gas, and other minerals from the subsurface portion of a particular parcel of land. Understanding these interests is crucial for investors and landowners alike. Here’s a breakdown of the most common types:

Mineral Interest (MI)

  • Full Ownership Rights: Full ownership of the minerals beneath a tract of land.

  • Full Executive Rights: The right to lease the minerals to an oil & gas company for exploration & production.

  • All Revenue Streams: Owners can receive all types of production- & property-related income, including lease bonuses, delay rental payments, and production royalties.

Royalty Interest (RI)

  • Created From Lease Agreements: Royalty interests are created when a mineral interest owner leases their minerals to an exploration & production company to extract the minerals.

  • Revenue Without Costs: Royalty interest owners receive a percentage of the revenue from mineral production without bearing any of the production costs.

  • Distinct From Mineral Interest: Although a mineral interest owner can and often does also come into possession of a royalty interest at the time of signing a lease (and therefore holds both interests at the same time), it is important to understand that the mineral interest ownership rights and the royalty interest which relates to a specific lease which was signed on those mineral interests are each distinct in that one could be sold while the other is retained. This is not especially common, but it does occur.

Working Interest (WI)

  • Operational Role: This refers to the interest that is created for the exploration & production company when a mineral owner signs a lease with them. This gives the exploration & production company (often called the “operator”) the right to explore, develop, and produce minerals on the leased mineral interests, but they must also bear all drilling, maintenance, and other production costs.

  • High Risk and Reward: This interest type carries the potential for high returns (since the operator receives a majority share of the income from wells drilled) but also comes with significant financial obligations & risks. If a well is drilled at great expense and only a small amount or no hydrocarbons are produced, this is called drilling a “dry hole” and means that the operator will sustain great financial losses related to the drilling of the well. The royalty interest owner, however, will sustain no losses.

  • Also Known As “Leasehold Interest”: Before wells are producing on a leased parcel of land, operators typically refer to their interest in the land as a “leasehold interest”. This is essentially a synonym for the term “Working Interest” but simply refers to the time period before production begins.

Overriding Royalty Interest (ORRI)

  • Carved from Working Interests: Overriding Royalty Interests are not tied to the ownership of minerals but to the proceeds from the sale of produced minerals under a given lease agreement. Operators create these interests artificially from the Working Interest produced upon their execution of a lease agreement with a mineral interest owner. ORRIs are not cost-bearing, similar to traditional royalty interests. After these interests are created, they can be sold and transferred until such a time as the associated lease expires. When the lease does expire, the ORRIs expire worthless along with the Working Interest. Note, however, that any producing well will ensure a lease is “held by production” and doesn’t expire until such a time as the well stops producing.

  • Common Origin: ORRI interests are typically created by operators as a form of incentive compensation to geologists, engineers, and landmen who work for them.

Non-Participating Royalty Interest (NPRI)

  • Mineral Interest With No Executive Rights: With this interest type, owners have financial interest in a particular mineral interest parcel, but they do not have the authority to lease the mineral interest to any party or receive lease bonuses or delay rental payments. They are paid purely on the basis of the production of minerals from the acreage (the royalty interest).

  • Common Origin: NPRIs are often created at the time of distributing an inheritance. By dividing a mineral interest in such a way that all but one divided part are NPRI, only one portion will retain the executive rights (to “speak for the acreage”) whereas revenue from production can be split evenly across all heirs.

Non-Operated Working Interest

  • A Passive Working Interest: With this interest type, owners do not participate in operational decisions but still share in production costs and revenues. These are created from the total Working Interest that is initially created when an operator signs a lease with a mineral interest owner.

  • Common Origin: Non-Op Working Interests can be created in many different ways, including as a result of a joint venture agreement between multiple operators, a risk mitigation effort of the operator, or as incentive compensation, similar to ORRIs.

  • Tax Benefits: Owners of Non-Op Working Interest bear more risk than other, non-cost bearing interest types, but they may receive tax advantages from incurring these costs without the responsibility of actually managing production operations.

Net Profits Interest (NPI)

  • Royalty Interest, With Some Deducted Costs: With this interest type, owners receive a share of the net profits from mineral production after certain costs are deducted. If, for example, substantial costs are required to transport produced hydrocarbons from the wellhead to be sold, an operator may negotiate for an NPI so that these costs can be deducted from royalty payments.

  • Non-Operational & Passive: Like RIs, NPRIs, & ORRIs, NPIs are passive and do not involve direct participation in production activities.

For the most part, Mineral Vault products include only the interest types MI, RI, NPRI, ORRI, and NRI. These interest types are passive from an operational standpoint and are not significantly cost-bearing.

What’s Involved In Managing Mineral Properties?

Leave a reply

In the oil & gas industry, mineral property management companies are often hired to manage large mineral property portfolios. Property management companies are often paid a fixed percentage of royalty revenue as a management fee, which compensates the property manager for their effort & expenses in managing the properties.

In this article, we’ll explain the management responsibilities of these mineral property management companies.  Let’s jump in!

 

Negotiation & Execution of New Oil & Gas Leases

A cornerstone of mineral property management is the securing of new oil & gas leases on unleased portfolio acreage.  A good mineral property management company will not only negotiate and execute these leases in a favorable manner for their client, but they will also actively market unleased acreage to exploration & production (E&P) companies which may be interested to lease the acreage.

So what exactly is an oil & gas “lease”?

Before an oil & gas E&P company can drill wells on any acreage, they must first secure permission from the mineral interest owner(s) to do so.  This “permission” comes in the form of an oil & gas lease.

The process typically begins with the E&P company selecting a tract of land where they believe there is potential for drilling a lucrative well.

After an area has been chosen, public records are checked to determine what portions of the acreage are leased or open as well as who the record owners are of the mineral interests in question.

Once the open acreage & ownership has been determined, the E&P company will present an offer to the mineral owners to lease their mineral interests for a set period of time (typically, 2 to 5 years) at a specified price per acre. This payment is called the “lease bonus” and is payable regardless of whether the E&P company actually drills any wells during the lease term. The lease will also specify a royalty percentage (typically between 12.5% and 25%), which is the percentage of net proceeds from the sale of produced oil, gas, or other hydrocarbons to which the mineral owner will be entitled, should one or more wells be drilled during the lease term. Once the offer to lease is accepted, the mineral owner is sent a lease form and an order for payment.

It is important to understand that the mineral owner(s) receive the payments mentioned above since they own the mineral interests being developed, but they are not responsible for any of the costs of drilling or operating the wells – this expense (and risk) falls firmly on the E&P company.

 

Mineral property managers also manage the division and transfer order processes for all of their clients’ new and existing wells.

Division orders are contracts between the well operators (E&P companies) and mineral owners which are executed immediately after a well is drilled and set to begin producing. To receive royalty payments, mineral owners must execute the associated Division Order for the well(s) which have been drilled.  The Division Order states clearly the final percentage of revenue from the wells which will be due & payable to the mineral owner and is executed for avoidance of doubt and to diffuse objections down the road.

It is critical that a mineral property management company review these division orders very carefully to ensure the accuracy of essential information like the effective date of production, the payor’s name and address, the well name and legal description, tax identification numbers, and, most importantly, the decimal interest (percentage) which the mineral owner will be paid on.

Another document which is occasionally relevant to mineral property managers is transfer orders – these documents are sent by operators when a particular property’s ownership changes. If a property with an already-existing well or wells (for which the mineral owner(s) are actively receiving royalty payments) is transferred from one mineral owner to another due to purchase, inheritance, or any other reason, transfer orders are issued to one or both parties to acknowledge the transfer and ensure that all parties agree to the change.

 

Verification of Payments from Operators & Purchasers

A good mineral property manager will review all lease bonus, royalty, and other payments received to ensure that they are accurate and in compliance with the executed lease terms.

In a more basic sense, they will also ensure that all payments to which their clients are entitled are actually received, as checks can very easily get “lost in the mail” when dealing with large mineral property portfolios. It is not uncommon for a single portfolio to receive several hundred or thousands of revenue checks per month, being issued by various parties. In managing a portfolio of this scale, simply ensuring all payments are received is critical.

Lastly, on an ongoing basis, a good property manager will ensure that payment is being received on all wells that cross portfolio acreage using specialized software to map the locations of all existing wells against owned acreage to ensure that division orders and ongoing royalty payments are being received from all overlapping wells. If wells are discovered to exist which the client is found to *not* be in-pay on, a good property manager will reach out to the operator of the well in question and ensure ownership information is corrected in their systems and payments are issued as required.

 

Verification & Payment of Property Taxes

When managing large mineral property portfolios, one of the most critical management responsibilities is the assurance that all due property taxes are paid on all owned acreage.

In most states, at the time of acquiring a new mineral interest, the new owner must inform the tax authority that the ownership of the property has transferred and provide their contact information. After that, each year, the tax authority will appraise the property in question and property tax statements will be sent by the tax authority to the owner in question, which must be verified against owned acreage and paid promptly to avoid penalty & interest charges – or contested if the appraised value is unreasonable or inaccurate.

When managing a large mineral property portfolio, among the most critical steps in this process is simply verifying that tax statements have been received and paid on all owned interests.  Why does this matter so much?  Well, if property tax payments aren’t received by the tax authority in question, even if they have the owner’s address incorrect or they are sending the statements to the previous (incorrect) owner, the property will become tax delinquent and can be sold at the courthouse steps to the highest bidder in a Tax Sale!

To avoid this, a good mineral property manager will compare all portfolio properties owned against the tax statements received each year to ensure that property taxes have been paid on 100% of all portfolio properties.

 

Filing of All Necessary Tax & Regulatory Paperwork

A mineral property management company will generally handle all of the necessary tax and regulatory paperwork, such as the organizing and indexing of annually-received 1099s related to royalty income received, cost basis on owned properties (relevant in the event of a sale), and all basic entity bookkeeping needed so that state & federal tax returns can be filed accurately by a CPA or other tax professional.

 

Token Management Services

In the case of Mineral Vault tokenized products, the designated property management company, Mineral Vault LLC, handles all processes related to token holder management and support.  For example, Mineral Vault LLC is responsible for the declaration and payment of noncumulative dividends to token holders, compliant onboarding of new token holders, token issuance, as well as transfer and wallet support requests.  The property manager is responsible for nearly all general token holder support processes & inquiries, as well as inquiries from prospective token holders.

 

Conclusion

So, there you have it! Managing mineral properties is somewhat complex, but a good mineral property management company can completely handle these responsibilities and turn mineral property ownership into a passive endeavor.  With Mineral Vault tokenized products, Mineral Vault completely handles all of the responsibilities discussed in this blog post on behalf of token holders, leaving them with a completely passive, yield-bearing investment in America’s finest mineral properties.