About three years ago, out of the blue, I was contacted by an individual wanting to know if I would be willing to allow an oil company to acquire drilling rights from a piece of property near Pecos, TX, that I had inherited.
I never even knew this piece of property existed. After discussions with the agent from an oil development company, I learned that my father and at least one of his sisters had purchased a few acres of land in a Godforsaken patch of west Texas years ago. My father never mentioned it to me or any of my siblings.
The agent informed me that I was one of many heirs that held an interest to the property. Initially, all the development company wanted was the right to produce oil from the property, if it ever became economically feasible to do so. After some negotiations, each of the heirs agreed to a payment of about $1,500 for rights to develop the property, with an option for renewal three years later.
I never expected much to happen with the property, but over the years had calls from several other oil production company representatives wanting to buy the property outright or acquire the rights to develop that we had already sold. When the development rights option matured last year, the company renewed it, which surprised me.
Then last fall, I received a surprise check for royalties on production of oil on the property. With the continuing boom in the Delaware Basin of the Permian Basin, the property I didn’t know I partially owned was suddenly producing. From what I understand, there were no new wells drilled on the property. The oil was extracted through modern horizontal drilling techniques which can significantly reduce production costs.
Since then. I’ve been getting regular checks for royalty on the oil production on the property. Not much, but between $300 and $400 per month.
That is, until last month, when it dropped down to $285.16.
So this makes me wonder if high gasoline prices this summer are indeed the result of intentional cutbacks in oil production. According to my calculations, the royalty revenue reflects almost a 25% reduction in production since the high point of production in the first quarter of the year.
If oil companies want to drive up prices, cutting back on production seems to be a good, if not entirely ethical, was to achieve that goal.
But I can’t complain since I never expected to get the money anyway. I guess I’ll just use what I get to pay my gasoline credit card bills.