American Oil and Gas Reporter - September 2020 - 59

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SpecialReport: Permian Powerhouse
basins to the Gulf Coast. It is part of our 44,500 miles of
pipeline in Texas that connect to our three facilities along the
Gulf Coast.

Q:

One of the challenges for midstream companies
is timing and sizing projects to balance the need
to have adequate capacity on one hand against the risk of
having too much on the other. That is especially true in the
Permian, where liquids and gas production both grew rapidly
within a short period. How is Energy Transfer managing
this balance?

WARREN: As an industry, this has been a recurring issue.
We are constantly reviewing the overall market for supply and
demand, and have the flexibility to back off of projects when
we see an overbuild happening, as we did with the Permian
Basin. In fact, we chose not to pursue our Permian Gulf Coast
pipeline project in 2019, and instead focused on expanding our
existing Lone Star Express assets to provide that connectivity.
Utilizing existing assets provides us the flexibility to more
quickly meet the market's needs while minimizing potential
regulatory hurdles. Given the diversity of our current asset
portfolio, Energy Transfer is extremely well positioned to
provide creative, capital efficient midstream solutions.

Helping Unload The Pipe
STUART T. MACDONALD
Director Petroleum Land
Management Programs
University of Texas Permian Basin
College of Business

Q:

Investors have been purchasing mineral rights historically held by landowners, with the aggregate
value of publicly announced mineral and royalty acquisitions
in the Permian totaling in the billions of dollars over the
past couple years. How does investor ownership of mineral
rights/royalties impact the traditional relationship between
the landowner and the company developing the acreage?
What are the implications for the oil and gas operator?
MACDONALD: This is an important and straightforward
question with a simple answer. Surface damages are going to
become more of an issue and nuisance suits from surface
owners will be more prevalent. This is really easy to see. I live
on property in rural Wilbarger County, Tx., and still own the
minerals. If an operator is willing to drill a well, not only will
we not be particularly concerned about the mesquite and cactus
destroyed in the process, but if it will get things moving faster,
we will help you unload the pipe! Anything short of a "Wild
Mary Sudik" scenario you can make go away by improving my
roads a little.
Yet, if I owned no minerals, you might find that every cactus
and mesquite that had to be removed had great value and I just
might get real sentimental about the view, peace, tranquility
and any endangered spider I could find. Why? Because we are
looking forward to the royalty checks. When you sever the
minerals from the surface and the surface owner isn't participating

in the upside of the drilling and production activity, about the
only money they can make will be surface damages. Plus, they
will be kicking themselves for selling the minerals. Now this
isn't the end of the world. In Oklahoma, for example, it is
common for most, if not all, of the minerals to have been
severed from the surface. In many cases, however, the operator
will be dealing with less cooperative surface owners.

Q:

Everyone remembers the "great land rush" in the
Permian from 2016 to 2018, and the intense competition for lease acquisition. How is the job of land management different with drilling and completion activity now
focused on development rather than exploration or hold-byproduction mode? With consolidation expected, what are
the land management challenges and considerations specific
to the buying and selling of assets?
MACDONALD: In a land rush, you are pressed by time.
This means it's imperative to get the lease signed and perhaps a
decision will be made to get the signatures today and worry
about the curative work tomorrow. This isn't anything new; it's
an old pattern. But there will be a lot more focus on curative
work and making sure you understand fully and comply by the
language of whatever you agreed to during the rush. No title is
completely risk-free, but issues with title that are ignored or
saved for another day become what keep you busy when things
slow down.
During mergers and consolidations, a basic part of due
diligence is examining titles. No portfolio of title will be perfect,
but the stronger they are, the greater the value of the asset that
is being sold. What you are going to see is a lot less tolerance
for risk in buying assets and more effort to cure defects on the
part of the seller.
SEPTEMBER 2020 59



American Oil and Gas Reporter - September 2020

Table of Contents for the Digital Edition of American Oil and Gas Reporter - September 2020

Contents
American Oil and Gas Reporter - September 2020 - Intro
American Oil and Gas Reporter - September 2020 - 1
American Oil and Gas Reporter - September 2020 - 2
American Oil and Gas Reporter - September 2020 - 3
American Oil and Gas Reporter - September 2020 - 4
American Oil and Gas Reporter - September 2020 - Contents
American Oil and Gas Reporter - September 2020 - 6
American Oil and Gas Reporter - September 2020 - 7
American Oil and Gas Reporter - September 2020 - 8
American Oil and Gas Reporter - September 2020 - 9
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