The National Association for Royalty Owners (NARO) estimates that there are in excess of 12MM royalty owners in the U.S. receiving payment from producing-wells on their land. This does not include mineral estate owners, whom have oil and gas reserves on their property that have yet to be developed. The number of mineral holders is difficult to estimate, but is a multiple of the number of royalties.
The royalty and mineral market is highly fragmented, with an estimated 70% of all rights in the hands of individual owners. Many owners have multiple wells on their property, creating an even larger number of property interests for investors to consider.
The royalty market alone, not accounting for minerals backed by proved reserves, generates an estimates $66B in annual cash flow. The royalty market has grown significantly the last decade with the emergence of shale. It is set to grow further with any recovery in energy prices and increases in production.
U.S. oil and gas production increased exponentially the last decade due to smaller independent companies’ access to financing and ability to lease directly with mineral and royalty owners.
A dynamic and competitive marketplace allowed oil and gas companies to deal directly with landowners to apply their technologies on emerging shale plays.
If the royalty and mineral rights had been in the hands of the government, it is very unlikely that we would have seen the development of the shale plays nor the speed which it impacted the market and allowed the U.S. to become the top gas producer and second largest oil producer in the world in less than a decade.
By the Numbers Source: EIA & Viper Energy Partners (Feb 2015 Investor Presentation)