Paper: Petroleum Operations In Trusts And Estates

Most petroleum engineers, operating personnel, and management personnel are familiar with the role of banks in commercial lending. Banks have long been involved in the financing of development drilling, workovers, secondary-recovery projects, gasoline plants, acquisitions and many other facets of the oil industry. Another role- that may be new to many operating personnel is the role of bank trust departments in management and operation of oil and gas properties. This is a relatively new segment of the century-old petroleum industry. In the last several years, numerous banks in oil- and gas-producing areas have employed oil-industry specialists to join their trust departments to provide the expertise needed to manage this type of asset. One of the first professional technical persons in this role was a petroleum engineer employed by First National Bank in Dallas about 20 years ago. The Trust Oil Department staff now includes five petroleum engineers, three petroleum landmen, and 19 other land, accounting, and technical-support personnel. These persons are involved in virtually all aspects of management of mineral properties in 26 states. Due to First National's location in the largest oil producing state, the estates of independent oil men provide a large portion of the trust assets, and these estates rate among the Bank's most important business. Approximately 20 percent of the estates and trusts which the bank serves in a fiduciary capacity own some type of mineral interest. Types of ownership include undeveloped mineral interests, royalty interests, outside-operated working interests, and bank-operated working interests. Revenue to the beneficiaries of these trusts and estates is approximately $35,000,000 annually. This revenue exceeds that of many independent oil companies operating in the state of Texas. The fiduciary's interest in the operation of such properties is indicated by the fact that in working interests alone, my bank represents the ownership of 4,500 barrels of oil per day and 45,000 MCF of gas per day. Thus, the bank is a not-so-small "small oil company" when co-owner approvals of development projects, drilling wells, secondary recovery projects, etc. are required. In properties where the bank is a non-operating working interest owner, it acts like what may be described in a company as a joint-interest manager. In management of bank-operated properties, the engineer may serve as a combination reservoir engineer, geological, production and drilling engineer, or he may employ outside consultants when appropriate.