Oil & Gas 101: The Creation of Minerals
We often post about leasing minerals, so we thought it would be nice if we changed direction and did a post about the minerals themselves
How is oil and gas created?
How do companies know where these minerals are?
We’ve written a brief primer to help answer these fundamental questions.
There are several theories as to how oil and gas deposits are formed. The most popular theory is that oil and gas deposits were formed from vegetable and animal life in the seas. Over the course of millions of years, the seas and continents move great distances, life forms decompose and turn into carbon, and layers of rock gradually form. Time, heat, pressure, and other factors cause these once organic life forms to turn into oil and gas, trapped inside rock formations.
Not all rock is created equal. If you sliced open the earth, you would see dozens of different layers of rock and sand. The Grand Canyon is a perfect example of what the earth looks like underneath the surface. These layers differ in thickness, depth, porosity, and permeability. In order to find oil and gas, the oil company must first find rock that is capable of holding these minerals, and capable of letting them out.
Porous, permeable rock formations are most attractive to the oil company. Porous rock is that which has a lot of space in between particles, making it capable of physically holding oil and gas (sort of like a sponge, on a molecular level). Permeability describes the resistance of the rock. If the rock holds oil and gas, but resists the movement of the minerals, then the oil company may not be able to extract the minerals. Therefore, the company will look for rock that is capable of holding mineral deposits and rock that has little resistance to the minerals movement.
So, how do oil companies know where these rock formations are? Mostly through educated guesswork and actual drilling. Large oil companies will hire teams of geologists, geophysicists, engineers, and other scientific types to help pinpoint where these formations may be. These people may do seismic research, on-the-ground surveying, look at well logs in the area (data from other oil wells), and core samples (rock samples from the drilling operation). Until a well is actually drilled on a particular piece of land, the oil company will not know 100% if there is oil and gas, or whether there is enough oil and gas to make a profit.
Exploring and drilling is a high-risk activity. Going into an area with a past history of drilling aides the company in predicting what kind of rock may be underground and what may be in the rock. Even so, rock formations can differ greatly in distances as short as a mile. Today’s technological advances take some of the risk out of the equation. Nonetheless, to know for sure what is underneath, the oil company must drill.
Of course, this is a good thing for the mineral owner. All the data may be unfavorable, but a company may still venture out and drill just to know for sure, and hopefully get lucky. These “wildcatters” sometimes go broke, and sometimes strike it rich. However, the “unknown” is attractive to oil and gas companies, and many times they will take leases even if the odds aren’t in their favor. That’s where Hilltop Royalties comes in. Visit our other pages to learn more about us and what we can do for you!