Delaware Basin Mineral Rights

Nothing in the Delaware Basin is shallow, not the wells and usually not the deal structure, so our process here starts with mapping which of five or six stacked benches actually sits under the tract before we talk numbers.

The Delaware side of the Permian runs through Reeves, Loving, Ward, and Culberson counties in Texas, and Lea and Eddy counties across the state line in New Mexico. It is deeper and higher pressure than the Midland side, with the Bone Spring, Wolfcamp, and Avalon intervals stacked on top of each other across several thousand feet, and a heavier associated gas component than most owners expect when they think of it as an oil play.

That depth and bench count is exactly why the Delaware tends to draw the most sustained operator capital in the basin. It also means our review process runs a little differently than it does elsewhere, because we are usually modeling several landing zones at once rather than one clean producing interval.

Reading a stacked-bench package

When a tract in Reeves or Loving County comes across the desk, we start by pulling every permit and completion tied to the spacing unit, not only the well currently paying royalty. It is common to find a producing Wolfcamp A well alongside permits for Bone Spring or Third Bone Spring locations that have not been drilled yet, which means the current check is only part of the picture.

We build our view around how much of that stacked inventory is realistically getting drilled in the next several years based on the operator's permitted locations and recent activity in the unit, not on hopeful projections. A tract with three benches already producing and a fourth permitted is underwritten differently than one where a single zone has been developed and the rest is untested.

New Mexico versus Texas closing mechanics

Interests on the New Mexico side of the line, in Lea and Eddy counties, run through a different title and recording system than Texas, and state trust land or federal BLM acreage shows up more often out there than it does east of the state line. That can mean an extra layer of review when a tract touches federal minerals, since assignment and consent requirements differ from a straight fee mineral transfer.

On the Texas side, the paperwork is usually more familiar to our process, but the counties out here also carry a fair number of older leases held by production on wells that predate the current horizontal boom, and we check whether those leases actually still cover the zones an operator wants to develop today.

Where the associated gas component changes the math

The Delaware produces more associated gas relative to oil than a lot of owners realize going in, particularly in the deeper Wolfcamp and Bone Spring benches, and that gas stream is subject to its own pricing and, at times, curtailment when regional takeaway capacity gets tight. We factor gas realizations into our review the same way we would on a gas-weighted play elsewhere, rather than assuming an oil-play multiple applies uniformly across the whole check.

This is also where post-production deductions tend to show up more heavily than on a pure oil stream, since gathering and processing the associated gas adds a cost layer between the wellhead and the royalty check. We ask for the operator's statement specifically to see how those deductions are being applied before we finalize a number.

Water disposal infrastructure and its effect on netbacks

Delaware wells produce large volumes of produced water alongside oil and gas, and disposal capacity in Reeves, Loving, and Ward counties has been a persistent constraint on operator economics for years. Tracts held by operators with dedicated saltwater disposal wells or midstream water infrastructure generally see steadier operating costs than those relying on trucked disposal to third-party facilities, and that difference eventually shows up in the pace and consistency of development.

We look at whether the operator on a given tract has invested in that infrastructure locally, since it is a reasonable proxy for how committed they are to the acreage over the medium term, separate from what the current permit count alone would suggest.