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Benefits Of Selling And Leasing Mineral Rights In Pennsylvania

In Pennsylvania, the ownership of mineral rights may be separate from the surface rights. Also, the ownership of minerals in the same region may vary from each other – gas, oil, hard rock minerals, coal, etc. In Pennsylvania, the Marcellus shale is one region that has witnessed a lot of drilling. The Devonian shale and the Utica shale have had their fair share of drilling and mineral production activities too. If you belong to any of these regions and want to sell or lease your mineral rights, here are the benefits you should consider before making a decision.

Selling mineral rights in Pennsylvania

  • Get a huge sum of money at one go: Selling your rights will bring you a lump sum amount, which you may put to immediate use or reinvest in other safer modes of investments. Within 30 days to 90 days, you will be able to receive the sale amount.
  • Feel free of the burden of estate planning: Mineral rights often become extremely complicated and confusing, especially if they are passed from generation to generation. Instead of feeling baffled about what to do with these rights and let your valuable property sit undeveloped and idle, or opt for streamlining your estate planning to ensure continuance of your mineral rights (which is a time-consuming process), you could sell the mineral rights to get rid of the headache of estate planning, and obtain a substantial sum, which you can use to diversify your investments.
  • No endless waits: Leasing your mineral rights may mean an almost endless wait for the company to start drilling. If you aren’t ready for it, selling the rights is the way to go.

Leasing mineral rights in Pennsylvania

  • Hold onto your rights: Pennsylvania is one of the leading natural gas drilling hubs in the US. By retaining your mineral rights, you can cash in on the high demand by leasing your mineral rights successively, after each lease expires, by awarding the lease to the highest bidder.
  • Get lease payments and royalty amounts: Leasing your rights would make you receive a lease “bonus” (which becomes payable upon the lease’s execution) along with delay rental payments (for every year in which drilling doesn’t start), and advance royalty payments. You will receive royalty interest in case the outcome of drilling is a producing well. Royalty interest refers to the periodic payments that you will get as your share of the production, as mentioned in the terms of lease. Under Pennsylvania law, though this royalty share is negotiable, it shouldn’t be less that 12.5% or one-eighth of the gross production. However, if the lease agreement mentions that the company would subtract royalty expenses from the gross revenue prior to allocating royalty, what you receive as the net royalty amount could be below the 12.5% mark.
  • Enjoy tax benefits: You can take advantage of the cost depletion or percentage depletion allowance to save thousands of dollars per annum from paying income taxes on your gains made from leasing mineral rights. Ideally, you should consult an attorney experienced in mineral rights in Pennsylvania to discuss if you can minimize your tax consequences further.

With leasing, you need careful planning with respect to:

  • Estate and Inheritance tax: Though many landowners in Pennsylvania can be liable for federal estate taxes, there’s some uncertainty regarding estate and gift tax rates and exemptions. So, involving an attorney is a wise thing to do before signing the lease agreement.
  • Damage payments: This refers to the payments for damage to timber property or land during the development and production of minerals by the lessee.

So, proceed cautiously to make sure you get proper value for your mineral rights, no matter whether you decide to sell or lease the rights.