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Fundamentals Of Leasing And Selling Minerals

Leasing minerals and selling minerals is beneficial for both the owners as well as the oil and gas industry. While the former stands a potential chance of making a profit, the oil and gas company gets a fair opportunity to mine, drill, and explore properties not owned by them in lieu of a certain amount of money. But as the owner of mineral rights, you need to be cautious and should know certain basic things before proceeding with either the lease or sales agreement.

Being aware of ownership rights

Since severability separates surface and mineral rights, you may own the land and yet someone else could be the owner of the minerals beneath it. So, you should get a binding mineral title opinion to find if you have the mineral rights. In case multiple owners (who may or may not be your family members) own the mineral rights, it’s important to discuss your intention with them and ensure everyone is on the same page, especially where the gross acreage is likely to be leased or sold.

Researching the local and state laws related to mineral extraction

From local zoning restrictions that could affect your mineral rights’ value to laws requiring minimal surface restoration after the completion of extraction, different states, cities and counties have laws that regulate drilling and mining activities and exercise control on how minerals can be extracted. Though the basic premise of most of these laws is similar, you should know about the variations, if any, applicable in your case because even the slightest one could have big implications.

Deciding on selling vs. leasing minerals

Since both the choices have benefits and liabilities, taking your pick is important. If you don’t want to worry about the rise or fall of mineral prices in the future and are happy to get a one-time payment, outright sales is the way to go. But you won’t get any future royalty payments and can’t do anything in case the prices go up in the future, thinking what a killing you could have made if you had not sold your mineral rights. With leasing, you get a royalty every month from the lessee (the company which has leased the minerals from you) over an agreed period of time, after which the rights come back to you. With price escalation of the minerals, you stand to gain with a lease agreement, while the reverse could play havoc on the amount you receive.

Hiring an attorney

Hire an experienced mineral rights attorney before signing a sales agreement or contract of lease to have a clear idea of what you stand to gain or lose from the agreement/contract, if and how your personal usage of the land could be affected, future implications in case you want to move house by selling your property rights etc. Having a professional working to safeguard your interests would ensure you get a fair deal and don’t end up giving the mineral company much more rights than you actually intended to.