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How To Sell Mineral Rights – Understanding The Difference

If you own a property which has valuable minerals hidden underneath, you could make a hefty profit provided you own the mineral rights. Since property ownership doesn’t always mean owning the mineral rights, you should secure the same from the owner to ensure you have the rights to sell or lease. The term “mineral” can include natural gas, oil, gold, coal, metal ore, copper, stone, iron, clay, sand and gravel. You can monetize your mineral rights in two ways: selling or leasing. Since both these options involve huge sums of money, you should understand the difference between these two before you take your pick and also understand how to lease and how to sell mineral rights.

Selling

When you sell your mineral rights outright, it means you are giving up the complete rights to the minerals underneath that piece of land and won’t be able to make any claims on those minerals in the future. In lieu of buying all of the mineral rights under your acreage along with having complete right on the entire proceeds generated in the future if/when these mineral rights are extracted, the buyer will give you an up-front amount just once. You can think of selling your mineral rights like selling a home where you relinquish all your rights to enter or use the property after you have sold it for a one-time payment.

If you are in immediate need of a hefty amount of cash, or just can’t wait for years on end to see your royalty checks, understanding how to sell mineral rights is crucial. Selling and receiving a specific sum per mineral acre is a good choice. Yet, you should remember that for getting a higher upfront payment at the moment, you are probably stepping away from a huge amount of money which you could have received in the future.

Leasing

Leasing your mineral rights to a company gives the latter the right to start drilling and extracting, though the long-term mineral rights would still be owned by you. You can think this as renting your home where the tenant pays you rent for living in it but the ownership of the property is still yours.

Once you have leased mineral rights, the company (lessee) will pay a lease on the property. In addition, it will also pay you a royalty (a proportionate share) on the sales of any mineral that it has extracted and sold. After the lease expires, you will own whatever minerals are still present under the piece of land.

Usually, there’s a primary and secondary term in a lease contract. The lessee investigates the piece of land during the primary term to find where and when to begin drilling. After the commencement of drilling, the secondary term comes into play that decides how much time is left on the lease. In case the primary term passes without any drilling, the contract is likely to be terminated. This means you won’t get any royalty checks, which in turn would be a big financial setback. In case you have leased out your mineral rights during a boom period, no drilling would mean missing out on a good earning opportunity since you can’t force the lessee to start extraction.

Now that you know what both selling and leasing entail, it’s entirely your decision to decide which option you want to choose.

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