When it comes to picking whether you should sell or lease your mineral rights, there’s almost a perpetual debate where both sides have their proponents and opponents. While each of these options has its own pros and cons, it all boils down to the decision of an individual since there’s no clear winner on this debate. Here, we try to give you a clear picture of both with respect to certain factors, which could help you decide whether to sell or lease mineral rights. First you need to understand the difference between leasing and selling mineral rights.
- Time: Leasing your mineral rights and then waiting for drilling to happen can take anywhere from 5 to 10 years. Not all owners are ready to hold onto their property for such a long period, especially when it’s a gamble since you never know if you will actually get to receive the lease amount and royalty which you have planned. Moreover, there are some who may need a big sum of money after retirement or have some urgent medical bills to pay, where selling the mineral rights outright is a wise decision. Still, it’s not uncommon to find many (with no immediate needs of cash) who won’t mind waiting for 5+ or 10+ years to hold onto their long-term mineral rights with leasing.
- Ownership: Giving up on your mineral rights with outright sales could be a tough choice, especially when your piece of land is in an area known for its rich mineral deposits. Despite the lure of big money today, many simply prefer to wait for newer technology and methods that would make drilling and extraction in the future more profitable. At the other end of the spectrum are those people who find leasing not so attractive since despite retaining the long-term ownership of mineral rights, they won’t have any control on how the lessee uses the surface estate (which is separate from the leased “mineral estate”) since it can do whatever it deems reasonably necessary for exploration and production of mineral without requiring any consent from or permission of the surface owner. Often, drilling may even have unintended environment consequences. To avoid handling such problems, selling mineral rights seems like an easy choice for these people.
- Pay on offer: Selling your mineral rights outright would mean a hefty amount of cash in your hands instantly. Though waiting for a couple of years with leasing may fetch you a better amount (in terms of the lease payment and royalty), you can never be sure of whether the royalty checks would actually arrive since no drilling or extraction of the minerals would mean no royalty for you. Since you can’t force the lessee to drill or extract, you would simply miss out on making the most of a good opportunity that an outright sales would have brought your way. Even when you lease your mineral rights and get royalty, after the term ends and you plan to lease the rights again, you are likely to fetch a lower value since a substantial stock of the minerals underneath your piece of land has already been extracted and sold by the previous lessee.
So, it’s important that you consider all these factors before deciding either in favor of leasing or selling your mineral rights. Hopefully now you understand the difference between leasing and selling mineral rights.