What Are your Mineral Rights?
Mineral rights are legal rights that entitle the owner to explore, mine, and produce the oil or gas on or below the surface of a property. In the state of Texas, the common use of the term mineral rights is construed to be oil, gas, or other associated products including casing head gas, gasoline, etc. It is not intended to include water rights or the rights of those minerals that can be mined on the surface, such as strip mines for coal.
In most countries of the world, all mineral rights belong to the government. In the United States, all mineral rights originally belonged to the owner of the surface of a parcel of land. As mineral production became economically advantageous, ownership of mineral rights often began to be separated from surface ownership. Mineral rights can be sold or leased to a third party. They may also be gifted or passed down as an inheritance to family members.
What You Should Know Before Signing an Oil and Gas Lease
You will want to make sure that the lease you are signing reflects the terms you have negotiated on the lease, including:
The term determines how long the lease will run. An oil and gas lease has two different terms: the primary term and the secondary term.
Your Primary Term is negotiated upon for a number of years and/or months.
Your Secondary Term comes after the primary term. This is for a period of time that fulfills a circumstance. Usually a secondary term will be stated so long as the land is still producing oil and/or gas.
This needs to be negotiated.
The person owning the minerals (the lessor) receives a royalty interest from the production and revenues made from the leased minerals. You will see most royalties given as a percentage of the revenues.
Most lessors get a negotiated royalty interest rate between 12.5% to 25% of the revenues.
This is the upfront cash payment on an oil and gas lease contract.
This is also quite negotiable and is typically paid based on the number of net mineral acres owned.
The price of a bonus depends on many factors.
This can also be negotiated on. However, most lease contracts are "paid up" oil and gas leases in which the delay rentals are "paid up" as part of the bonus.
In modern times, delay rentals are rare, though not unheard of. Basically a delay rental states that if the lessee (the oil company) doesn’t produce oil/gas on your land then you can get a delay rental payment.
The terms are usually expressed that if there is no production done by the lessee, then they will pay you "rental" money per year during the primary term to keep the contract active.
This must also be negotiated.
A shut-in royalty is when the lessee (the oil company) pays the lessor (the lease owner) a royalty at a negotiated rate per net mineral acre, while the well is not producing oil or gas.
These are usually on a fixed term no longer than one year.
Read the Lease Carefully
You want to make sure that everything that was negotiated is reflected in the lease agreement you are signing. If the division order does not reflect the negotiated terms of your lease, you will want to check to make sure that the company doesn’t attempt to remove negotiated protections of your ownership interest. If you are a potential lessor, make sure a mineral rights expert looks over, acknowledges, and possibly negotiates any changes before signing a finalized contract.