Mineral Rights Information

 

What You Need To Know About Mineral Rights


  • What are 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 casinghead 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.

  • How do lease negotiations work?
    • The elements of mineral rights laws vary by state. However, there are some general points to consider when negotiating a mineral rights contract. First is the right to use as much of the surface as is necessary to access the minerals. Some types of drilling can be done completely underground with minimal surface interruption. Second is the right to receive bonus considerations. The owner of a non-participating royalty interest does not usually receive the rights to any bonus payments. Next is the right to receive delay rental payments, which are fees paid to delay production or commencement of drilling, without terminating the lease. Delay rentals are rarely used in modern times.

  • What’s the difference between leasing minerals and selling minerals?
    • Leasing your minerals to a company gives that company the exclusive opportunity over a fixed duration to explore for oil and gas on your property. This company has no obligation to actually drill for the oil and gas on your property. If said company does drill and makes the discovery of oil and/or gas, you will receive a monthly or possibly quarterly distribution of a share of the revenue of that well for as long as that well produces. This is called a royalty payment. These royalty payments are dependent and vary based on the production of the well and the current commodity prices.
      When you sell your mineral interest outright, you receive one lump sum up front in exchange for the right to the monthly or quarterly royalty payments that may come as a result of the production from any current wells on the property or any future wells on the property. You may feel more comfortable having a definite, known amount of money, instead of an unknown amount of money over time. Or, you may feel more comfortable spreading out your payments each month knowing the risk that fluctuating commodity prices pose. There are both advantages and disadvantages to selling or keeping your mineral rights. Therefore, you should make your decision based on what’s best for you.

  • How are mineral rights valued?
    • Determining the value of your mineral rights can be tricky, and depends on many variables including timing. The location and geology of your land is the first consideration. Are you near current or historical oil or gas production? Is there drilling activity established nearby, which would increase accessibility of distribution? What is the likelihood the current lessee plans to produce your minerals soon, hold them for later production, or possibly let the lease expire? This will have an effect on the value of the rights.

  • What are the advantages of selling your mineral rights?
    • There are many advantages of selling. For instance:
      1. • Provides a lump sum payment for your asset as opposed to small checks every month
      2. • Alleviates risk of declining production and commodity prices
      3. • Simplifies estate planning
      4. • Allows for a diversification of asset classes and income streams

      When you sell your royalty interest, you reduce your exposure to the unpredictable nature of oil and gas market prices. Selling your interests now can also simplify your tax preparation because you will no longer be required to pay certain property taxes.


  • What is the selling process like?
    • If you’re a homeowner in a city, or a small land owner, negotiating the sale of your mineral rights might be fairly simple for you to do yourself. You can contact several purchasing companies, negotiate and take the best offer from a trustworthy company. San Saba Royalty has a good reputation and lots of experience buying mineral rights and royalties, so we have turnkey contracts that protect our customers and us. On the other hand, if you own a large amount of land with a large mineral estate, you should consider having an attorney work on your mineral rights sale. You want to make sure you have every detail covered when it comes to taxes, the specific kinds of minerals the sale covers, the depths that the sale covers, etc.
      If you have more questions about selling mineral rights in Texas, please contact us.
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