Frequently Asked Questions from Mineral Rights Owners
Frequently Asked Questions from Mineral Rights Owners
A mineral owner can extract, lease, or sell minerals discovered below the surface of a specific piece of land. A title will define what the rights consist of all. It can be all the minerals under the ground or be restricted to defined minerals. The most common minerals are coal, oil, and gas. Gold and silver are other types of minerals with rights.
What is the best way to sell or transfer mineral rights?
To sell or transfer mineral rights, a title company or a mineral rights lawyer will perform a title search to validate the estate owns the mineral rights. Once verified, you will need a mineral deed. All of the owners must sign the deed, or the executor of the estate, and have it recorded. When a mineral right changes hands, it becomes a public recording.
When preparing a brand-new mineral deed, it is best to refer to the legal description of rights that appear on the existing mineral deed.
What is the difference between leasing and selling mineral rights?
When you lease your mineral rights, you give the oil and gas company access to explore and extract mineral rights within a set time frame. Typically, the oil & gas company pays an upfront lump sum plus royalties as minerals are extracted. Though an oil lease may be lucrative, there’s no guarantee that the company will start production during the time set in the contract, so you may never see royalty payments. At the termination of the lease, the mineral rights revert back to you.
When you sell your mineral rights, you give up all future rights to those minerals. The oil & gas company typically pays a large, one-time amount to purchase your rights.
What can the company that leases the rights do?
This is negotiable and defined in the lease contract. It is advisable to have counsel when entering into a mineral rights lease.
Some items the lease will address are drilling, investigation, property disturbance, roads, cleanup, and timeframes.
What is the royalty rate on a right mineral lease?
First, there is often a signing bonus. In the event no minerals are mined, the rights owner still gets to keep the bonus.
The royalty rate is negotiable. For example, a 10% royalty agreement is reached between the owner and the drilling company. Oil is found and well produces 50 barrels. Each barrel sells for $100. The total is $5,000, and the mineral rights owner share would be 10% or $500 before taxes.
What is a fractional interest in a mineral right?
A fractional interest means you own a portion of the right. For example, a 50% fractional ownership means you are entitled to half of all the minerals discovered on the property.
Fractional ownership often happens when someone passes away and divides the mineral rights between siblings. Fractional ownership creates complicated leasing and selling situation.