How To Lease Mineral Rights

If you own land in the US, you may have rights to the minerals beneath the surface.Most real estate in the U.S. is transferred as a fee simple estate, meaning that the purchaser has complete ownership of the land above and below the surface.If valuable minerals, including oil and natural gas, are found on your property, you can sell or lease those mineral rights to an energy company.

Step 1: There are documents related to your property.

If you want to sell or lease your mineral rights, you need all the documents that show your ownership of the property, including your deed.It’s possible that someone else owns the mineral rights because they’ve already been sold by a previous owner.A binding mineral title opinion is the best way to determine if you have mineral rights in your property.If you’ve already been contacted by a landman working for an oil or gas company, he or she will be able to find out who owns the mineral rights in your property.Before you enter into negotiations to sell or lease your mineral rights, you should take time to review these documents so you have a better understanding of your ownership and are more prepared to negotiate.If there are other family members who own a stake in the property, make sure you all agree on the sale or lease of the mineral rights.

Step 2: State and local laws can be researched.

Most states and cities have laws that regulate mining and drilling activity.The value of your mineral rights could be affected by the laws that govern your property.Small variations can make a huge difference when applied to your case.Most states require a minimum amount of restoration to the surface once a mining or drilling company completes their work.Keep in mind that the minimums may not be in line with your intended use of the land.

Step 3: Evaluate how extraction might affect you.

The disruption to the surface may affect how you use your property.If you rely on a water well to supply water to your home or farm, you will need to explore how drilling or mining could affect or interrupt the aquifer tapped by the well.Minerals can cause a temporary or permanent loss of water.

Step 4: Do you want to sell or lease your rights?

You should evaluate the advantages and disadvantages of selling or leasing mineral rights to decide which path is best for you.The decision depends on whether you want to get a known amount of money now or an unknown amount in the future, which may end up being significantly more than the money you’re offered to sell, but also could be considerably less.When you sell your rights, you get cash upfront and don’t have to worry about the company not being able to extract the minerals.If you lease mineral rights for a specific period of time, you can potentially make more money in royalties.Future tax rates on royalties are a factor to consider when making a decision.

Step 5: The other party’s role in the process should be determined.

If the person you’re negotiating with is a broker or middleman, you need to know if they represent the energy company that wants to extract the minerals.Some buyers buy the rights to the minerals in hopes of selling them to a mining or drilling company in the future.If you sell your rights to a company that plans to extract the minerals and produce an energy commodity, you’ll get the best deal.Landsmen work for either an oil and gas company or a land broker.It’s important for you to find out who the landman is working for and make sure you don’t have a conflict of interest.

Step 6: The documents are provided by the landman.

A form lease is usually prepared by the broker or company representative.The lease may include any and all minerals that can be found beneath the surface, or may be limited to a specific mineral commodity.The lease gives the company the right to come onto your property and conduct tests to determine if there are significant mineral deposits that can be mined.The company will proceed with mining or drilling if there are mineral deposits.If the company doesn’t begin production before the end of the lease, it loses its rights to minerals there.You can remove or modify the term if you don’t agree with it.Most of the time, the contract the landman gives you is a standard form contract that protects his interests, not yours.Many companies are willing to accept significant revisions to the contract if it doesn’t limit their ability to extract minerals.

Step 7: Consider talking to an attorney.

You might want to talk to an experienced mineral rights attorney if you don’t understand the terms of the lease.If you want to lease your mineral rights, it’s a good idea to hire an attorney with experience in mineral property.The expertise can ensure that you get the most out of the transaction as well as enjoying continued use of your property.The surface rights to your property can be more valuable than the mineral rights if you lease them.You could make over $100,000 a year from oil or natural gas production.You could end up giving up more rights to the mineral company than you intended if you don’t have experience in transferring mineral property.

Step 8: Discuss payments and royalties.

A lump-sum amount up front is known as a signing bonus, and then a percentage of the profits, or royalties, is paid when the lease is over.The royalty percentage in the industry is 12.5 percent.Minimum royalty rates are mandated in some states.Depending on the company’s expected rate of return and the number of other producers in the area, this rate may increase when negotiating mineral rights on private property.You may want to include a provision requiring the company to provide a written itemized account that shows how profits and royalties are computed along with each royalty check.Set a date for the first royalty check to be given, typically between 90 and 120 days after the initial month of production, and argue for an interest clause in which royalty payments that are late must be paid with interest at a fixed rate.

Step 9: Appropriate surface rights should be secured.

Provisions should be included in your negotiations to make sure that use isn’t disrupted and that it’s not disturbed as much as possible.The company will need certain types of surface rights if it wants to drill or dig for minerals in the ground.Mineral rights owners in Texas have complete rights to use the surface as necessary to explore and extract the minerals.Limitations must be included in your lease contract if this use would interfere with your use of the surface.There are disagreements between the landowner and the mineral rights owner when the surface is not usable during the mining or drilling process.To secure surface rights that will allow your continued use of your property, you need to know what kind of machines the company will bring and how long they will be there.You may want to pay an upfront fee to compensate for the damage done to the surface during the process.If you have a farm that will be unable to plant crops while the minerals are being taken, you can negotiate compensation for that loss.You should include in the lease actions the company’s plans to restore the surface property once it has finished recovering the minerals.Understand the amount of surface land that will have to be disturbed for the company to get the minerals.For example, drilling for natural gas typically requires clearing several acres of land for the drill pad.Basic protection of your surface rights may be provided by state law.If you own a farm, you would want the contract to include adequate protection for your crops and livestock as well as the buildings on the surface.

Step 10: The written agreement needs to be reviewed.

Make sure you understand the terms of the lease before you sign it.Make sure your rights to use the surface of your land are covered, as well as provisions to repair damage to it, if the land is to be used for exploration and mining.The document should explain how the land will be used and restored.

Step 11: The agreement needs to be signed.

The lease must be signed by both you and the company representative.Because the agreement involves the transfer of real property rights, most states require it to be notarized and some require other witnesses as well.Check your state’s law to make sure the document is signed and witnessed correctly to constitute a legal transfer of your mineral rights.Texas requires land transfers to be acknowledged by a public notary and signed in the presence of two witnesses.

Step 12: Check the application status.

Although you aren’t responsible for obtaining permits to extract minerals, your signature may be required on some applications.Two permits are required to drill an oil well.A use permit from the local agency is required.Bonds are required for some well permits.State and local laws will affect the amount and type of bond required.

Step 13: Receive your signing bonus.

Once the agreement is signed and finalized, you should receive your check for the amount that you and the company representative agreed to.Depending on the amount of money involved, you might consider creating a new business entity to control and distribute the income.If there are several family members involved or who have a property interest in the mineral rights, this is a good idea.

Step 14: You should record the lease.

Your lease agreement should be recorded with your deed as a document that affects real property rights.To record the lease, you have to go to the county recorder’s office.You should pay real property taxes on the transfer.The process of recordation varies from state to state, but generally the lease must be in writing, signed, and contain a full legal description of the property.The description in your original deed can be used to guide this description.