Selling or Leasing Your Mineral Rights: Pros and Cons

Posted on Apr 5, 2017 in Mineral Rights

Selling or Leasing Your Mineral Rights: Pros and Cons

The “fee simple estate,” which refers to the most basic type of private ownership in the United States, grants estate or property owners the following rights:

  • Control over his/her property’s surface and subsurface; and,
  • “Surface rights” and “mineral rights,” which extend to private ownership of, and the right to sell, lease, give as a gift or bequeath, all the minerals, such as oil, gas and valuable rocks found on or within the land that they own.

The greatest benefits of this “fee simple estate” may never have been felt before this time, particularly in the state of Texas, due to what many experts in the U.S. oil and natural gas industry identify as the “oil shale revolution.”

Oil shale is a type of sedimentary rock that is formed through the combination of silt and clay. It contains kerogen, a possible source of oil and gas. Through technological advances that enable the combination of hydraulic fracturing and horizontal drilling, more effective and increased extraction of oil and gas has been made possible; this has not only made the U.S. a major oil-producing country, but has also made her no longer dependent on imported energy.

The increased production of oil and gas benefits, in general, the U.S. economy and, in particular, owners of estates where shale may be abundant. With the hope of finding rich deposits of kerogen, big oil firms have offered many estate owners in various Texan counties hundreds of thousands to millions of dollars to have their mineral rights either sold or leased.

Leasing of mineral rights can mean big earnings over the years, on the assumption, of course, that the property is productive; if it isn’t, then the owner can kiss his/her chances of earning big, goodbye. A decision to sell mineral rights, however, means cash up front, the amount of which depends on where the property is situated (it is said that one company offered four million dollars to one family and an even higher amount to another to have their mineral rights sold). Selling of mineral rights is never dependent on whether the land is actually productive or not – the buyer still has to discover this. If an estate produces much less than expected or turns out to be unproductive, then such would be the loss of the buying company, which made the purchase, and not landowner’s or seller’s, who has already been paid the amount.

Despite the sure cash for those who will sell their mineral, gas or oil rights, many remain hesitant due to thoughts of the possibility that their estate is productive and so will make much more money over time. Well, some estates do turn out to be productive, others, however, after leasing their land, are told that it produces either too little or nothing at all, thus, they lose all the economic benefits they had dreamed of.

Besides cash up front, which sellers can use immediately or save for the rainy days or for emergencies, sellers also enjoy notable tax benefits (as different from those who lease their rights since money earned from leasing is treated as regular income). However, rather than negotiate directly with buyers, who can be tricky and lure sellers to what seems to be a huge deal, it may be better to scout for a really reliable and trustworthy mineral rights broker, whose aim is to help sellers get the most competitive and generous price for their gas, oil or mineral rights. To accomplish this, rather than approaching buyers individually, some mineral rights brokers put their sellers’ mineral rights up for auction for these to drive up the price.

Selling or leasing mineral rights both have advantages and disadvantages which estate owners may learn and understand more by consulting with a trustworthy mineral rights broker. One important thing to bear in mind is never to make any decision based on a buyer’s promises. Selling, or even leasing, involves a legal transaction. It would be wise to have legal counseling before entering into any of these.

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