Should I sell my Mineral Rights?
It all depends on what your situation is.
There are a lot of arguments against selling, most of which revolve around the flexibility that comes with holding. It isn’t unlike holding or selling in the stock market. Do I take a guaranteed sum now or risk it in the hopes of dividend-rich future? It is purely an individual decision.
For many people, they simply don’t want to wait around to see if drilling will occur and to see how much oil revenue will be realized. The maturation of a drilling project from plans to profits can easily be five years or more. If time is an issue for whatever reason, selling might be the best choice.
There is an inherent risk in holding on to mineral rights. What if they are leased but drilling never commences? There are many instances where a well is never developed despite mineral rights being leased over and over again. If an operation is begun but doesn’t produce the amount of oil or gas expected, then possible profits from a preemptive sale will be gone.
Someone nearing or in retirement could be better off selling in order to bolster their nestegg and to avoid yearly tax headaches that come from leasing.
For the person that is financially stable and doesn’t need quick money or a lump sum of cash, a prudent choice would be to not sell. The ultimate goal would be to lease[b] the rights to an oil company in the hopes that a drilling operation is eventually undertaken. Before drilling ever begins, the lessee (oil company) pays you a ‘bonus’ which is essentially a deposit on the right to drill.
Typically these leases are three to five years. Once drilling begins and reserves are extracted from your property, you will receive monthly royalty checks for your share of the oil or gas revenue. Over time, however these checks become smaller each month, especially during the first year or two of operation. The depreciation of revenue slows slightly as the well ages into years 3 and 4, but the revenue will always decline steadily from day one.
The beauty of leasing your rights instead of selling is that even if they don’t drill, you can lease to a new interested party. By leasing, you are keeping your options open with the ability to sell in the future.
I’ve decided. Now What?
Unless you are experienced or have connections, it is often advised to seek an intermediary to handle a sale or a lease. This helps to avoid miscalculations and mistakes. It also helps in getting your offer out to as many potential buyers or lessees as possible, therby pushing up competition. By using a mineral exchange or auction company, you save yourself time and maximize potential offers.
Woah, back up…
What are Mineral Rights?
Mineral Rights are technically referred to as “mineral interests”. They are different than property rights, commonly known as “surface rights”. Mineral rights grant the proprietor the right to excavate, mine, or otherwise extrapolate resources from subsurface areas. Usually, this is most important for reserves of oil and gas, though sometimes it can be relevant for things like gold and silver. There are exceptions to mineral rights; these include but are not limited to: water, limestone, and various sedimentary rock deposits.
If you live in an area not known for valuable mineral deposits such as oil, natural gas or coal, then it probably isn’t of much concern to you who has the rights to it. Additionally, if you live in a highly populated area it is unlikely that if there were valuable deposits or reserves beneath you, that you’d be able to extract them without considerable legal battles with your neighbors or the city in which you live. Well-drilling isn’t cheap either; it takes considerable capital to undertake such an operation.
Mineral rights can be excluded from a deed.
If a property has changed hands numerous times it is possible that mineral rights were conveyed separately at some point. Generally, mineral rights are included in a land conveyance unless retained by a previous seller or otherwise sold separately in the past. A land deed will not always show this, as a prior sale of mineral rights will not be displayed on deeds after the first separation.
How to search for mineral rights.
If you aren’t sure if you own the mineral rights to your land, first look at your deed and the description of your property. If the mineral rights weren’t sold separately at any point from the surface rights, then it should be included in the deed. You will have to do some digging (no pun intended) to find the mineral rights if they aren’t listed in the deed. This requires a trip to the county clerks office. What you are searching for is the chain of ownership through the title deed component. Pay particular attention to older deeds that go back around 1900 or before. Mineral rights were separated from surface rights more often in that era. If a property was foreclosed on then the bank would assume mineral rights. Sometimes, an institution will overlook or miss this detail and on occasion a bank will still retain the mineral rights to a property after it is auctioned off.
Also, keep an eye out for Royalty Rights. Not as common, these differ from mineral rights in that they confer a financial share of future profits made from whomever has the mineral rights.
Mineral rights can even be delineated to individual minerals. In other words, there can be multiple mineral right ownerships for a given piece of land.
Depending on where the land is located, those with mineral rights can be granted access to land they do not have surface rights to in order to obtain the minerals beneath the surface. This can mean the building of access roads and easements, not to mention the construction of wells themselves. If you are approached by an individual with mineral rights on your land, make sure to contact an attorney immediately so you can be in a position to protect the impact on your land. In some cases, there is not much you can do but it is best to be prepared in that situation.