Selling mineral rights to your land should be simple, but it usually isn’t. There are some important considerations to make before you sell:
- What is the value of your mineral rights?
As with any sale, it is important to understand exactly what you are selling and how much it’s worth. When property owners sell mineral rights to their property, they in effect, split their real property into two components: the surface estate and the mineral estate. The owner of the mineral estate has the right to exploit or mine any minerals beneath the surface estate. Before selling your mineral rights, you should engage a licensed geologist or professional landman to survey your property and give you an assessment of what minerals are present and in what quantities. As the mineral rights owner, knowing this information can give you a stronger position as you start negotiations with an oil company. Another option for selling mineral rights is to get quotes from companies that buy mineral rights. DGS Dallas is one of the larger buyers of mineral rights in Texas.
- Is it better to lease or sell?
Some oil and gas companies will offer a lump sum to purchase your mineral rights, while others offer royalties, or a percentage of the profits made from minerals on your land, for the right to lease your mineral rights. Do some research on sales and leases in your area and see which is more common. For instance, if a given company usually pays royalties in your area and offers you a lump sum to buy you out, there may be a chance that they know you are sitting on a large volume of the oil and gas, and hope to get you to sign away your cut. In this case, holding out for a royalty might be better. You’ll also want to assess how the oil market is doing and where it’s headed. Selling can be a great option when oil prices peak because you’re guaranteed the price in the contract, while leasing can be a riskier move.
- How soon do you need the money?
Beware that agreeing to lease your rights in exchange for a royalty doesn’t necessarily mean you’ll get paid, as you will only get paid after production actually begins. With most lease contracts, oil companies have years to begin drilling, and you run the risk of oil prices dropping over the life of the lease, resulting in lower royalty payments. If you need a large, guaranteed sum of money now, selling might be the better option because you’ll get paid almost immediately after signing.
- Impact to the Surface Estate
In the state of Texas, when the mineral estate is severed from the surface estate, the mineral estate is dominant. This means that when you sell your mineral rights, you give the purchaser the right to use your land, or the surface estate, in order to access the mineral estate. The mineral estate owner may build roads, equipment storage, and other necessary infrastructure on your land. Carefully consider how these rights will affect your property’s long-term value and your own enjoyment of your land. Mining can destroy a piece of land if not handled correctly.
- Are the terms fair?
If structured correctly, selling mineral rights benefits both parties, but oil and gas companies that make these deals on a routine basis likely have the upper-hand when starting negotiations. Do your research to find out if the payment you’ve been offered is reasonable given how similar deals in your area have closed. It’s worth investing in a lawyer who specializes in mineral rights guide you through the process and ensure that the terms of final contract are fair.