Frequently Asked Landowner Questions
Why would a mineral owner lease the mineral rights?
Mineral owners may ask themselves, “now that I know I own the mineral rights, what am I going to do with them, especially if I do not have the resources or know-how to develop them”. A common practice is to lease the mineral rights to a company that is interested in exploring for and developing minerals.
Subject to certain regulatory requirements, any landowner who owns mineral rights has the right to develop any deposits on his or her land. However, few owners attempt to do this because of the tremendous costs and risks involved in exploration and development. Instead, most landowners lease these rights to companies having the necessary capital and technical know-how for effective exploration and efficient production. As a result, the petroleum industry is based largely on leasing rather than outright ownership of land and mineral resources.
When to lease?
Where there is little competition, most mineral owners are interested in getting exploration started in the area and many of them can be expected to sign leases at the first opportunity if the lease is equitable and meets their needs. Remember that the lease bonus is the only real lease benefit if oil and gas are not found. With little or no competition for leases, a mineral owner must decide whether to accept the current offer or hold out until competition creates more favorable terms and higher bonuses. If the initial offer is accepted, the mineral owner may give up the chance of leasing at a larger bonus and higher royalties in the future. If the mineral owner decides to hold out for higher returns, the mineral owner may not get an offer if competition does not develop in the area or if oil and gas prices decline.
To whom should landowners lease?
If there is competition for leases, mineral owners may have a chance to choose between two or more prospective companies. Comparing the merits of the prospective companies, the lease rates and bonuses offered, and various provisions of the lease will help decide.
What is the value of my mineral interest?
Values are generally based on your proximity to current oil or gas production, as well as dry or abandoned wells. Bonus amounts paid for leasing your minerals are dependent on these factors and whether more than one company is competing for your lease.
How do I know my resources are not being drained by nearby production?
All oil and gas producing states rely on Commissions to oversee & enforce all laws pertaining to oil and gas production. State engineers set standards for pooling and spacing areas to protect adjacent landowners from drainage based on independent studies. Operators & purchasers are mandated by the commissions to report production rates and well status monthly.
What is the oil & gas leasing process?
Typically an Oil and Gas Firm will have a “Landman” arrange a visit to explain the oil and gas lease while initiating an offer to lease of which will include that of a lease Bonus per net acre, Royalty and Term of the lease. Thus, if the landowner decides the terms are of acceptance, the documents are then signed in the presence of a notary public and compensation is tendered (keeping in mind some companies issue drafts of which are a site collection at the bank teller and not that of a check, a very typical and honest practice of the industry). Then, if a title examination has not been performed prior, a title examiner will be assigned to examine the title or abstract to your land that was leased to assure that you own the purported amount of mineral acres. Once, title exam has been performed the draft will be honored and the Oil and Gas Lease will be lodged of record at the County Courthouse.
Do I always own 100% of the mineral rights under my surface tract?
This is determined by the examination of the title at your local courthouse. A landowner would need to contact a local attorney to have knowledge of their mineral ownership under the surface tract they own. Keeping in mind that one may own 100% of the surface and a different percentage if any of the minerals. This will be decided upon your attorneys findings.
Prepare by Estate and Tax Planning
Landowners may incur some minor risks and inconveniences by leasing their oil and gas rights. However if production is discovered, the disadvantages will likely be small compared to the royalties received. Consequently, the decision is not whether to lease but rather when and to whom.