Mineral Rights: Selling vs. Leasing & What You Need To Know!

In this three-part series of articles, we will help answer the question that has entered the mind of many mineral owners at least once.

“Is it better to sell or lease my mineral rights?”

The saying “You should never sell mineral rights” has been around for as long as mineral owners have had the option to sell or lease.

Determining if you should sell or lease your mineral rights is a difficult decision and while you will find strong opinions on both sides of this argument, there is no “one-size fits all” answer. It is a personal decision based on your current needs and your goals for the future.

Here we will highlight the questions and answers to what we believe are some of the most important considerations when making your decision.

I am not an attorney, and this is not an interpretation of law. This article is based on personal experience and the experience of other mineral owners who have made this tough decision. We are passing along this knowledge to empower mineral owners and help you to get the best value from your mineral rights. If you have questions about determining the best option for your situation, or need help with the process of selling or leasing your rights, please reach out in our comments section or chat feature. Family Landman has consultation services available for most situations and if needed, we can refer you to reputable oil and gas attorneys in your state to assist you further.

Mineral Rights: Selling vs. Leasing

In the United States, landowners have full possession of all surface and mineral rights on their land until they decide to sell or lease their mineral rights. Before you decide how to proceed with your mineral rights, it is important to fully understand what each option means for you as a landowner.

Selling Your Mineral Rights

When choosing to sell your mineral rights, you have some options on how to proceed. The first is a split estate. This is when one party holds the full surface rights and another party holds the full mineral rights. This is the most common situation for severed estates and is what mineral rights buyers are typically looking for when they make their offers.

The next option is a fractional estate, which occurs when surface rights or mineral rights ownership transfers to multiple parties. While this can happen in numerous ways, the most common are:

• A landowner choosing to hold on to a portion of their mineral rights and sell the rest to a company or individual.

• Surface and mineral rights divided among heirs.

• Deciding to sell mineral rights to multiple buyers who then own the mineral rights to specified parts of the land.

• Landowners selling a home and surface rights to one party and a portion of the mineral rights to another party.

The final option is a more complicated and rare process, which is to sell only your mineral royalties. In this case you are still the mineral owner since what you have sold are only the rights to the royalties paid by an extraction company. This option allows a landowner to retain more control over the care of their land, especially regarding where extractive activities take place and where pipelines are laid.

After mineral rights are sold, the original owner holds only the rights to the surface of the land and the right to dig to a certain depth allowing for fences, planting, etc. The mineral owner can extract the underground resources however they choose, which also includes reasonable use of the surface for that purpose. In your sale agreement it is wise to have clauses in place to define allowable surface activity for extraction, the last thing you want to experience is a well pad dropped in the middle of your valuable farmland or a pasture due to a missing clause!

These conditions can and should be clearly defined in a sale agreement, much like in a lease. In the event of a situation arising that is not specified with your sale agreement and unable to be agreed upon by both parties, the interest of the mineral owner often takes precedence, unless otherwise stated within your sale agreement.

Leasing Your Mineral Rights

In regards to mineral rights, a lease is a contract between a mineral owner and the company or individual intending to extract minerals from the owner’s property. Frequently companies will have a landman approach mineral owners with a lease offer requesting to explore and then extract the minerals they find.

It is important to remember that a lease must not be entered into lightly, regardless of how good it looks on the surface. It is a legally binding contract and every line should be carefully reviewed and fully understood. If you are unsure of or unfamiliar with any part of the lease it is vital to obtain the assistance of a royalty management company, an attorney, or someone else familiar with the legal jargon contained within a mineral lease. A lease often lasts 10-20 years or more and defines the terms of the extraction between the company and the mineral owner. It is in your best interest to clearly define any conditions relative to surface activity for the purpose of extraction such as pipeline, tank, and well placement, property damages, etc. In the event of a situation arising that is not specified in the lease, the interest of the mineral lessee often takes precedence over the surface occupant if it cannot be settled independently.

A first lease offer will provide plenty of room for changes to royalty payments, bonuses, and extraction conditions. In order to maximize the value of your mineral rights, you must know how to clearly define your needs and conditions in a lease.

A Fair & Reasonable Agreement

The first priority in coming to a fair and reasonable lease or sale agreement is to be certain you have clearly defined all of the necessary conditions for you to continue to live on and work your land without interruption. The second is to certify without a doubt you are getting everything you are entitled to each step of the way.

This leaves you with a few options regarding how to move forward with the process:

If you feel comfortable with your knowledge on how to navigate the legal jargon contained within a lease or sale agreement and you are familiar with the current market value for minerals in your area, you can attempt to work out your terms alone.

You could hire an attorney to thoroughly review your agreement and make the necessary changes on your behalf, but this will usually result in upfront costs such as a sizable retainer, along with other fees later.

If these options are not a good fit, you can bring in a third-party consultant like Family Landman to help guide you through the process of signing a lease, as well as keeping the gas & oil company honest and fair throughout the term of your lease. This is exactly the type of situation our Present and Future Production Service was built for, it can save you thousands of dollars in legal fees and will provide you with peace of mind knowing you and your royalties are being well taken care of throughout the term of your lease. We also offer consulting services for the purpose of selling your mineral rights, along with referrals to reputable mineral rights buyers in your area.

Now that we have covered the general aspects of selling and leasing it is time to examine the next step in deciding if it is better for you to sell or lease your mineral rights. In the next article of this series, we will go through what many mineral owners say are the key factors to consider when deciding whether to lease or sell your mineral rights.