11/25/2017

MoneyMatters101.com Home
Information about renting

Evictions
Pros/Cons Of Lease
Lease Mineral Rights
Living On Your Own
Month To Month
Tenant/Landlord
Rent A Room
Renting/Leasing
Rent Vacation Home
Rising Rents
Professional Renters

Links

Email Us

MoneyMatters101



 

Leasing Mineral Rights

A mineral rights lease gives a drilling or mining company the rights to extract oil or gas or other natural resources from beneath the surface of land that is owned by another individual or company. A lease gives the lessee a right to test the property by drilling or by using other methods of discovery. If a company discovers minerals that are of a marketable quality or quantity, with a signed lease, it may commence production.

An oil drilling company or a mining outfit may not want to buy a specific property because once the minerals have been removed, it does not have a need to hold on to the land, so in many cases, it becomes more profitable to lease the mineral rights and pay the owner for a specified period of time.

On the other hand, the owner of the property may not want to sell it, opting to keep the land and negotiating a lease for the mineral rights. If there are proven mineral reserves beneath the property, the owner can negotiate with different companies for the best price.

For the rights to mine or drill, the company agrees to pay the property owner a specific amount of money when the lease is signed. This agreement reserves the property for the drilling or mining company for a specific duration of time.

  • If the company believes that there is a sufficient amount of minerals beneath the property, it may proceed to drill or mine it.
  • If the company does not start it's mining or drilling operations before the expiration of the lease, then all rights to the property and the minerals reverts back to the owner.

Leasing or buying mineral rights is complex and entails more than just the exchange of money. When leasing or buying mineral rights, the removal of the minerals are deferred, giving the mining or drilling company time to do the necessary studies, get the necessary permits, and then move the equipment and manpower onto the land to commence work at the site.

When a company buys or leases mineral rights, it also assumes the right to access the property to remove the resource. The drilling or mining could start right away or for held off for another time in the future. Access to the property is a big part of leasing mineral rights.

The money paid for the rights to drill or mine on a property is called royalty payments. In certain scenarios, the royalties paid on the lease of mineral rights can exceed the value of surface rights, depending on the size of the parcel of land and the type of minerals extracted from underneath the surface. The amount of the royalty payment is specified in the lease agreement. It can be a fixed amount per ton of minerals produced, a percentage of the production value, or other terms may be negotiated.

The word "mineral" is often used in different contexts and may have a different use code from state to state or from country to country. A mineral lease may be negotiated at different prices for different minerals such as gold, oil, coal, natural gas, diamonds, and other natural resources.

The rights to these commodities can be sold or leased to others. In most cases, oil and gas rights are leased and to get the owner of the property to commit to a lease, the mining or drilling company will usually offer a signing bonus to the property owner and agree to pay the owner a percentage of the value of the minerals that are extracted from the property.

Some states have laws that require mining and drilling companies to pay a minimum royalty percentage to property owners and the property owner can negotiate from there. It is always a good idea to consult an experienced attorney to represent you if you are not experienced in negotiating mineral rights leases and contracts.

Book of the Month

Book about investing

Advertise on MoneyMatters101.com

 

Share


Accessibility Policy| Terms Of Use| Privacy Policy| Advertise with Us| Contact Us

Use of this web site constitutes acceptance of the Terms of Use.

We are looking to create more mutually beneficial partnerships. If you are interested in partnering with MoneyMatters101.com, send us your proposal.

MoneyMatters101.com™

Link to MoneyMatters101.com