Mineral Rights FAQ's
What are mineral rights?
Mineral rights (otherwise known as a “mineral estate” are the legal rights that a person has to exploit, mine, or produce any materials underneath the surface of the earth. These materials may be any organic or inorganic substance such as ores of metal, coal, oil, natural gas, gemstones, stone, salt, or any other substance besides sand, gravel, or water. The owner of the mineral rights can sell, lease, gift, or bequeath these minerals to any individual or entity they choose. For example, a person may own 20 acres of land, and beneath the surface of that land lies minerals that can be sold or leased or gifted for an amount of money. That person may own the surface of the land, while someone else may own what is beneath the surface; in other words, the mineral rights.
What are surface rights?
Surface rights differ from mineral rights in that the term “surface” refers to any organic or inorganic substance that lies on top of the surface, such as water, gravel, etc. If an owner wants to keep possession and control of the surface, these are known as surface rights, and these are different from mineral rights which lie beneath the surface. For example, a farmer can choose to sell the mineral rights to the coal beneath his property, but keep the surface rights which would allow the farmer to keep control of the buildings, the water, and anything else on “top” of the ground (surface).
What are oil and gas royalties?
Oil and gas royalties refer to the amount of money paid to the person who owns the mineral rights after the substances (gas, oil, stone, etc.) are sold to and/or used by an oil and gas operating company. The amount of these payments may fluctuate per month due to the amount of substances that are extracted and sold, and due to the changing rate of oil and gas prices. Royalties are typically calculated from this equation:
Revenue interest decimal = (A÷U) × R × P × Y
- A = Net Mineral Acres owned
- U = Number of Mineral Acres in the oil and gas drilling unit or pool
- R = The Royalty assigned to the mineral right owner by the oil and gas lease covering his or her minerals
- P = Participation Factor assigned to the tracts owned by the mineral owner as described in a unit agreement
- Y = Additional Ownership Factor assigned to the owner's mineral rights by any other arrangement or agreement
Revenue interest decimal = (A÷U) × R × P × Y
What is a DOI (Division of Interest)?
A DOI (Division of Interest) is the term applied to how minerals are divided between the mineral rights lessee, which is usually the oil and gas company, and the lessor, who is usually the owner of the minerals. The lessee is the one leasing or buying the minerals, and the lessor is the owner or “client” from whom the company buys or leases those minerals. The Division of Interest is the contract between those two groups. For example, if a company wants to lease your minerals, you and that company must come to an agreement on how much royalties will be paid and how much minerals you will let that company lease/buy. These agreements usually include conversations about: how long the lease will be (this is known as the “term” of the lease), whether or not the lessor will receive a bonus upon signing of the contract, the royalty rate (which is how much the rates are divided and calculated), and on whether or not payments will be made even in a well that is not producing (this is known as a shut-in royalty agreement). These are just a few basic items that a lessor and a lessee may negotiate, but there are many more items that can be included, depending on the situation.
What is the difference between leasing and selling of mineral rights?
The main difference between the leasing and selling of mineral rights is the payment method for those rights which are: a lump sum of money at the beginning, or in payments of that sum over time. If you want to sell your minerals to a company, you will get a larger sum of money up front, but you will not receive any more money after that lump sum has been given. With leasing, you will receive a smaller payment up front, but you will also receive royalty checks over the course of the agreed upon time period of the lease once the minerals are harvested and sold.
Should I lease my mineral rights?
That decision depends on your preferences, but some factors to consider are that with leasing, the market price for those minerals may fall over time, and you may lose money in the long run. On the other hand, the price could rise over time, and your lease could produce more money. Another risk to consider is what happens when there are less minerals than expected, and the royalties stop sooner than planned; this can result in fewer royalties.
Should I sell my mineral rights?
Likewise, with selling your mineral rights, there are both risks and benefits. If you prefer a larger one-time sum of money at the time of sale, then selling will provide that. One main appeal of selling over leasing is that you do not have to worry about rising and falling market prices. Click here for more information about selling your mineral rights.
How do I find out what my mineral rights are worth?
Determining the worth of your minerals can depend on many factors such as standard rates at the time of leasing/selling, production in the area, production history of your property, taxation laws, and future oil and gas prices. Infinity Resources will help you find out what your minerals are worth and provide a fair offer within 24-48 hours. Visit our valuation page for more information.