When mineral owners are leasing mineral rights in West Virginia there are a number of things to consider. A mineral owner will typically be contacted by a landman or broker who is interested in leasing their acreage and they offer to lease for a specific price. It’s important for land owners to remember that receiving an offer to lease their property is just the first step in the process. It shows that there is demand for their property, but mineral owners should carefully evaluate the offer and seek out other offers. Seeking out other offers will tell the mineral owner if they are getting fair market value for their property.
Received Offer to Lease
If you have received an offer to lease, the first thing you should do is consider the offer terms carefully. An offer to lease your property consists of three primary elements:
Lease Bonus: This is the amount that is paid up front to the mineral owner. A mineral owner must decide if it’s more important to get up front cash or a higher royalty in the future. As the lease bonus amount increases, the royalty percentage decreases in most cases.
Royalty Percentage: The royalty percentage is the amount of the proceeds a mineral owner will receive once a well starts producing. Negotiating a higher royalty percentage could be significantly more valuable than a cash bonus because it will be paid out over the life of the well rather than all at once. However, it’s important to consider that if a well does not produce or has very low production that the royalty payments may be less valuable than the up front lease bonus. The specific area you are in and the surrounding production are important indicators.
Optional Extension: In some cases an optional extension will be included in the lease. This means that an operator may drill anytime during the original term, and that they have the option to extend the lease by an additional amount of time. Mineral owners should carefully consider the optional extension because it means the operator can lock up your property for a significant amount of time. For example, if the original lease term is 5 years with a 5 year optional extension, the operator now has the right to drill on your property anytime during the next 10 years and you do not have the right to renegotiate until that term expires.
Our Recommendation
If you have received and offer to lease your property, we highly recommend seeking our professional advice. A mineral lease is an important step and should be taken seriously. We speak with mineral owners all the time who have recently received an offer to help them better understand how the offer meets or doesn’t meet their needs. Leasing mineral rights in West Virginia comes with it’s own set of considerations so it’s important to understand the area and what is happening so you can properly negotiate.
Free Consultation
If you own mineral rights and have questions, fill out the free consultation form below. We can help you with the following questions:
- Mineral Rights Value
- Evaluate whether you have a fair offer to sell mineral rights
- Answer questions about selling mineral rights
- Understanding Market Value of Mineral Rights
- + Any other questions related to mineral rights!
No matter what question you have regarding your mineral rights, we can help! We usually respond to your inquiry within 1 to 2 hours!
Whether you want to sell mineral rights, determine mineral rights value, or simply have some basic questions regarding your mineral rights ownership, fill out the form and we will quickly be in touch.
