For mineral owners, leasing minerals can be a very confusing process. We have complied a list of important things mineral owners need to know when they lease mineral rights in the Marcellus Shale. In addition, we provide a list of resources for mineral owners to further research their options.
Don’t rush:
The most important thing mineral owners can do is take their time. Many times a mineral owner will feel the pressure from a landman or broker to lease their mineral rights immediately and accept the terms provided. What many mineral owners don’t understand is that a single offer can indicate big potential for their mineral rights. If a landman or broker took the time to track down a land owner and make an offer, there is demand for the property so no immediate decisions needs to be made. Take your time!
Not all lease are equal:
If 100 landman approach you to lease your property, you will likely see 100 different lease agreements. Parts of the lease agreement will be standard language but it’s important for mineral owners to know which parts of the lease agreement are going to affect their property the most. Are you familiar with the Pugh Clause? Can an operator drill a well on half of your property and still hold the remaining acres without drilling? Unless you are very comfortable with lease agreements consulting an independent landman to review the proposed lease should not be skipped. The cost to have a landman review a lease is nominal compared to the consequences of bad lease.
Lease Bonus vs Royalty Percentage
A lease bonus is the amount the lessee (operator) pays to the mineral owner as a one time bonus payment for the right to lease the property. In addition to the lease bonus, a royalty percentage is also included in the lease agreement. This royalty percentage will determine how much the mineral owner will receive from the production of a well.
During the process of negotiating the lease, a mineral owner will try to get the highest lease bonus and highest royalty percentage possible. Many times the operator would prefer to pay a lower royalty percentage in exchange for a higher lease bonus. This gives the land owner more money up front, but reduces the amount they will receive when the well starts producing. For the land owner, it is important to determine whether the up front bonus amount or royalty percentage is more important.
Always keep in mind that if the well is a dry hole, the royalty % will not matter since there will be not production and no revenue to distribute. However, if an operator is willing to spend millions of dollars to drill, they are betting it will produce and this should also be taken into consideration.
Understand the parties involved:
There are many professionals in the Oil & Gas industry who may wish to lease your minerals. These professionals could be operators who wish to drill on your property or investors who believe they can lease your property for one price, then charge a higher price to an operator. It’s important to understand who the party is that is leasing your property so you can determine what their motivation is for leasing.
How to lease mineral rights:
If you have been approached by an operator or landman, that is an indication that there is a demand for your mineral rights. Now that you have established a demand for your property, you want to determine if the price offered is the best possible price. To do this, we recommend listing your property online so that you property can be seen by multiple buyers at once who may be able to pay a higher price for your property.
Our preferred listing platform is US Mineral Exchange. Their website provides mineral owners with the ability to list mineral rights online and they specialize in helping mineral owners get the best prices possible.
Additional Resources:
In addition the information we have available on our website, we recommend the following resources for mineral owners who want to learn more about their mineral rights:
Remember to take your time when leasing mineral rights and learn as much as possible before making a decision!
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.
