Maximize Your Mineral Rights By Learning Oil And Gas Basics!
August 19, 2016
Those who own land with oil and gas beneath it should have numerous opportunities to profitably sell their mineral rights. There are many companies who will buy mineral rights from a person interested in selling them. So landowners looking to sell their mineral rights should understand the basics regarding oil and gas, such as what is involved in its extraction and how a lease is drawn up in order to profitably sell their mineral rights.
Energy Companies and Mineral Rights Owners
Energy companies, or operators as they are known, lease the rights to minerals from owners through the negotiation of an Oil, Gas, and Minerals Lease that is prepared to include all specifications. By paying a fee that includes a pre-drilling lease bonus as well as royalties on any oil or gas extracted from the leased land, operators can drill to extract any minerals from the earth for the duration of the contract, which is usually about 15 years. Some leases never result in drilling, produce no royalties, and are allowed to expire. Still others will result in active drilling and the production of oil and gas, and payment of royalties.
Surface Owners, Mineral Owners, and Drilling
Mineral rights owners and surface landowners are not always the same person. When this is the case, operators must first discuss their plans to drill with the surface owner and come to an agreement about a location before any drilling can begin. Operators must compensate the owner of the surface land for any damage done to the surface of the property as a result of drilling. Since drilling itself can take anywhere from a few weeks to a few months, with wells active anywhere from months to years, it is essential for all involved parties to be in agreement with what is happening on the surface in order to extract any minerals beneath it.
Oil and Gas Production, and Measurement
Once drilling has been completed and an oil or gas reservoir has been tapped, mineral owners can begin to see royalties based on the amount the well is producing daily. These resources are collected in tanks and the collected volume is measured before it is removed from the property as required by law. It is important for mineral rights owners to realize that the behavior of oil and gas wells changes over time. During the first few years, wells produce more initially and production then slowly declines. After a certain period of time, a well will drastically slow in production. All of this change is reflected in decreasing royalties, which is normal and something that occurs with every well.
Prices, Taxes, and Deductions
Gas and oil prices fluctuate with the market, which means royalties paid out also fluctuate. The state government charges what is called a severance tax when any natural resources are “severed” from the land. This tax amount is delivered in quarterly royalty statements. Counties charge a yearly Ad Valorum tax on the production of any mineral within the state, which is sent to mineral rights owners on an annual basis. Some operators may apply deductions for getting the oil and gas that is produced ready for sale. The deductions requested are usually fees for things such as compression, dehydration, and purification.
Leasing their mineral rights to energy companies can be lucrative for mineral owners; however, it is important to understand how these deals are accomplished and what is involved. If you think you may want to sell your mineral rights, contact an experienced royalties company to discuss the details, and have any questions answered about this process and what can be expected!
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