Minerals & Royalties

Buying and Selling Mineral Rights / Royalties

Mineral rights and Royalties are nothing new. They have been handed down through generations. Families have been receiving royalties from oil and gas for over 100 years. Until recently, oil royalties for sale were only made available to institutions, large endowment funds, and ultra-high net families.

Contact us to learn more, or read on to learn about the many benefits of participating in mineral rights & royalties.

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Benefits to Selling Oil Royalties Property

Help with Retirement

A lot of mineral owners choose to sell during retirement. Owning non-producing mineral rights doesn’t produce any income unless you are leased. Many retirees decide to sell mineral rights to avoid paying taxes each year and to put some cash in the bank.

Quick Cash in Your Pocket

The cash can be used to pay off debt, finance college, save for your retirement, invest – however you want to use it. Overtime, some oil and gas interests becoming depleting assets that can eventually become worthless. To benefit from the current value of your royalties and capitalize on high commodity prices today

Tax Advantages

Mineral rights owners are subject to several taxations; these expenses could make the value of your assets not worth your time or money. In addition to the Federal Income Tax royalty revenues incur each year, you could also experience a Severance Tax and Ad Valorem Tax. Based on the mineral volume or value, most oil and gas producing states impose a Severance Tax to mineral producers and anyone with royalty interest for extracting a nonrenewable resource.

Royalties Acquisition Criteria Checklist

Existing Cashflow Reports

6 most recent months of revenue statements
6 most recent months of JIBS (Joint interest billings)
Legal description of property with acreage size
Legal description of property with unitized field information (if applicable)

Existing Cashflow Reports

Well count
Development plans (if applicable) showing upside potential
Property engineering reports
Property decline curves
Operator contact information

We can answer your questions

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?

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 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:

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 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.

How do I find out what my mineral rights are worth?

Determining the value 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. Mineral Advantage will help you find out what your minerals are worth and put you in contact with a QUALIFIED BUYER. Contact us today for more information.