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Understanding Oil and Gas

Understanding Oil and Gas Lease Bonus Payments

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If you are selling or leasing your mineral rights, you may have some competing offers sitting on your desk. In an oil and gas lease, you can potentially earn a large amount of money over time. This is through the acquisition of oil and gas royalties. Does a company particularly have an interest in your mineral rights? If yes, then you may even receive a hefty offer on oil and gas lease bonus payment. In this article, we will make understanding oil and gas easier. We are going to explore the most commonly asked questions regarding lease bonus payments.

What is Oil and Gas Lease Bonus Payment?

A lease bonus payment is an amount of money you will receive as payment immediately. This is upon signing an oil and gas lease. Much like “signing bonuses” in professional sports. This is the lump sum of cash receiveable prior to a sale. Moreover, the purpose is in order to entice a quick contract completion.

In an oil and gas lease, the contract secures an oil and gas company’s right to explore a property’s subsurface. If the production never actually starts or the operation is a failure, the initial bonus payment may be the signer’s only form of income on the property in the event that there are no oil and gas royalties.

When Do You Receive Oil and Gas Bonus Payments?

Of course, nothing is “immediate,” as the money will not magically appear in your checking account after signing the contract. The general rule of thumb is that oil and gas companies will receive a request to pay out the bonus payment 60-90 days after signing the lease.

How Much Money Can I Receive as a Lease Bonus?

An oil and gas bonus payment is completely negotiable and is largely dependent on the size of the property, the number of wells, past production, future estimates, and the current price of minerals. Oil and gas contracts are not required to be made public record and vary heavily between states, so an average bonus payment is fairly difficult to calculate.

Oil and Gas Lease Bonus Tax Treatment

Under the eyes of the IRS, oil and gas lease bonus payment is considered “advanced royalties.” They are taxed as ordinary income. In most cases, tax on oil and gas lease bonus payment is made within the same year of signing the contract.

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oil well production

Oil Well Production

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If you own mineral rights and receive oil royalties, then you are probably curious about the oil well production levels. In an oil and gas lease on your property, you may have one or more oil wells on the land that is being drilled by the oil company.

How Many Barrels of Oil Does a Well Produce?

With oil royalties, you can earn a direct percentage of the sale of oil barrels that are extracted and sold from producing oil wells. Although there are wells of all shapes in sizes across the globe, in the article, we are going to explore the national averages for daily, annual, and lifetime production from oil wells in the United States.

Average Daily Oil Well Production

In the early days of American oil exploration, flowing wells in modern Texas are rumored to have the capacity for up to 100,000 barrels per day. On the other hand, there are countless shallow wells across the country that have been dug to accommodate no more than a single barrel each day.

Today, most oil operations are performed by large companies working to produce as much as possible while the well is in use. When a large oil well begins producing, successful drills can expect a daily production of anywhere from 500 to 5,000 barrels per day.

Average Annual Oil Well Production

In order to calculate the average annual production of an oil well, let’s use some real numbers to provide a helpful figure. In 2014, Texas led the nation in producing 3.17 billion barrels per day. It also is the most heavily explored region in the world with an estimated 151,605 active oil wells. By this calculation, the average annual production of an oil well in Texas is roughly 21,000 barrels of oil per year.

Average Lifetime Oil Well Production

In general, an oil well is at its most productive during the initial exploration and drilling. After extended daily use and depending on environmental factors and chosen technologies, an oil well’s production will slowly decrease until the operation is deemed unprofitable. Oil wells typically last between 15 and 30 years. As an example, an oil well in the Bakken fields of the United States can produce roughly 540,000 barrels over the course of its lifetime.

getting oil companies to drill on your land

How to Get Oil Companies to Drill On Your Land

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If you own mineral rights in the United States, you may be sitting on a potentially large stream of income. Thousands of property owners across the country have contacted oil companies and investors in order to drill and profit from the precious minerals in Earth. This is your guide on how to get oil companies to drill on your land too.

In general, this is accomplished one of two ways: by selling or leasing mineral rights. In this article, we are going to explore the pros and cons of selling or leasing your mineral rights as you seek to find an answer on how to get oil companies to drill on your land too.

Selling Your Mineral Rights

When you sell your mineral rights, an interested party becomes the owner of your property’s subsurface and has the right to explore it for valuable minerals. Aren’t you selling directly to the oil company? Then, the buyer likely has plans to start or continue a drilling operation.

Pros of Selling Your Mineral Rights

  • Mineral rights sales are generally settled with large lump sums of cash.
  • The sale of mineral rights is eligible for a 1031 exchange, which can be used to strategically acquire another property without the income tax.
  • You will no longer have to pay taxes on your mineral rights or oil royalties.

Cons of Selling Your Mineral Rights

  • Your mineral rights have the potential to become more valuable in the future.

Leasing Your Mineral Rights

Alternatively, if you do not want to give up your mineral rights entirely, you have the option to sign an oil and gas lease. In a mineral rights lease, you can sign a temporary agreement. This is to let an oil and gas company explore, procure, and sell minerals from your property.

Pros of Leasing Your Mineral Rights

  • You may receive an initial bonus, and signing payment.
  • If the production is successful, you will earn oil or gas royalties on the precious minerals produced.
  • You still maintain ownership of your mineral rights and have only agreed to the temporary exploration of the site.

Cons of Leasing Your Mineral Rights

  • Leases dependent on large oil production levels may not cash out as well as expected
  • Oil lease ownership can change hands without your involvement.

Contacting the Right People

Once you have decided whether a lease or sale is best for your mineral rights, then it becomes time to get into contact with the right people. There are many companies and individuals who are going to be interested in acquiring the right to drill on your land for oil or gas, so it is important to work with someone you can trust. Ranger Minerals is a Texas-based company with over 100 years of combined industry experience that can help with mineral rights transactions all across the country.

oil well lifespan

How Long Does an Oil Well Last?

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Oil wells come in all shapes and sizes. All across the United States, there are oil wells being built, used, and torn down, and thanks to over 100 years of drilling history, the public now knows a lot about the ins and outs of a typical drilling operation. In this article, we are going to explore the average lifespan of an oil well (and gas well also).

The Average Lifespan of an Oil Well

In general, it is commonly accepted that an oil or gas well can expect to last between 20 and 40 years of significant production. With that said, new technologies are constantly being developed to make oil operations longer and more efficient. If a well is not being tapped at the maximum rate, it may last way longer than average. In fact, there is an active oil well in Pennsylvania that was first drilled over a century ago!

The Different Classifications of an Oil Well (or Gas Well)

When people ask, “How long does an oil well last?” they are typically referring to a well that is actively being drilled to extract and sell precious minerals. That is what the industry refers to as an “Active Well.” There are several other stages an oil or gas well may go through in its lifetime. They are as follows:

  • Inactive – A well that has ceased production for 1 year but is expected to produce again.
  • Suspended – A well that has been inactive for a long period of time, and requires special effort to reactivate, but is expected to produce in the future.
  • Abandoned – A permanently shutdown well in which all of the equipment has been safely removed.
  • Orphaned – Abandoned wells with no owner claiming the rights

What Happens When an Oil Well is Dry?

An oil well “dries up” when it has been drilled sufficiently enough so that it no longer produces a profitable amount of oil. When a company decides to end a drilling operation, the land is often sold to another owner. The extraction equipment is removed and the land is reclaimed or restored. In areas close to residential homes, significant landscaping is performed and evidence of an oil well is generally completely erased.

average price per acre for mineral rights

What is the Average Price Per Acre for Mineral Rights?

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Mineral rights can be an extremely valuable asset. If you suspect there may be oil, gas, or any other kind of precious metal sitting beneath the subsurface of your property, then you have the opportunity to earn an income through resource extraction.

As in any transaction, with a mineral rights lease, you will want a good deal. If you are exploring potential buyers, or if an oil and gas company has reached out to you directly, then your negotiation skills will determine how profitable your mineral rights can be.

Factors that Influence the Average Price Per Acre for Mineral Rights

  • Location
  • Size of Plot (Often Higher Prices for Larger Pieces of Land)
  • Existing or Past Operations
  • Producing vs. Non-Producing
  • Estimated Mineral Amount

Mineral Leases Average Price Per Acre

Of course, a good baseline to understand when leasing your mineral rights is the average price per acre for mineral rights leases. Unfortunately, mineral rights transactions are not always made public knowledge. For this reason, there is a limited amount of data available to calculate the average price per acre of mineral leases.

Plus, the cost, opportunities, and average prices of mineral rights transactions are highly variable across different states. With all of this in mind, there are still many local resources that may you understand some of the averages for modern mineral rights leases in your area.

Nationally, mineral rights owners can expect anywhere from $100 to $5,000 per acre for their mineral rights lease. The most valuable mineral rights leases are on producing parcels of land that are still expected to hold many more precious minerals.

States with Highest Average Price Per Acre For Mineral Rights Leases

Although the states vary from year to year, generally, some of the most valuable states for leasing mineral rights are:

  • Nevada
  • Arizona
  • Texas
  • California
  • Minnesota
  • Alaska
oil royalty buyers

Who are Oil Royalty Buyers?

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If you own mineral rights, then you can potentially earn a large amount of money by finding the right oil royalty buyers. Frequently, those buyers may actually find you. We put together this article to help you along your journey to sell your oil royalties or mineral rights.

Individuals vs. Companies – Oil and Gas Royalty Buyers

There are thousands of individuals and companies that are actively looking to buy mineral rights and oil royalties. Although the best deal should always prevail, there are a few general trends when selling oil or gas royalties to oil royalty buyers.

Person to Person Oil Royalty Purchases

Although these transactions are more common as gifts or in a will, oil royalties and mineral rights often do change hands between individuals. Here, there is not going to be as many oil royalty buyers as a commercial transaction. You will want to make sure that the person buying your mineral rights is someone you can trust. As a bonus, person to person transactions generally have a better chance to include personalized clauses to best suit your needs.

Person to Company Oil Royalty Purchases

Most commonly, a landman representing a larger oil or gas company will have an interest in buying your mineral rights. Whereas negotiations like these typically fall under strict company guidelines, there is a chance that the added resources of a firm will result in a better overall deal on the seller’s end. Because every individual case is different, it is advisable to explore individual and corporate sales opportunities.

How to Value Your Oil Royalties for Sale

Because oil and gas royalty sales are not always made public, the only way to truly value your oil royalties is by collecting multiple offers. Investors will do their due diligence in order to find the best possible price for your oil royalties, while still making it a profitable venture for themselves. By analyzing local historic data, inspecting the property, and factoring in current market prices, your potential buyers will quickly make the value of your oil royalties apparent.

Speaking to An Expert

Before you sell your oil royalties, it is a good idea to speak to an expert, like Ranger Land & Minerals. No matter how inciting an offer may be, it is crucial to communicate with someone who knows the ins and outs of oil and gas royalty transactions in order to point out red flags and ensure the best possible deal is being made.

oil-and-gas-royalty-payments

When are Oil and Gas Royalty Payments Made?

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Whenever you sign an oil and gas lease, you may be getting a signing bonus. As one of the most important parts of your negotiation, a one time upfront payment from the oil and gas company may be the quickest way to earn money with your mineral rights.

What happens when the company strikes oil? Then, you begin to receive oil and gas royalties for your percentage share of the minerals produced and sold. Although no two mineral leases are the same, in this article, we will cover some of the expected timelines for oil and gas royalty payments.

Oil Royalties after Signing a Mineral Lease

By law, oil and gas royalties payments are required due 120 days after the end of the month of the first sale of production from the well. So let’s say that you own mineral rights and sign a lease agreement in March. The oil company sources the financing, equipment, and labor and strikes its first barrel of oil in mid-April. The company sells 100 barrels in April. The company is then required to report its oil and gas royalties 120 days after April 30, approximately 4 months later in August.

Oil and Gas Royalty Payments Period

After the royalty is due, the oil and gas company has a certain window to pay the shareholder, as defined in the lease agreement. In general, most companies will pay oil royalties within 60 days of due payment and gas royalties within 90 days. This means that after signing a mineral rights lease, the latest you will receive your first royalty payment is about 180 days after the first productive month. Subsequently, later payments for oil production is paid 2 months in arrears, while gas production is generally paid 3 months in arrears.

Delayed Oil and Gas Royalties and Unproductive Leases

An important thing to understand is that sometimes, oil and gas royalty payments may never come. Although most oil and gas companies sign leases with the intention to explore and extract precious minerals, there are many factors that may prevent that from happening.

In addition to the loss of funding and delayed timelines, there is also a possibility that your land may not have any oil and gas at all. With that said, modern technology and over a century of exploration now allow for the oil and gas industry to make very educated decisions in exploring for underground resources.

The Rights of an Oil Royalty Owner

The Rights of an Oil Royalty Owner

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If you own an interest share in the mineral rights of oil production, then you are probably enjoying a steady stream of oil royalties in your portfolio. With high stakes values, a large number of players, and hundreds of pages of legal contracts, sometimes it can be difficult to fully understand your role in the process of oil production. In this article, we are going to outline how to identify the rights that you have, as an oil royalty owner.

Your Rights as Mineral Rights Owner – The Paperwork

Oil and gas agreements are not required to be made public, and the highly individualized nature of mineral rights agreements make it difficult to identify a “standard” handbook of mineral rights owners’ rights.

With this in mind, there are a few very critical pieces of paperwork that you should always have available. It is also advisable to seek expert advice in order to review the following documents.

A Copy of The Deed

The deed which defines your ownership rights of the property’s subsurface is crucial in defining your asset. If you own a fee simple estate, then your surface rights and mineral rights are usually defined in the same deed. If it is a split estate, then the mineral deed is no different than a surface rights deed, just separate. Mineral deeds are public records and can be obtained either online or with a local courthouse.

A Copy of the Lease

Once the lease is signed, it becomes the most important document in a mineral rights agreement. Here, the rights of the surface and mineral owners are clearly defined as they affect an oil company’s pursuit in exploring and extracting minerals. It is crucial to understand the time periods and compensation associated with an oil company’s permission to enter the property. Although oil and gas leases are not public records, a copy must be filed with the local courthouse and the records can be obtained at a later date.

A Division Order

Oftentimes, oil wells are divided between multiple mineral rights owners. This makes it a requirement for oil companies to send out a division order, or a division of interest, to lay out the percentage ownership and rights for each mineral owner. Division orders must be signed and returned to the oil company, but mineral rights owners should absolutely keep a copy for their records.

Any Communication with Oil Companies

Lastly, it is always a good idea to print or save any copies of communications with an oil company. As a mineral rights owner, you want to be up to date (and know the history of) all of the happenings of the operations in which you have a stake in. For the worst-case scenario, copies of all oil company communications can help in the court of law if you feel as if your rights have been violated as an oil royalty owner.

What to do if an Oil and Gas Company Violates your Lease Agreement

What to do if a Company Violates your Oil and Gas Lease Agreement

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Mineral rights leases with oil and gas companies can be a highly profitable venture for earning oil and gas royalties. Unfortunately, the high stakes industry has a lot of players, some of which do not like to play by the rules.
If you feel as if a company has violated your oil and gas lease agreement, you may be entitled to compensation in the court of law. In this article, we are going to cover some of the most common oil and gas lease violations and what to do if you find yourself in an agreement that has not been upheld.

Improper Royalty Calculations

One of the most common disputes between oil companies and mineral rights owners are over incorrect royalty payments. Cases like this are vigorously defended in court and are only awarded to lessors who can provide sufficient evidence that their royalty payments were miscalculated. In order to prove this, mineral rights owners should have copies of their lease and the company’s division of interest in order to outline their fair share of royalty sales.

Failure to Reasonably Develop the Land

In most oil and gas agreements, there are “implied covenants” such as a lessee’s requirement to reasonably develop the land for mineral extraction. For example, let’s say a mineral rights owner agrees to have an oil and gas company explore and extract oil on 400 acres of land. The lessee then drills one well that drains 50 acres of land and ceases production for the next 5 years.

In this case, the oil company has failed to reasonably attempt to develop all of the predetermined land in the agreement. As the mineral rights owners, this allows you to claim the oil and gas company acted unreasonably, which may lead to compensation if taken to trial.

Missing or Wrongly Assigned Royalties

Whereas most mineral rights owners work well with oil and gas company agreements, what happens when the lessor passes away? Some of the most common disputes in mineral rights leases actually come from supposed heirs of oil royalties.

If you have inherited or have been gifted active mineral rights, then you may need to get in contact with the lessee to confirm you are receiving the appropriate mineral royalties. Failure for an oil company to correctly reassign royalty shares can result in a lawsuit, if it is outlined in the lease agreement.

Ways to Connect With Other Mineral Rights Owners

How to Find or Search Mineral Rights Owners and Connect With Them

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In the United States, there are hundreds of thousands of mineral rights owners. Of course, some individuals may be more actively aware of their mineral rights if their property is earning them monthly oil and gas royalties. If you own mineral rights or are looking to purchase mineral rights in the future, then there are plenty of resources available on how to find mineral rights owners and get into contact with them in order to learn, converse, and exchange information.
In this article, we will outline a few great resources. Resources on how to find mineral rights owners and connect with them both online and locally.

Online Mineral Rights Forums

Most notably, the popular Mineral Rights Forum (www.mineralrightsforum.com) is a great online conversation space for mineral rights owners in the United States. The website was formed in 2009 and is an amazing resource to ask specific questions about your individual situation. You can also browse through the hundreds of questions already answered over the past decade. The forum is free of solicitation, so users can find information without anything in return.

Minearlrightsforum.com is probably the largest and most credible source for digital answers. However, there is also more information scattered around the web. Websites like reddit.com, Quora, and Yahoo Answers. They all have large backlogs of helpful information on how to find mineral rights owners across the country.

Reaching Out to Speak with Mineral Rights Owners Directly

Are you struggling to find the answers you need? Would you simply prefer to have a conversation with a real person? Then online mineral rights forums may not be the best course of action. There is no requirement for mineral rights transactions to be public. With that, it may still be possible for you to find mineral rights owners in your area. Starting having conversations with them.

How to Find Who Owns Mineral Rights

Websites such as Mineral Holders (https://www.mineralholders.com/) take readily available information and store it into their online database. Although the information is not complete for the whole country, the website has probably the most comprehensive list of mineral rights owners in Texas. Website visitors can break down mineral ownership by county and can also search for specific individuals or companies that may own shares.