You’ve been approached by a landman from an area oil and gas company. He’s interested in buying the mineral rights to your property and you think it’s a good idea. But, what exactly goes into the sale beyond signing the contract and welcoming the company onto your property to begin excavation and production?
What Are My Mineral Rights?
First, understand what part of your property is included in the transaction. Learn the difference between surface and mineral rights, then have the company show you a three-dimensional map of your property and the exact area and depth they wish to purchase.
Ask the buyers to outline the part of your surface property they will include in the mineral rights purchase to house their equipment and host new roadways, water reservoirs and oil rigs. Remember, all contracts are negotiable; never sign or accept the first contract offered.
What to Ask Your Landman
Once you get into a partnership with an oil and gas company, they will have a long-term presence on your property. You need to know as much as possible about this new neighbor before you allow them access to your mineral reserves beneath your home.
Create a list of questions, both about the terms and conditions involved when selling mineral rights, and also about how the process will affect your home and personal space. Here are some questions to consider asking:
- Is this offer a sale or a lease?
- What are the specific terms and conditions for my property?
- How and when do I get paid?
- How deep will you be drilling?
- How does this effect my groundwater or ability to use the land for crop or livestock production?
- Do you have access to the land 24/7?
- At what hours will you be working? Is it loud?
- When will work begin? Are you starting immediately or is this purchase for a reserve (future drilling)?
- Who is my primary contact if questions or issues come up at the production site? Who is responsible for maintenance of the land in that area?
- Do you offer routine soil and water quality testing to ensure that my well water or livestock water supply is clean and safe to use?
- Can you show me photos or take me on a tour of a current excavation and production site?
- If I plan to sell my property rights and move in the future, how do I involve the new property owners in this transaction?
Making a Mineral Rights Sale
You’ve asked hundreds of questions and feel it’s in your best interest to sell the mineral rights to your property. So, what happens next?
Ask for separate deeds and contracts for each parcel of land you wish to sell. For example, if you own multiple properties or a wide expanse of land, it’s best to break the transaction into multiple parcels so each one can have its own provisions, especially land that includes your home, crops, livestock, barns or other outbuildings. This also makes it easier to sell off sections of land after the drilling and production is complete in one area, but not another.
Consider who will receive the payments for the land purchase, bonus payments and royalty payments before entering into a contract. Will multiple family members be named if the primary landowner is elderly or in poor health? Is the sale an investment for a business, and the monies deposited to a business account? Have you involved younger family members who will be in charge of the land in the coming years if the mining doesn’t begin immediately?
Find out who exactly is buying the mineral rights. Is the oil and gas company who plans to excavate the land making the offer, or is a third-party land investment property trying to buy the land to later offer for sale to a mining company at a profit? If it’s the latter, will you have a say in the drilling provisions of the end-buyer?
Why You Need Legal Counsel
Selling the mineral rights to land beneath your personal homestead is a major decision. All terms and conditions presented in the contract should be evaluated by a lawyer not provided by the oil and gas company.
Have the attorney make sure all city, county and state provisions are met and the binding document is legal in your jurisdiction, as laws vary across the country. For example, laws governing oil and gas production in Denver, Colorado differ from those in Houston, Texas.
BWAB is another resource to use if you have any questions prior to selling your mineral rights. BWAB has over 40 years of experience negotiating oil and gas agreements in which both parties are extremely satisfied. Whatever you do, be sure to do your homework.