A few years ago I spent a great portion of my time reviewing oil and gas mineral rights leases. Many of your remember the recent mineral rights “boom” in this area when oil and gas companies were frantically leasing mineral rights. I don’t know the current status of these companies or if they will ever begin drilling for oil or natural gas, but I have has several questions from people wanting to know a little more about mineral rights.  

In most countries of the world, mineral resources belong to the government. This includes all valuable rocks, minerals, oil or gas found on or within the Earth. Organizations or individuals in those countries cannot legally extract and sell any mineral without first obtaining authorization from the government. In the United States, however ownership of mineral resources was originally granted to the individuals or organizations that owned the property. 

Complete ownership of the property includes ownership of the surface rights and mineral rights. The owner also has the freedom to sell, lease, gift or bequest these rights individually or entirely to others. Before drilling and mining, real estate transactions included both mineral and surface rights.  However, once commercial mineral production became possible, the ways in which people owned property became more complex. Today the leases, sales, gifts and bequests of the past have created situations where multiple people or companies have partial ownership of rights to many real estate parcels.  

Mineral rights in this area are leased by oil or gas companies more often that they are transferred outright.  To entice the property to commit to a lease, the lessee generally offers a signing bonus. This is an up-front payment to the owner for granting the lessees the right to explore the property for a limited period of time, usually a few months to a few years. If the lessee does not explore, or explores and does not find marketable oil or gas, then the lease expires. If the lessee finds oil or gas and begins production, a regular stream of royalty payments usually keeps the terms of the lease in force. 

In addition to signing bonus, most lease agreements require the lessee to pay the owner a share of the value of produced oil or gas. The customary royalty percentage is 12.5 percent or an eighth of the value of the oil or gas at the wellhead. When oil or natural gas is produced the royalty payments can greatly exceed the amounts paid as a signing bonus.