Seems like everyone is talking about mineral rights these days.
We all know someone in the area who’s been contacted by an exploration company looking to lease or buy mineral rights to their property.
First off, what exactly are mineral rights, and why are they important?
Holding mineral rights to a property means that you have the right to exploit the area for the minerals it contains. This could include sedentary minerals such as coal or metal ores, or fluid minerals such as oil and gas.
Mineral rights are important because if you do own the mineral rights to your property, you can sell, lease or donate those minerals to any person or company.
How do you determine the value of your mineral rights?
Finding accurate information on the real market value of the mineral rights to your property can be difficult, and taking the first offer an exploitation company offers you is very tempting.
After all, very few homeowners ever expect to leverage their mineral rights, and receiving royalty cheques from oil and gas companies for something you’re never planning to use is an easy way to receive additional income.
It’s also important to keep in mind that an oil well can only get drilled when someone has come up with the money to pay for it, which is still an expensive proposition even for the giants of the oil and gas industry. So it has to make financial sense for the potential buyer of your rights to exploit the potential of your property.
Do you own the mineral rights to your property?
Mineral rights can be separate from property ownership, which is called a “severed estate” – you could own your property but not the mineral rights to it, either knowingly or unknowingly.
Given Colorado’s rich mining history, it is not unusual for the mineral rights to a property to be owned by someone other than the title owner.
If you do own the rights, you have multiple options for monetizing your minerals. Selling them outright will provide you with instant income, but beware of tax implications. Negotiating a lease from an exploitation company or an agent can be simple, but may not provide you with the best return. Another option is to participate actively in the exploitation of your property as a non-operating owner in the well, but this means you could possibly being on the hook for the cost of extracting the minerals from your land.
We can help you with the first step, which is to run an “Ownership and Encumbrances” (O&E) report on your property that will tell you who owns what on your property. Then you’ll be on your way to making informed decisions about the rights to any minerals on your property.