Maybe, maybe not. There are times when you want to sell your minerals and when you should hold them. Speaking to a seasoned oil and gas professional that understands minerals and royalties and that is also familiar with the area in which your interests reside is a great place to start asking questions to see whether selling or holding is the right option for your particular situation.
If you inherited minerals, absolutely yes!
If you have owned your minerals for quite some time, it’s a good idea to talk to an oil and gas company who does appraisals to see if one is right for you. Values change over time so they may be worth more (or less) than when you first acquired them. There are two types of mineral appraisals – current and retrospective.
Yes, mineral rights can be inherited or willed to other individuals or entities. An oil and gas attorney can help you with the paperwork. When passing down, or conveying, mineral and/or royalty rights to heirs, there are a few things you must know.
They are worth selling if you want to improve your life situation (i.e. get out of debt, pay for a new house, college, start a business, etc.). Remember, these are assets and should be treated as such. It makes much more financial sense to sell your interests if they are worth something and you can improve your situation.
The best news is that you don’t have to sell all of your mineral rights! You can easily keep some and sell some to give you the boost you need. There are definitely times when it is advantageous to sell. We can help you determine how valuable your assets are with a complimentary consultation.
Conversely, if you don’t need the money and there is nothing going in the areas they are located, then don’t do anything. Don’t sell your minerals when they are not worth anything!
Buying minerals and royalties could be a great investment as long as you know how to manage them. They can be sold and/or purchased via a 1031 Exchange to defer taxes from the purchase or sale of other real property. Once you buy them you own them in perpetuity until you decide to do something else with them.
The best way to find out if you own mineral rights on your land is to read your conveyance documents or deed. Look for language like, “Subject to prior mineral and royalty reservations….”. If there is “subject to” language, engage an oil and gas landman to help you run title to find out exactly what you own.
If you are receiving monthly royalties then you own some of the royalty rights and quite possibly the mineral rights. (Understand the difference between mineral rights and royalty rights here.)
If someone is contacting you about leasing, then you own mineral rights and it could also be a sign you own the royalty rights as well.
A mineral rights conveyance is the legal process of transferring certain property or interests from one person to another, or Grantor to Grantee. During the conveyance of the property, oftentimes the person transferring the property, the Grantor, will reserve mineral rights and/or royalty rights, attached to the property being conveyed.
If you own the surface rights to a piece of land it does not necessarily mean you own the minerals or royalties below that land. In areas of the US where drilling or mining occurs, the ownership between the surface of the land and the minerals beneath it are often different due to the minerals and/or royalties being severed from the surface estate. As a surface rights owner, this means you have no rights to the minerals, and quite possibly the royalty rights, that might be produced from beneath your land. Only the subsurface mineral owner has the right to sign and negotiate a lease to drill a well, provided that mineral owner also owns the Executive Rights.
In Texas, an oil and gas lease is a conveyance by the mineral owner, the Lessor, to the oil and gas company, the Lessee, of the mineral estate for a specific time frame, or “term”, and thereby the oil company grants to the mineral owner, or the mineral owner reserves for themselves, through a specific royalty rate or percentage, from what is produced and sold from the land.
If you are receiving letters in the mail or are getting phone calls from parties interested in buying your minerals and/or royalties, then somewhere down the line you had a family member that owned mineral rights and they died without a will which subsequently led to you inheriting them!
First, don’t let them rush you into anything. You have time to wrap your head around things. The first thing you need to do is contact a professional landman to help you find out what you own, where it is located, and what the value might be, and whether or not they might be producing which would lead to having money sitting and accruing in what is called a suspense account. Next step is to get a mineral appraisal which can help get a lot of these questions answered for you. It is also absolutely necessary to have them appraised at the time of inheritance because inherited mineral rights are taxable. Watch this short video to learn more about what to do if you are being contacted by buyers.
If you are receiving monthly royalties that means your minerals are “producing”, meaning they’re going to be taxed as ordinary income when you file a tax return, and just like property taxes, at the county level as well. If your minerals are not producing then no taxes will apply since you are not receiving any monthly revenue. However, note that if a mineral owner sells his mineral rights, they will be taxed on the sale of the minerals.
Absolutely! In fact, it’s a smart move as it can be a way to defer your taxes. A 1031 Exchange allows the owner to sell a property and purchase another “like-kind” property of equal or greater value using the proceeds from the initial sale without paying taxes immediately. These taxes are deferred until the future sale of the replacement property. Mineral and royalty interests qualify for a Section 1031 Exchange opportunity as they are considered a “like-kind” exchange. Learn more here.
Mineral rights, or mineral interests, are the rights to search for, develop, and produce minerals and hydrocarbons such as oil and gas from land. Mineral rights are sometimes confused with royalty rights and differ greatly from surface and executive rights. We cover all there is to know about mineral and royalty rights in this blog.
Referred to as a Net Mineral Acre, or NMA, it is a representation of the net acreage owned by a mineral owner from under the gross acres of a particular parcel or tract of land. For example: If the gross acres of a tract of land are 40 gross acres and you are stated to own half of the minerals in that particular tract of land, then your net mineral acres owned are equal to 20 net mineral acres. Learn more about the differences between Net Mineral Acre and Net Royalty Acre and how to calculate them.
A mineral rights deed is a legally binding document a mineral owner uses to convey a mineral interest, in the form of a percentage or fraction, to someone else. A mineral rights deed can also be used to sever minerals from the surface estate. The Grantor may also include in the deed their retained rights (i.e. Surface rights, Executive rights). A mineral deed is different than a royalty deed.
A mineral rights title search is also known as “running title” and is a mandatory process done by an oil and gas professionals when buying and selling minerals and royalties. Running title is an act of performing due diligence to discover and confirm mineral ownership by researching chains of title (or in lay terms, who owned what, where and when and who did it get passed down, or transferred to). To research recent history, running title can be partially done online although in most cases, a trip to the county courthouse is required to research earlier chains of title. There are a lot of aspects of running title that cannot be completed online and need to be completed by a professional Landman. Venergy can help.
Yes, with enough searching you can find out deeds of record. If the minerals are producing, the county appraisal district will be able to show who owns the mineral rights in that area but full title must be ran to find out the exact ownership. Be aware that counties operate and record information differently.