FAQs

Mineral rights represent the legal entitlement to extract, develop, or produce materials found beneath the earth's surface. These materials include metal ores, coal, oil, natural gas, gemstones, stone, salt, and other substances (excluding sand, gravel, and water). As the owner of mineral rights, you have the authority to sell, lease, gift, or transfer these rights to any individual or entity of your choosing.

Surface rights are distinct from mineral rights and pertain to organic or inorganic substances located on top of the land. When landowners wish to maintain control of the surface area while potentially selling or leasing what lies beneath, they retain their surface rights. For instance, a property owner may sell the mineral rights to resources beneath their land while maintaining surface rights, allowing them to retain control over everything on the ground's surface.

Executive rights holders possess the authority to negotiate and execute oil & gas leases on behalf of mineral interests. Beyond these executive privileges, mineral ownership includes several other important rights: the entitlement to receive lease bonus payments, the ability to collect delay rentals (when specified in the oil & gas lease), and the right to receive royalty payments from production.

Oil and gas royalties represent the financial compensation paid to mineral rights owners after resources (such as gas, oil, and stone) are extracted and sold by operating companies. These payments typically vary month to month, influenced by both the volume of resources extracted and the fluctuating market prices of oil and gas.

A bonus payment represents a single, upfront payment made to the mineral owner when an oil and gas lease is executed. This payment is typically calculated based on the number of net mineral acres involved in the agreement.

Non-Participating Royalty Interests (NPRIs) are established when a mineral owner transfers all or a portion of royalty interest in a specific tract while retaining the right to execute oil & gas leases. NPRI holders receive their proportionate share of oil & gas revenue from the property without bearing any of the operational costs associated with the well(s).

Working interest represents an individual's or entity's percentage ownership stake in oil & gas operations for a specific well, regulatory lease, or contract area. Unlike royalty interests, working interest owners are financially responsible for all costs related to leasing, drilling, completing, and producing from oil & gas operations.

An overriding royalty interest represents a cost-free royalty interest that a lessee maintains when transferring an oil & gas lease to another party. This type of interest is temporary in nature, as it automatically terminates when the underlying oil & gas lease from which it originates comes to an end.

The decimals represent your proportionate share of production revenues expressed numerically. This calculation takes into account both your fractional mineral/royalty interest in the property and the royalty rate established in your governing oil & gas lease agreement.

Monthly payment fluctuations occur due to two primary factors: changes in production volumes and shifting market prices. Most oil & gas royalties are calculated based on monthly commodity price averages. Additionally, production levels naturally decline over time as wells age, since there's a finite amount of oil and gas that can be extracted from reserves both monthly and throughout a well's lifetime. These factors combine to create the variations you see in your royalty checks.

A regulatory lease refers to a specific area of land that an operator has designated for oil & gas operations, where at least one person or entity holds an undivided ownership interest in the underlying mineral estate.

The fundamental distinction between leasing and selling mineral rights lies in how you receive compensation. When selling, you receive a substantial one-time payment upfront for transferring complete ownership. With leasing, you'll get a smaller initial payment (bonus) but continue to receive ongoing royalty payments throughout the lease term as resources are extracted and sold. This creates a potential for greater long-term value with leasing, though with less immediate cash compared to selling.

When considering mineral rights leasing, it's important to evaluate market volatility. Commodity prices may decline over time, potentially reducing your long-term returns compared to an immediate sale. Conversely, prices could increase significantly, resulting in lease payments that substantially exceed what you might have received from selling outright. This market uncertainty represents both the risk and opportunity inherent in the leasing option.

Selling oil and gas assets held for more than one year typically subjects the proceeds to long-term capital gains taxation.

When you divest a mineral or royalty interest, it creates a one-time taxable event. In contrast, ongoing monthly royalty revenue and bonus payments are subject to ordinary income tax rates on an annual basis. We strongly recommend consulting with a qualified tax professional to properly assess your specific tax obligations and potential strategies.

If you are investment minded and are looking to sell your mineral interests, there is no better way to reinvest those profits, TAX FREE, into another investment, using a 1031 Exchange.

There is no limit to how many times you can reinvest a 1031 exchange of the divestment proceeds of one asset sale to another. As long as the exchange is into an investment or business property the IRS will allow the tax-free transfer. Do you have a vacation home or a ranch in mind that you have always wanted to buy? This might be a perfect opportunity to realize these goals. We have many 1031 tax professionals we can direct you to if this is of interest in your mineral divestment.

It's easy! Just contact us and we'll walk you through the process.

The best way to get more information is to give us a call or send us an email through our contact page.