Mineral right refers to a person’s interest in the minerals found in the land or property that he/she owns (or no longer owns as he/she may have already sold the land); this right includes removing the minerals, selling, bequeathing or giving as gift his/her mineral rights or receiving royalty for these. The types of minerals that may abound in one’s land include all organic or inorganic substances, like oil, natural gas or shale gas, coal, metal, salt, stone, and gemstones.
Owners of properties where minerals may be found are often faced with two major issues: to sell mineral rights and receive a (one time) guaranteed payout without delay or just lease these and either get to enjoy royalty as long as the land is productive or receive a percentage of the value of whatever is mined by the leaseholder. Those interested to buy or lease mineral rights include big companies, some of which are willing to pay millions of dollars (depending, of course, where the property is located and the perceived potential output of the property).
The difficulty in arriving at either decision is brought about by the uncertainties that underlie both options. Despite the advantages which both choices present, choosing one or the other still can be a gamble as the factors considered in arriving at either choice may actually prove to be inaccurate.
Financial experts and businesspersons, however, consider selling (than leasing) a wiser option since production from a well will eventually decline, thus saving owners from the worry of declining royalty payments.
Selling one’s mineral rights, on the other hand, presents many advantages, some of which include:
- Cash up front – this can be an advantage, especially if the landowner were financially in need (without informing the prospected buyer, of course, as such buyer may give an offer that is lower than the property’s real value). Selling one’s mineral or royalty interests means securing a lump sum today which can prove really helpful for financial concerns that need immediate settlement. Some firms offer an amount big enough to last for many, many years.
- Taking advantage of the great demand – booms in oil, gas and other minerals have come and gone across the nation, so that what may be appraised with a very high value today may no longer be worth anything tomorrow.
- Saving oneself from time-consuming concerns and significant tax increases – keeping track of one’s mineral or royalty earnings and the taxes these are associated with plus the need to keep division order files, depletion schedules, property tax records, etc., always require much time and attention. Selling, however, may not only qualify the owner for tax savings advantages, he/she can also use part of the proceeds from the sale to invest in less risky business opportunities.
- Saving the owner from the risk of a non-productive property – once the owner decides to sell, whether the property is productive, less productive than expected or not productive at all, is no longer his/her concern, but the buyer’s. Especially if the property is not really promising as it was deemed, selling, then, is a decision that is to perfectly benefit of the owner of mineral rights.