Category: 2023

A mineral rights lease is a contractual agreement in which a mineral rights holder grants another party the right to explore, drill, develop, and produce a mineral asset on a parcel of land for a period of time. It’s critical for mineral rights holders to understand the terms of a mineral lease agreement before negotiating and ensure that it provides adequate legal protection for its duration.

Mineral rights come with some lucrative advantages. But for the average rights holder, those advantages rarely involve personally extracting the minerals. After making the capital investments necessary to explore and develop deposits, it becomes less profitable than other alternatives. As a result, many rights holders consider leasing mineral rights to another party via a mineral lease agreement.

As the term might suggest, a mineral lease is a contractual agreement in which a mineral rights holder grants another party the right to explore, drill, develop, and produce a mineral asset on a parcel of land for a period of time. For example, an oil and gas company may want to enter into a mineral lease agreement in hopes of extracting oil or gas from below the property — in exchange for royalty payments, of course.

Examining Mineral Lease Agreement Terms

It’s critical for rights holders to understand the terms of a mineral lease agreement before signing and ensure that it provides adequate legal protection for its duration. Otherwise, it could spell trouble down the line.

Here is a short glossary of terms to review:

• Granting clause. The granting clause details the rights granted to the other party. It can include which specific activities are permitted, such as exploring by geophysical, geologic, and seismic methods; placing and storing equipment on the property; or transporting assets by way of pipelines.

• Term limits. Typically, there are two parts to a term clause: primary and secondary terms. Primary terms range from three to five years, while secondary terms last as long as the oil and/or gas well is producing, which often grants mining companies the right to continue drilling and extracting assets for many years.

• Royalty percentage. It isn’t uncommon for parties to subtract fees from royalty payouts, reducing the amount of income holders earn from their mineral rights. Depending on the mineral leasing act regulations of the area, holders could also be subject to additional taxes.

• Surface protection. Surface protection guarantees compensation to the holder should the other party alter or disrupt the land or other things on it, including homes, crops, fences/gates or water. If this isn’t specified in the lease, the holder could be on the line for additional costs.

However, knowing what could be included in a mineral lease agreement is just half the battle. There’s also the matter of negotiating with the other party to ensure the lease is mutually beneficial.

Negotiating Better Terms When Leasing Mineral Rights

In addition to learning about what a lease entails, mineral rights holders should research the interested party to determine if they are a good fit. After all, the mineral extraction process could present risks to the property or assets. Forming a mutually beneficial agreement with a fair party will make navigating potential roadblocks easier.

Consulting with an attorney who’s well-versed in mineral lease agreements is key, and the same can be said for enlisting the help of a third party to manage the process of leasing mineral rights. It’s essential to verify what’s being said against what’s been put in writing. Without proper precautions, an oil and gas company could take advantage of someone’s goal of securing another source of income through a mineral lease agreement. No one wants to end up with a deal that isn’t as profitable as it could be.

Matt Autry, President of Oil and Gas at Valor, possesses 15 years of oil and gas industry experience that ranges from working as a landman to owning and managing minerals. Matt’s primary focus has been on the land management side of business, including mergers, trades, acquisitions and divestitures in Texas, New Mexico, Oklahoma, and North Dakota.

The information provided by Valor in this blog is for general informational purposes only, not to provide specific recommendations or legal or tax-related advice. The blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

By working with a mineral management company, you can be confident that your assets are protected and your revenue is maximized with limited involvement.

If you own the mineral rights to a property, you may have a unique opportunity to generate new revenue. However, knowing how to capitalize on these opportunities isn’t always common knowledge for people not well-versed in the oil and gas industry.

Whether you’ve inherited mineral rights or an oil lease from a family member or are looking to take advantage of the resources on land you already own, it’s important that you go about it in the right way. Otherwise, you may end up finding more trouble than revenue.

Can you answer these questions?

When speaking with prospective clients who are unsure if they need a mineral management partner, we ask them if they know the answers to these questions:

1. 1. Do you know what is getting paid on?
2. 2. Do you know which wells have stopped producing to open acreage?
3. 3. Is everything in pay status?
4. 4. Can you easily match revenue to 1099s?
5. 5. Do you have any funds in suspense?
6. 6. How are you tracking dormant mineral clauses?
7. 7. Do you know how much revenue a specific property has produced and would you be able to provide documentation in a timely manner?

If these questions yield uncertainty and more questions, then outsourcing your mineral management could be a great solution for you. Managing minerals can be very difficult, and knowing how to manage these rights is imperative for long-term success.

Knowing How to Manage Your Rights Is Crucial

Because mineral rights ownership isn’t something the average person has experience in, it’s easy for those in the know to take advantage of those less knowledgeable. If you try to sell mineral rights on your own, for example, you could end up with offers well below the market share. You likely don’t know what your rights are worth, and you probably don’t realize just how many potential buyers are out there. So, you could end up with only a handful of offers and assume the highest bid among them is the best you’ll get.

Things don’t necessarily look any easier if you’re keeping your rights. Mineral management comes with a different set of complications you might experience if you don’t know what to do. You could end up getting taken advantage of during lease contract negotiations, for instance, or you could end up paying fees that rightfully should be covered by your exploration and production (E&P) company.

Day-to-day management comes with its own set of considerations (which can be overwhelming even for those who do have mineral management experience). You have to make sure all your information is accurate, up-to-date, and organized so you can monitor payments, calculate your own division order interest, and cross reference volumes and pricing. This is the only way you can truly be certain you aren’t missing payments or that your mineral and oil royalties aren’t being undervalued.

How to Get Started With Mineral Resource Management

If all of this sounds like more than you can handle, don’t worry. You don’t need to be an expert in mineral and oil leases to properly manage them. However, you do need to know where to begin. Here are two initial steps to get you started:

Make sure you have all your documents in place.

Improper documentation is one of the biggest mistakes you can make when trying to manage deeds, title, and oil leases. When it comes to mineral rights management, there’s a whole host of documents you need to keep track of. Without proper care, it can be easy to fill one out incorrectly or let one slip through the cracks.

The first thing you need to do is gather up all your documents and make sure they’re in order. This includes source documents, property titles, division orders, existing leases, checks, tax records, and inventory sheets as well as any other documentation with relevant information. Organizing all these documents can be a big job, but doing the work ahead of time will make it much easier to manage your rights going forward.

Enlist the help of experts.

Whether you’re dealing with a single lease or a large portfolio, mineral resource management can be a full-time job. By working with a mineral management company, you can be confident that your assets are protected and your revenue is maximized without having to deal with everything yourself.

Contact Valor Today

Valor provides mineral management services developed and run by industry professionals who have decades of experience. If you’ve recently come into possession of mineral rights or oil leases, we can help you make sure you get everything out of your new resources. Contact us today to see what we can do for you.

The information provided by Valor in this blog is for general informational purposes only, not to provide specific recommendations or legal or tax-related advice. The blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

When it comes to mineral estate planning, many mineral rights owners don’t realize how easy it is to lose these rights. Assets do not always remain static once the initial transfer has occurred. In fact, unless their mineral rights are in states such as Texas, Oklahoma, or New Mexico, inheritors will likely need to take action to keep their legal rights to mineral assets valid.

How Can You Lose Your Mineral Rights?

The tricky part is the laws around mineral rights vary from state to state. Your rights will be different depending on where your mineral rights are located, as will the timeline by which your rights might revert to the surface owner. Many rights are lost when owners lose track of their filing dates or fail to update or refile an affidavit to maintain them.

Take North Dakota, for example. In order to remain the owner of severed mineral rights in this state, you need to file an affidavit every 10 years. Otherwise, your rights revert back to the surface owner. In the 1999 case of Spring Creek Ranch vs. Svenberg, Spring Creek sought the addresses of mineral rights owners. All they found was a deed from 1950 without a street address, but this was sufficient for “reasonable inquiry,” and the mineral rights reverted to them. As long as effort is made to discover the owners of rights and the rights remain dormant, then ownership can be transferred.

Another way you can lose your mineral rights is by failing to pay state ad valorem property taxes on them. Just like any other legal asset, mineral rights must be properly paid to the county tax office. If you don’t pay taxes on your mineral rights, you risk losing them.

Some mineral rights have been lost through poor management. Oversight of a filing or expiration date can cause havoc for inheritors and their assets. Not being proactive is also a risk — owning property in a popular area that doesn’t get leased due to poor management can be just as unfortunate for inheritors.

Still, some people just don’t care about their assets as much as others. This can be especially true of mineral rights. If an owner feels like their assets will never be tapped into or yield a product, then they might want to avoid paying taxes and the hassle of filing the stipulation process, and will voluntarily let their rights lapse.

What Happens If You Lose Your Mineral Rights?

It’s important to have some degree of urgency over keeping the rights to your mineral assets, but you don’t need to let fear or anxiety take hold. By arming yourself with knowledge, educating yourself, and preparing for the realities of mineral ownership, you can avoid many problems.

First, it’s crucial to know the different ways to lose or forego mineral rights. Check what the rules are in your state. Some states (like Louisiana) have “prescription assets” and others (like North Dakota) operate under a dormant mineral statute, which states that rights may be lost if owners are not utilizing their minerals.

Unfortunately, the process of getting rights back can be difficult, if not impossible. Once lost, mineral rights revert back to the surface owner, and you will not get them back unless you purchase them again or they are conveyed to you. That’s why ensuring your filing is up to date and that you know exactly what to do to maintain mineral rights in your state is so vital.

What Is the Best Way to Go About Protecting Your Mineral Rights?

Mineral rights don’t just stick around. Like any asset, they need maintenance. Luckily, if you have the right help and support, maintaining your rights isn’t too much of a chore.

1. Keep rights current by filing.

In most states, you will renew your mineral rights by filing an affidavit (similar to filing a deed). It should be drafted, executed (by signing and notarizing), and then filed in the applicable county. Valor can help you do this — we go find filing requirements, format pages according to the state’s individual rules, and so on so that you don’t have to.

2. Keep rights through a claim of dormancy.

If the surface in question is dormant, and you haven’t leased it to oil and gas companies, you can still maintain your rights to mineral assets if you file a statement of claim or dormant mineral deed to state that the surface is knowingly dormant. Timing for these filings will, again, vary from state to state.

3. Use technology to keep track of assets.

We use our proprietary platform mineral.tech® and its evolving built-in features to protect mineral rights from expiring. After you log rights onto the platform, it’ll alert both our team and you as the rights owner when they’re nearing their asset expiration date. This allows us to effectively manage, plan, file, and execute accordingly.

4. Partner with a company that’s got your back.

Valor is an expert in this industry, and we can keep you up to date with any state-specific changes or actions you need to complete to keep your mineral rights. Part of our job is to prevent mineral rights from expiring and transferring back to the original landowners. So, with us on your team, you can relax knowing that we have safeguards in place to mitigate this.

At Valor, we know the value and importance of assets. We never want to see a prospective or existing client lose their mineral rights. We have a deep interest in setting up inheritors to avoid challenges. Not every mineral management company will add this value; many will not agree to manage non-producing assets. But we see this as part of caring for clients’ overall interests.

When it comes to mineral management, you might one day find your funds in suspense. What does this mean? Oil and gas companies are responsible for regularly distributing royalty payments to holders of mineral and royalty deeds. These operators don’t want to make a mistake or pay the wrong people, so they may put funds in a suspense account and hold payment if something doesn’t line up.

The good news is that there are simple explanations why, and there’s almost always something you can do about it. Whether you’re dealing with money currently in suspense or are just trying to make sure it doesn’t happen to you, knowing why it happens and how to fix it can be extremely valuable for mineral owners.

Why Is Your Money in Suspense?

There are a few common reasons why your funds might be stuck in limbo. It could be as simple as an incorrect address or an unreturned form, such as your Division Order or W-9. It could also have to do with an error in your title that needs to be addressed before things can move forward.

If it’s not a matter of documentation, then chances are there’s some problem involving the determination of the rightful owner of the property. Ownership might have been improperly transferred between relatives, or there may be a complicated dispute between multiple parties.

While an ownership issue will present greater difficulties than a problem in documentation, there are solutions. You just need to know your best course of action.

How to Deal With Funds in Suspense

If you’ve determined that your obstacle stems from a missing or incorrect document, then getting your funds out of a revenue suspense account should be straightforward. Simply making the necessary corrections or turning in the missing documents should likely solve your problem. However, if the title is at fault and it’s not a simple clerical error or typo, then you’ll need to go through the title curative process to solve any defects in chains of title.

If there’s a dispute over the deed or question of legal ownership, you may need to file a claim in probate, a motion to determine the inheritance of the property, or a title action. While you can file these things yourself, it would be wise to enlist the aid of professionals with experience in this area. This might seem intimidating, but many of these problems can be cleared up relatively quickly with the right team in your corner.

3 Mineral Asset Management Strategies

That said, when it comes to dealing with funds in suspense, the old saying holds true: an ounce of prevention is worth a pound of cure. Here are three ways to help ensure your money doesn’t end up in a revenue suspense account:

1. Stay organized. It can be difficult to keep track of all the documents and updates associated with your mineral assets. But by making a concerted effort to organize things and put everything in one place, you’re much less likely to let vital documents slip through your fingers or miss errors that could end up costing you down the road. In today’s world, you’ll likely want to consider digital organization methods, tools, or platforms. Technological capabilities allow you to more efficiently keep track of your assets.

2. Keep the lines of communication open with operators. Stay in touch with the operators you lease with. By keeping the lines of communication active and open, you’ll be more likely to proactively hear about unexpected problems instead of after your funds have been suspended.

3. Enlist experts at the start. Instead of waiting for something bad to happen and then hiring an expert to fix it, consider hiring a professional firm to handle your mineral assets from the start. This will not only make it less likely that your money will be suspended, but it will also unburden you of most management responsibilities. You won’t need to spend time tracking down and contacting operators.

The main point to remember: Whether you’re trying to prevent suspension or dealing with its fallout, you must be proactive and act quickly. The faster you can identify the problem and resolve it, the faster you’ll have your funds at your disposal.

Jason Beck is the ​​director of land and mineral management at Valor, a specialty asset services provider focusing on mineral management, oil and gas operator services, accounting, and back-office outsourcing.

The information provided by Valor in this blog is for general informational purposes only, not to provide specific recommendations or legal or tax-related advice. The blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

Both oil and natural gas are important energy sources. While some applications overlap, each asset generally plays its own role in keeping the world going.

When many people hear the word “gas,” they tend to think about the gas that powers their cars. However, it is important that mineral owners learn the differences between types of gas and their varying purposes. After all, the applications and value of these assets depend on whether they’re natural gas or oil-producing mineral assets.

Examining Oil vs. Natural Gas

While they might seem similar, gasoline vs. natural gas is very different. Only the latter is a raw material. Gasoline, which is used to fuel automobiles and other devices that rely on internal combustion engines, is not a gas at all, but a liquid. Unlike natural gas, the end product is not found in nature — it’s a product refined from oil.

If minerals produce oil, then asset owners can take that crude oil and refine it into a variety of petroleum products. Gasoline is the most commonly known oil-derived product, but oil can also be distilled into diesel fuel and oil for heating homes. (Note: Heating homes via oil is less common and more expensive than using natural gas.) Additionally, oil can be used to create commonly used plastics and nylon materials.

On the other hand, natural gas is a literal gas found under the ground. It contains a number of different compounds that can be broken down using cracking plants. Propane and methane are two well-known natural gas products. In addition to heating homes, natural gas is most commonly used for cooking and grilling food, drying clothes, and generating electricity.

The bottom line: Both oil and natural gas are important energy sources. While some applications overlap, each asset generally plays its own role in keeping the world going.

How Valuable Is Oil vs. Natural Gas?

Of course, there’s another difference that asset owners need to consider: the financial value. When it comes to pricing, there are some significant differences between the market value of finished products and the oil and gas lease price per acre.

Unlike natural gas, oil tends to operate on a global market. This means that the value of one barrel of crude oil is often significantly higher compared to one unit of natural gas. It’s important to note that one barrel of oil is equal to about six units (where one unit equals 1,000 cubic feet) of natural gas, so the difference in value between the two isn’t as stark as it may seem.

The global reach of oil, however, also means that its price is much less stable than natural gas. Over the past few years, fluctuations in global supply and demand can have a significant impact on the cost of gasoline and other oil products. When managing an oil lease, it’s important to keep an eye on the market to make the most of assets.

Managing Oil and Natural Gas Assets

Now that we’ve covered the basic differences between oil and natural gas, it’s time to move on to some final vital questions: How would someone manage these assets? Does the management process vary between the two?

Whether land produces oil or natural gas, asset owners can make the most of what they have with the right team at their side. With a partner like Valor, managing oil and natural gas assets gets a lot easier. Valor has a variety of mineral asset clients, which means that we know what to do. And when asset owners aren’t stuck in the weeds, they can focus on other priorities while maximizing their revenues.

An oil and gas lease can provide mineral owners with a steady source of income. It can also be a source of obstacles if you are not well-prepared.

As a mineral owner, you may be approached to sign an oil and gas lease agreement with a company. This step usually comes after the company has already done its due diligence, ensuring that you own the mineral rights to the desired land.

What is an oil and gas lease? It’s a legally binding agreement between you, the mineral owner, and the specific person or company that will extract oil and/or gas from below your property in exchange for royalty payments. These contracts detail how the exploration and production (E&P) of the minerals will happen, and they define how payment will be issued to you, the lessor.

But just because a company has signaled that it’s ready to take the plunge doesn’t mean you need to be ready, too. When it comes to leasing your assets, you’ll want to understand what a lease should include and how you can ensure your rights and property are protected.

Elements of an Oil and Gas Lease

Every situation and lease is different, so it’s important to seek counsel when reviewing a contract. Here is a glossary of elements you may see on an oil and gas lease agreement:

• • The Granting Clause. This clause lays out what rights you’re granting someone in regard to oil and gas extraction and which activities are permitted within those rights. It can encompass a wide variety of activities, including drilling, surveying, transportation, and storage, among others.

• • Damages and Unexpected Costs. Oil or gas extraction can alter the land or other things on it, such as your home, crops, or water. The oil and gas leasing process is when you’ll want to negotiate how you’ll be reimbursed for any unforeseen changes or alterations.

• • Fees and Taxes. A gross or cost-free royalty provision puts a limit on the fee amount that can be taken out of your royalty payments. Depending on the oil and gas lease regulations in your area, you could also face additional taxes. You’ll want to consider who is responsible for paying those taxes and which fees can be subtracted from your payments.

• • Lease Term Limits. There are usually two parts to a term clause in an oil and gas lease agreement. The first is known as a primary term, and it generally lasts between five and 10 years. The second is known as a secondary term, and it essentially continues the validity of the lease as long as there is production and/or other drilling activities as specified in the lease. If you would prefer to set more concrete limits, then you’ll want to review this aspect of the lease.

3 Tips for a Successful Oil and Gas Lease Agreement

Of course, knowing what’s included in an agreement is important, but it’s only one piece of the puzzle. Next, you have to figure out the best way to approach negotiations in order to ensure you get everything to which you’re entitled. Here are some tips to consider:

1. Perform your own due diligence. It can be beneficial to do some research on the company or individual looking to lease your mineral assets. This is also the time to determine if the proposed oil or gas extraction presents any risks to your property or other assets.

2. Partner up with experts. An attorney who is well-versed in this area of law can be a major help during contract negotiations. It’s also advisable to enlist the help of experts in mineral rights management and oil and gas operations, like Valor, to help you more effectively manage the assets that lie beneath your soil. Attorneys and mineral management companies like Valor can help negotiate the best lease terms and the highest lease bonus payments. After all, they’re familiar with the market, have access to lots of data, and know which terms are best for a given location.

3. Don’t negotiate at face value. The old adage “trust, but verify” is a good rule of thumb for the oil and gas leasing process. The other party could make a mistake or put a spin on facts that makes it difficult to discern the plain truth. The negotiation process can feel rushed, but ensure you take as much time as you need to go over your contract and verify what’s being said.

An oil and gas lease can provide mineral owners with a steady, long-lasting source of income. However, without the proper protections in place, it can also be the source of some serious headaches. That’s why it’s important to go into the process without a deadline in your head and with enough knowledge to ensure you’re getting everything you want out of negotiations.

The information provided by Valor in this blog is for general informational purposes only, not to provide specific recommendations or legal or tax-related advice. The blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.