Oil & gas lease clauses

Posted on July 19, 2023March 25, 2024 by Valor

Key Lease Clauses to Review:

Royalty Clause: Your payment percentage (negotiate 20%+)
Primary Term: How long lessee has to drill (3-5 years typical)
Pugh Clause: Releases unleased depths/acreage
Surface Damage: Compensation for surface use
Pooling Clause: How your land joins drilling units

When entering an oil and gas lease agreement, it’s crucial that mineral owners protect their interests. Certain clauses may be included in the lease to safeguard the owner’s rights, ensure fair compensation, and limit potential damages to the property. Below we explain various clauses you may come across in an oil and gas lease:

Royalty Clause: This clause outlines the percentage of production revenue that will be paid to the mineral owner. Make sure the percentage is clearly defined, and verify if it’s based on gross proceeds or net proceeds.
Pugh Clause: A Pugh clause, also known as a “freestone rider,” separates the lease into separate tracts for the purpose of maintaining the lease. It can prevent the entire property from being tied up by a lease if only a portion of the land is producing or included in a drilling unit.
Delay Rental Clause: This clause requires the lessee (usually an oil or gas company) to make payments to the lessor (the mineral owner) during the primary term of the lease, to keep the lease valid even if drilling or production has not begun.
Shut-in Royalty Clause: This clause ensures that the mineral owner receives payment when a well is not producing, but could (and likely will) produce in the future. It’s often used when the well is temporarily closed, or “shut-in.”
Habendum Clause: This clause defines the term of the lease. It usually includes a “primary term” of a few years, during which the oil and gas company must begin production, and a “secondary term” that continues as long as the land is producing oil or gas.
Warranty Clause: This clause should be carefully examined or avoided. If it’s included, the mineral owner warrants they own the mineral rights and could be held liable if that turns out to be incorrect. It’s best not to warrant anything you’re not absolutely sure about.
Damage Clause: This clause outlines how much the oil or gas company must pay if their operations damage the property. This can include damages to the surface of the land, water sources, livestock, crops, etc.
Indemnity Clause: This clause ensures that the lessee will protect the lessor from any legal actions or liability arising from the activities of the lessee or their subcontractors. It safeguards the lessor from bearing any costs or damages related to the lessee’s operations.
Environmental Protection Clause: This clause specifies that the oil and gas company will adhere to all relevant environmental laws and regulations. It can also include stipulations for the cleanup of environmental damage and restoration of the land after the lease ends.
Depth Severance Clause: This clause will release specific formations or deep rights on lands covered by the lease back to you after the primary term of your oil and gas lease has expired.
No Deductions Clause: This clause is supposed to prevent your lessee from deducting the costs they incur in transforming your share of the raw marketable materials they bring to the surface into marketable condition.
Consent to assign language: Requires lessor to obtain consent from lessee prior to assignment of oil and gas lease to any third party.

Including these clauses in an oil and gas lease agreement can help protect the rights and interests of mineral owners. However, every situation is unique, and it’s always best to seek legal counsel or advice from industry experts before signing any lease agreement. Have questions? Contact Valor today!

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.

What to consider when leasing mineral rights

Posted on March 9, 2023March 25, 2024 by Valor

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.

Do you know what to do with your mineral rights?

Posted on March 7, 2023June 13, 2024 by Valor

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. Do you know what is getting paid on?
2. Do you know which wells have stopped producing to open acreage?
3. Is everything in pay status?
4. Can you easily match revenue to 1099s?
5. Do you have any funds in suspense?
6. How are you tracking dormant mineral clauses?
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.

3 Tips for a Successful Oil and Gas Lease Agreement

Posted on January 27, 2023March 25, 2024 by Valor

3 Essential Lease Tips:

Negotiate the royalty rate (aim for 20-25% vs standard 12.5%)
Limit the primary term and include Pugh clause protection
Review deduction language to ensure “cost-free” royalties

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.

What’s the Difference Between Mineral Rights and Surface Rights?

Posted on December 14, 2022March 25, 2024 by Valor

Quick Answer: Mineral rights grant ownership of underground resources (oil, gas, coal, metals), while surface rights grant ownership of the land itself. These can be owned separately – meaning you could own a house but not the oil beneath it, or own minerals under land someone else lives on. In most states, mineral rights are dominant and allow reasonable surface access for extraction.

Knowing how to properly manage both sets of rights can be beneficial in ensuring you maximize the value of your assets.

If you are a property owner, it is important to understand the difference between mineral rights and surface rights. Mineral rights are a form of ownership that gives the holder the exclusive right to exploit, mine, and/or produce any minerals that may be found on or beneath the property. On the other hand, surface rights refer to the rights of a landowner to use the surface of a piece of land for various purposes, such as farming or construction. It is important to know the definitions and how they differ in value.

Definitions: Mineral Rights vs. Surface Rights

When it comes to understanding the rights associated with owning property, one of the most important differences to understand is between mineral rights and surface rights. While both types of rights can have a significant impact on the value of a property, they also differ in some key ways.

Mineral rights refer to the ownership of any resources that are located beneath the surface of a piece of land. This includes things such as minerals, oil, gas, or any other natural resources that may be found beneath the ground. Generally speaking, mineral rights do not include anything found on the surface itself.

Surface rights, on the other hand, refer to the ownership of any resources located on top of the ground. This could include things such as buildings, crops, trees, fences, roads, and more. While the owner of a property can have both mineral and surface rights, they may also be owned by different people or entities in some cases.

In addition, it is important to note that when it comes to mineral rights, the owner of those rights is generally given certain privileges that are not associated with surface rights. These privileges can include the right to explore for minerals or extract them from the ground.

Difference in Value

Understanding the difference between mineral rights and surface rights is important for anyone looking to buy or sell property. While both types of rights can have an effect on the value of a property, they also come with different sets of privileges and obligations that must be taken into consideration. As such, it is important to take the time to understand these details before making any decisions.

When it comes to leasing or selling a property, it’s important to consider all of the different types of interests involved. Before any contracts are signed, it’s important to make sure that all parties understand who owns what rights and how those rights can be exercised. Knowing the difference between mineral and surface rights is a key part of any real estate transaction.

Key Takeaways

1. Mineral Rights Are Separate from Surface Rights

It’s important to note that mineral rights are separate from surface rights. This means that someone can own the surface of the land, but not the minerals beneath it. Similarly, someone can own the mineral rights but not the surface of the land.

2. Ownership of Mineral Rights Can Lead to Profits

Ownership of mineral rights can be incredibly profitable. Since mineral resources are in high demand and often yield a high price, owning these rights gives you the potential to earn income from their extraction.

3. Surface Rights Have Value Too

Surface rights have value as well. For example, if you own surface rights to a piece of land, you have the legal right to build on it or use it for recreational activities. In some cases, these rights can be sold or leased to developers or other parties who may be interested in using the land for their own purposes.

Understanding the difference between mineral rights and surface rights can help you make more informed decisions when it comes to land ownership.

Ensure Your Beneficiaries Get Your Mineral Assets

Posted on November 7, 2022March 25, 2024 by Valor

Holding on to generational assets like mineral rights, rather than selling them off before you pass on, could hold several benefits for your beneficiaries.

When it comes to generational assets, mineral rights hold a lot of potential for your beneficiaries. Instead of selling, consider the gift that transferring your mineral assets could be for your loved ones, both now and in the future.

According to many experts, if you are willing and able to keep your mineral rights for more than 10 years, opportunities for leasing and gaining royalties greatly increase. Therefore, not only are you passing mineral rights to beneficiaries or an entrusted party, you’re also passing the financial benefits that come with rights ownership.

What Are the Benefits of Holding on to Your Mineral Rights?

First, if you lease your mineral rights to an oil and gas operator, you will typically receive a lease bonus. An operator leases the oil or natural gas rights from you and reserves the option to drill on your property over a set period of time called the primary term. Oil and gas leasing are essentially a “reasonable access to leased property” sale that comes with primary and secondary terms. A primary, or definite, term covers the oil and gas exploration and production, while the secondary term covers the life of production in paying quantities. In other words, if the well is not producing, the leasing expires after the primary term. However, if the primary term is up and the well is producing, you or your inheritors hold the lease until production ceases.

If the land is drilled and oil or natural gas assets are found, you can earn royalties on your mineral rights. These royalties can essentially be a means of income for whoever holds those rights. Imagine a monthly royalty check in the mail for as long as the production value lasts.

It’s also worth noting that in most states, keeping nonproducing minerals still means owing property tax or ad valorem tax, but there’s value in asset ownership. The world is not making any more land, and the U.S. is the only country with private mineral ownership, so opportunities to own mineral acres are few and far between. Keeping mineral assets can be a wise move for future wealth, especially if you are living in a period of inflation and experiencing a volatile stock market.

Moreover, the question of how much mineral rights are worth per acre will change constantly. As innovation happens and technology improves, operators will be able to tap into more resources and obtain minerals in new ways that could be financially beneficial to whoever holds the rights to them.

Are There Any Challenges to Inheriting Rights to Minerals?

The benefits of passing mineral rights on as generational assets are many, but that doesn’t mean the process doesn’t have its complexities.

For example, dividing mineral rights among different beneficiaries can be tricky. If you inherit mineral rights along with another party and you own a specific percentage of that asset, you may encounter resistance to fragmenting the rights further by handing them down to your beneficiaries. (However, undivided mineral rights ownership is one of the best and easiest qualities for generational assets ownership.)

Surface owners can also run into trouble by assuming they own the mineral rights connected to the ownership of the surface property. If left uninformed, beneficiaries may have to work out what they’re actually entitled to. Meanwhile, oil and gas companies looking to arrange leases can take advantage of naive title holders and offer rates that don’t match up with the potential value of the asset. In the most extreme examples of uninformed mineral rights holders, predatory mineral buyers can capitalize on unknown mineral rights.

This is why getting a land deed drafted and making sure it’s executed, notarized and filed appropriately is critical.

How to Set Up Mineral Rights Beneficiaries for Success

You want to make inheriting mineral rights as easy as possible for your family or chosen beneficiaries, so how can you mitigate the above challenges effectively? Consider the following steps:

1. Bring in an expert to help manage the process.

It’s unlikely that you or your beneficiaries are experts in mineral rights. One challenge of inheriting rights to minerals is ensuring that you’re capturing their full value, which can oftentimes become a full-time job. Seek out an experienced mineral manager to make sense of your assets, to make sure you hand them down with accurate documentation, and to make the most from them in the form of lease bonuses and royalties. They can be a knowledgeable, invaluable partner who understands specialist information, like the cost basis for inherited mineral rights and the day-to-day operational concerns connected with oil or natural gas assets.

2. Create a comprehensive asset inventory.

Document all mineral interests thoroughly, including the county and state where each interest is located, the legal description of the property, current lease status and operator information, decimal interest or net mineral acres owned, and historical production and payment information. This inventory becomes invaluable for beneficiaries who need to understand what they are inheriting and how to manage it going forward.

3. Communicate with your beneficiaries.

Many heirs are surprised to learn they have inherited mineral rights and may not understand what that means. Consider explaining your mineral holdings to beneficiaries before they inherit, showing them where records are kept and how to access them, introducing them to your mineral manager or other professionals who help manage the assets, and discussing your wishes for how the minerals should be handled. This communication helps beneficiaries feel prepared rather than overwhelmed when they take ownership.

4. Keep records organized and accessible.

Maintain organized files with all deeds, leases, division orders, correspondence, and payment records. Consider digital storage in addition to physical files, and make sure beneficiaries know where to find these records. Clear organization prevents confusion and ensures continuity of management after a transfer.

5. Make sure the mineral deed is valid.

To ensure your deed is valid for estate transfer, it must be in writing, the grantee and grantor must be identified by signature, and both parties must have the legal capacity to transfer or accept the assets. They must also be able to locate assets on the ground. It’s frustrating to have a will that tells the reader to “see inventory” when referencing assets but doesn’t include a consolidated, detailed inventory of the mineral assets.

Holding on to generational assets like mineral rights, rather than selling them off before you pass on, could hold several benefits for your beneficiaries. While drafting deeds and obtaining leases may seem complex, with a trusted operator, your assets can become a regular income for your loved ones for years to come.

Matt Autry is the President, Oil, and Gas at Valor, a specialty asset services provider focusing on mineral management, oil and gas operator services, accounting, and back-office outsourcing.

How to Effectively Pass On Mineral Rights

Posted on September 15, 2022July 5, 2023 by Valor

Leaving mineral rights to your beneficiaries can be incredibly complicated. The right mineral management partner can make all the difference.

Generational Rights to Minerals: How to Set Your Beneficiaries Up for Success

When thinking about estate transition, questions may come to mind about how to create a detailed descent and distribution plan for your mineral assets. You may be wondering how to ensure the mineral rights transfer is successful, what some of the pitfalls are to avoid, and how you can protect your assets.

At Valor, we understand the importance of thorough estate planning to ensure you have secured your mineral rights for your beneficiaries. Addressing these questions head-on — with knowledge and clarity — can help set you on the path to a successful mineral estate transfer.

How do mineral rights get passed from one generation to the next?

Mineral rights are the ownership of the subsurface real property. When hydrocarbons are produced, the mineral owners are entitled to a royalty percentage of the production proceeds. When you pass away, your beneficiaries inherit your mineral interests. If you have a will, it is up to the executor to probate your will and make sure the assets are passed on in accordance with your will. Since mineral rights are considered real estate, this will require a conveyance to be filed in your respective county courthouse. The executor will need to prepare, execute and record the conveyances. If you pass on without a will (intestate), the mineral ownership will pass in accordance to the inheritance laws of the state in which the property is located — this usually requires an Affidavit of Heirship to be filed in lieu of a deed.

In either case, it is important to know what exactly is owned so that the property descriptions on the conveyance are accurate.

First, in order to verify ownership, a landman, title company or attorney are usually hired to research the ownership records of the property(ies) in question. It is the norm for the deed to have the gross property description, not necessarily each individual owner’s net ownership. So even if you have copies of deeds, it will likely require further research to verify net ownership. It is also common for the surface owner(s) and the mineral owner(s) to differ. Just because you own a house does not necessarily mean you own the minerals as well. It’s also common for there to be multiple owners of a property, especially after a generation or two. Sometimes an owner sells to someone outside of the family, or gets divorced, and you can have a range of related and unrelated owners of the same mineral property.

Once the conveyances are filed of record, the next steps are to make sure the county tax authorities update the records to match. They should also make sure any oil and gas companies that have an active lease on the properties are notified. In an intestate case, oil and gas companies may require additional documentation to prove ownership.

This can be quite a tedious and expensive process if there is not a plan in place along with the correct people designated to handle it. Too often individuals did not know about the mineral rights until they’ve been inherited and they have to start from scratch. Do your beneficiaries a favor and keep good records, have the right people to help, and have your estate plan in order.

What are the biggest challenges in mineral estate planning?

1. Family Matters: Inheriting and keeping track of mineral rights is becoming increasingly complicated. For example, let’s say your grandfather divided mineral rights ownership among your family members, with each owning a specific percentage. While you may want to exclusively split your portion with your own children, others may hold a different view. Some may opt to sell their rights to outsiders, further fragmenting mineral rights.

2. Documenting what you own: Owning a real estate’s surface rights doesn’t automatically mean owning the mineral rights. This can be most challenging for your beneficiaries if they don’t know where to start. An important piece of the puzzle to prevent confusion for them would be outlining the plans for the mineral rights in your will in as much detail as can be provided. The more you’re able to explain and translate for their understanding, the more responsibly they can make decisions on ownership and the future of the rights and property.
3. Educating inheritors: When the mineral rights are transferred to your inheritors, some oil and gas companies will reach out and ask them to sign leases. Unfortunately, some of these enterprises can capitalize on your beneficiaries’ naivety or lack of regular valuation knowledge and offer exploitative rates.
4. Being taken advantage of: There is also the threat of predatory mineral buyers taking advantage of your mineral rights inheritors if they are unaware of their inheritance. Mineral buyers usually work with probate firms to research and target potential heirs of wealth who did not file a last will. Hunters sometimes demand that the beneficiaries agree to share a significant portion of the inheritance with them before disclosing the source of the inheritance.

How can you set up inheritors to avoid challenges?

Though the aforementioned are all major hurdles, you have a couple proven ways to mitigate these issues and set your inheritors up for lasting success:

1. Provide Clear Documentation for All Parties

Inheriting rights to minerals, oil or natural gas could produce a financial windfall for your beneficiaries. But maintaining this complex asset class can be a daunting task, especially for those unaccustomed to maximizing the value of mineral rights. Set up your inheritors now with clear, well-thought-out direction for them when the time comes to take on the mineral rights. Having your rights audited before inheriting them will prevent confusion and complicated decisions (and fees involved with auditing after inheriting) for beneficiaries and any legal and insurance teams involved down the road.

2. Utilize a Mineral Management Company

You simply may not have the time or expertise to effectively manage mineral, oil and gas assets — nevermind being certain that you’re following best practices. A number of beneficiaries don’t even know the details of everything they inherit. If they do, they aren’t equipped with an accurate picture, or they’re not getting the true pay for it. For that reason, mineral asset owners often choose to work with a professional mineral management company who can oversee key tasks on their behalf, including conducting regular valuations to fill in the gap in the value of the rights versus the market price at any given moment. These regular appraisals will keep your inheritors up to date on any changes in value of the mineral rights as well as be crucial in making any decisions about them or the land the minerals are on. Utilizing a mineral manager provides your inheritors with a knowledgeable source of trustworthy guidance and information on a regular basis.

When mineral assets are part of an estate or trust, you need an experienced partner who understands more than just the market value. And that’s what we do. Valor understands the day-to-day operational challenges, the long-term investment environment, and the ins and outs of complex agreements and transactions. We safekeep your records with our proprietary mineral tech software (mineral.tech®, equipped with up-to-date security and revenue-optimization technology) to ensure that your rights are protected — and effectively managed and reported — making for a seamless, profitable transition to your inheritors.

Allowing an expert to work as your partner on your estate or trust takes the work and worry off of your and your inheritor’s hands while still safeguarding your asset rights. For your peace of mind in managing and securing your mineral rights, get in touch with one of our experts today.

How to Manage Your Minerals From Afar

Posted on September 12, 2022March 25, 2024 by Valor

Some people don’t live in the same place as their mineral assets. Here are best practices and tips for managing your minerals from a different location.

There are approximately 8-12 million mineral owners across the United States. Many of them not only live a distance from their assets, but have never even seen or set foot on the land where their minerals reside. So how exactly can they engage in confident, competent mineral asset management? For many, the answer lies in understanding what it means to own minerals from afar, as well as working with mineral management companies that can simplify the experience.

First, though, let’s examine some of the reasons people may not reside anywhere near their minerals. The most obvious way this can happen is through relocation. People move all the time for different reasons. They may therefore sever, or split, their surface property rights with the next buyer, but retain rights to whatever minerals exist within the land they sell.

Inheritance is another way that people become mineral owners. For example, you might live in California and inherit minerals in Texas. This happens frequently and can prompt a lot of stress on the part of the beneficiary who doesn’t know what to do next.

Finally, it’s important to note that some mineral buyers and investors actively seek out minerals regardless of location. They know that minerals are a worthy investment and care more about the geology and where drilling is hot at the moment.

Challenges When You’re Not Living Near Your Mineral Assets

It’s worth mentioning that even if you live in the same area as your minerals or are a surface owner of a property teeming with minerals, you can still have challenges. However, managing your minerals can get a bit stickier if you’re not close by. Perhaps one of the biggest concerns is staying up-to-date and compliant with local, state, and federal mineral rights laws and regulations.

Mineral rights laws and regulations can differ wildly from state to state. You could own the same type and amount of mineral in two states but wind up having vastly different considerations. For example, one jurisdiction may limit how many extraction operations are allowed in a particular region during a given timeframe. Another jurisdiction may have conservation-related statutes like Colorado, which establishes mine and well land-use rules.

All these legal guardrails can become confounding. However, they’re essential to know and follow. No mineral owner wants to run afoul of non-ownership or ownership-in-place theory interests. Still, it can be hard to know exactly what moves are allowable (and when they’re permissible, in some circumstances).

Another hindrance to being physically removed from your minerals is that you may misunderstand which land or assets you own. It’s hard to have a good feel for your minerals in the Permian Basin when you live in Chicago. This can be doubly confusing if you’re an inheritor since many places have complicated inheritor laws. Add this possibility to all the tax differences and you have a lot of room for error and frustration.

Valor’s Solution to Remote Minerals Management

The question remains: How can you effectively manage mineral assets and live elsewhere? At Valor, we’ve included several features and benefits into our service offerings that give remote mineral owners peace of mind.

1. Our team helps with everything, including leasing mineral rights.

The Valor team is composed of experts ready to handle all aspects of remote mineral ownership. These include in-house landmen, accounting professionals, land professionals, a Juris Doctor, and certified mineral managers. You can also tap into our collective knowledge to assist with common decisions, like leasing mineral rights.

When you lease to oil and gas companies, you want to get the best contract possible. We bring the expertise to advise you on obtaining strong terms; Valor maintains properties for years and currently manages minerals in 32 states. The better your lease, the more money you may make. And if you make money, we have developed automated processing for your 1099s to ensure their accuracy, too.

2. We offer a proprietary software tool.

One of the biggest advantages Valor brings to the table is mineral.tech®, our proprietary mineral asset management software. This data-rich platform integrates accounting, land management, data analytics, and reporting for all of our clients.

Mineral.tech® provides digital document management and includes a GIS mapping platform, full integration with public oil and gas data, and customized reporting that analyzes revenue and well data for your accounting and decision-making needs. You can see all of your assets mapped out and any activity on bordering land, including nearby production, drilling, and permitting activity. You no longer miss things that are happening on your non-producing assets.

With mineral.tech, you have 24/7 portfolio visibility from all angles, with access from anywhere in the world to everything you need to manage your minerals no matter where they’re located.

3. We handle the regulations associated with mineral management and ownership.

One of the most common issues that mineral owners run into is dormant mineral filings. We’ve worked hard to recover more than half a million dollars in suspended funds for clients with our most requested option — helping owners navigate dormant laws and regulations.

The laws surrounding mineral rights, mineral leasing, and everything in between are different from state to state. While it’s possible to go to court if necessary, most mineral owners want to do everything they can to not pay avoidable legal fees. Our up-to-date understanding of mineral ownership rights and responsibilities provides reliable protection for the more than 8.4 million gross acres and 450,000 net royalty acres we manage on behalf of our clients.

Whether you’re living close to your mineral investments or you’ve never even seen the property, you can trust Valor. Get in touch with us to get started on managing your mineral assets more effectively today.

Best Practices for Remote Mineral Owners

Beyond working with professional management, there are several practices that help mineral owners stay connected to their assets regardless of distance.

Organize Your Documentation

Maintaining organized records is essential for remote ownership. Create digital copies of all deeds, leases, division orders, and correspondence. Store these in a secure cloud service that you can access from anywhere. Having your documents readily available makes it easier to respond to inquiries, verify payments, and provide information when needed.

Keep Contact Information Current

Operators need accurate contact information to send payments and important correspondence. If you move or change phone numbers or email addresses, notify every operator paying you royalties. Consider using a permanent mailing address like a P.O. box if you relocate frequently. Missing operator communications can lead to suspended payments or missed deadlines.

Monitor State Regulatory Websites

Most state oil and gas commissions provide online access to well data, production reports, and permit filings. Bookmarking these resources allows you to check on activity in your area even from across the country. The Texas Railroad Commission, Oklahoma Corporation Commission, and similar agencies in other states publish this information publicly and update it regularly.

Set Up Direct Deposit

Enrolling in direct deposit for royalty payments eliminates the risk of lost checks and ensures payments arrive promptly regardless of where you live. Most operators offer this option and it simplifies tracking your income. You can monitor deposits from your bank account without waiting for mail delivery.

Respond Promptly to All Correspondence

When operators or landmen contact you, respond in a timely manner even if you need time to make decisions. Acknowledging receipt and asking for additional time is better than silence. Unresponsive owners may have their payments suspended or miss important deadlines for pooling elections and lease renewals.

Managing minerals from a distance is increasingly common as families become more geographically dispersed. With proper organization, reliable communication, and appropriate professional support, mineral owners can effectively oversee their assets no matter where they reside.

What is a “Dresser Drawer Deed”?

Posted on August 16, 2022March 25, 2024 by Valor

Quick Answer: A “dresser drawer deed” is an informal term for a mineral deed or conveyance that was signed but never recorded at the county courthouse. These unrecorded documents are often found in family papers years later and can create title problems. To be legally effective, deeds should be properly recorded.

Have you heard the phrase “Dresser Drawer Deed?”

Are you constantly having to dig through old boxes of paper to find your deeds?
Are you certain everything in your family history has been filed? One common mistake of mineral rights ownership is unfiled deeds, or “dresser drawer deeds.”

A dresser drawer deed is one that is established by the rightful property owner. However, rather than ensuring the deed is legitimate in the eyes of the law, the prepared deed is simply put away in a dresser drawer.

At Valor, we can digitize and properly store your deeds to prevent this from ever happening again.
Technically, the deed is not valid
A dresser drawer deed does not meet all the criteria to allow for an estate transfer. The minimum elements of an official deed are:

∙ The deed must be in writing.
∙ The grantor and grantee must be identified.
∙ The grantor must have “legal capacity” (of legal age, competent, etc.).
∙ The grantee must have the capacity to accept the transfer of the property.
∙ The property must be adequately described.
∙ There must be words of conveyance or transfer.
∙ The deed must be signed by the grantor.
∙ The deed must be delivered to the grantee or his agent.
∙ The deed must be accepted by the grantee.
∙ All of the elements must be met to have a valid deed. A dresser drawer deed oftentimes misses one key element- delivery. Retrieving a deed is not the same as delivering a deed.

By missing this step, family members can waste time and incur legal fees to rectify the situation.

Are You Losing Money on Your Mineral Rights? 4 Steps to Protect Your Assets

Posted on August 16, 2022December 26, 2025 by Valor

Whether you have recently inherited a family legacy or strategically purchased assets, owning mineral rights should be a source of financial freedom, not a source of stress. However, the oil and gas industry is complex, and for the uninitiated, it can feel like navigating a minefield.

At Valor, our mission is to provide peace of mind. We see many owners losing significant revenue simply because they lack the “back-office” resources that major operators use every day.

Here are the most common ways we see owners losing money and the simple steps you can take to secure your interest through proactive mineral management.

1. Know Your Mineral Rights (The Information Gap)

The biggest “Villain” in this story is the information asymmetry between the owner and the operator. Oil and gas companies, landmen, and professional buyers have entire departments dedicated to well production data and drilling activity.

To level the playing field, you must be well-versed in:
• Your Exact Ownership: Do you own the surface rights, executive rights, or just the royalty interest?
• Drilling Activity: Are there new permits being filed in your section or the neighboring “offset” sections?
• Production Data: Are the volumes reported on your check stubs matching the volumes reported to state regulatory agencies?

Without this knowledge, you are essentially flying blind, leaving your financial future in the hands of the very people who are looking to minimize their payout.

2. Watch Out for Common Scams and “Leaked” Revenue

Those looking to cash in on an owner’s lack of experience can “take a little off the top” in ways that are difficult to spot without professional oil and gas back-office support.

We frequently see owners get taken advantage of in the following ways:
• Blind Leases: Not knowing the “market rate” for bonuses or royalty percentages in your specific county, leading to signing “below-market” leases.
• Unauthorized Activity: Wells being drilled across your acreage without a proper pooling agreement or notice.
• The “Shadow” Deduction: Excessive post-production costs (transportation, gathering, and compression) being deducted from your check that may violate the terms of your lease.
• Incorrect Decimal Interest: Being paid on an outdated or incorrect Division Order that doesn’t reflect your true share of production.

3. Strategic Data Optimization & Revenue Recovery

Data will set you free, but only if it is professionally audited. Many mineral owners receive royalty checks and assume the operator’s calculations are correct; however, without a technical review, you may be missing out on significant revenue recovery opportunities.

To protect your interests, you must look beyond the check stub and focus on Strategic Data Analysis:
• Production Reconciliation: Cross-reference your payout data against state regulatory records to identify discrepancies in reported volumes.
• Revenue Auditing: Conduct a forensic review of past payments to identify “suspended funds,” escheatment issues, or chronic underpayments.
• Market Benchmarking: Compare your lease terms and royalty percentages against current basin averages to ensure your assets are performing at peak market value.

We recommend partnering with a trusted advisor, such as Valor, whose entire business model is built on providing mineral management for the owner. Utilizing a dedicated team for your oil and gas back-office needs ensures that every barrel produced is a barrel paid.

4. Don’t Be Scared; Be Prepared

Inheriting or purchasing mineral rights is a major milestone, but it requires active stewardship. If you feel you could fall victim to these pitfalls, seek expert guidance immediately.

At Valor, we understand that managing mineral rights and associated royalties can be complex and fraught with potential pitfalls. Our team of experts specializes in navigating these complexities to help mineral owners avoid common mistakes that can significantly hinder the value of their assets. From ensuring accurate and comprehensive title searches to providing strategic guidance on oil and gas leasing and negotiations, Valor acts as a guardian for your assets. We meticulously monitor regulatory changes and market conditions to ensure compliance and capitalize on opportunities, enhancing both the security and profitability of your assets.

By partnering with Valor, mineral owners gain peace of mind and a proactive ally dedicated to maximizing their returns and protecting their interests.

FAQ: Protecting Your Mineral Rights

How do I know if my royalty checks are accurate? The most reliable method is to reconcile your check stub data against production volumes reported to state agencies like the Texas Railroad Commission.

Can I negotiate post-production costs? Yes. Depending on your lease language, many deductions for gathering and processing can be capped or eliminated through professional negotiation.

What is a Historical Audit? It is a forensic review of several years of payment data to find underpayments, incorrect decimal calculations, or funds held in suspense by the operator