Mineral Rights Archives

Understanding Royalties – Interest Types

Posted on September 24, 2024September 24, 2024 by Valor

Quick Answer: Common royalty interest types include: Mineral Interest (owns minerals and can lease), Royalty Interest (receives royalties but cannot lease), Overriding Royalty Interest (ORRI) (carved from working interest, expires with lease), and Net Profits Interest (share of profits after costs).

Navigating the complex landscape of oil and gas interests can be a daunting task for both newcomers and seasoned professionals in the industry. From mineral rights to royalty shares, the various types of interests represent different sets of rights, responsibilities, and financial benefits. In this blog, we will demystify these different categories, explaining each type of interest—such as Mineral Interest, Royalty Interest, Working Interest, Overriding Royalty Interest (ORRI), Non-Participating Royalty Interest (NPRI), and more. Understanding these distinctions is crucial for anyone involved in the oil and gas sector, whether you’re negotiating contracts, managing assets, or planning new explorations.

Mineral Interest

This interest pertains to the ownership of the underground minerals (such as oil and gas) beneath a tract of land. Owners of mineral interests have the right to lease, sell, or participate in the development of these minerals.

Royalty interest

A royalty interest is a share of the gross production from a well, usually expressed as a percentage. This percentage is known as the Decimal of Interest or DOI. Royalty interest owners receive a portion of the revenue generated from the sale of oil and gas, but they are not responsible for the operational costs associated with drilling, extraction, and production.

A Non-Participating Royalty Interest (NPRI) is a specific type of royalty interest in the oil and gas industry. It grants the holder the right to receive a fraction of the production revenue from the minerals extracted but does not confer any rights to participate in leasing or operational decisions regarding the mineral property. An NPRI is categorized under Royalty Interests because it is purely revenue-oriented and does not involve participating in the operational or leasing aspects of the mineral estate. However, it is distinct from other royalty interests because of its non-participatory nature, which limits the holder’s involvement beyond receiving revenue shares.

Working interest

Working interest represents both the right to a share of production and a financial responsibility for a proportionate share of the operating costs. Working interest owners have a more involved role, contributing to operational expenses but also reaping a proportionate share of the profits. The well operator divides funds among those with working interests after operating expenses have been covered. Often times this interest type is referred to as a “non-op working interest”.

Overriding Royalty Interest (ORRI):

This is similar to royalty interest but is carved out from the working interest. It does not affect the mineral ownership but grants a share of production revenue. Overriding royalties typically expire once the lease has produced or at the end of the lease term.

Net Profits Interest

An interest that provides the holder a share of the net profits from the production of oil and gas, after certain costs are deducted. It is a non-operating interest, meaning the holder is not responsible for operating expenses.

Leasehold Interest

This interest is held by a lessee under an oil and gas lease. The lessee (often an exploration company) acquires the right to explore and develop the property for oil and gas production. This interest combines elements of working interest and mineral rights but is contingent on the terms of the lease.

Carried Interest

In this arrangement, one party (often a smaller partner) agrees to carry another partner through the exploration and/or development phase. The carrying partner covers the expenses, and in return, they receive a larger share of the profits or a reimbursement from the carried partner once production starts or reaches a profitable stage.

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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.

Our mineral rights terminology guide

Posted on September 26, 2023May 8, 2026 by Valor

Essential Mineral Rights Terms:

Mineral Rights: Ownership of underground resources
Royalty: Landowner share of production (typically 12.5-25%)
Working Interest: Ownership that pays operating costs
Division Order: Document confirming ownership percentage
Lease Bonus: Upfront payment for signing a lease

For those first diving into the world of mineral management, they may find themselves lost in a maze of jargon. But with the help of the right mineral management terminology guide, and with time and experience, you too can grow from a novice to an expert, capable of navigating this complex landscape. Now, as a leading mineral management company, we’ve crafted this terminology guide to pass on this knowledge.

The basics of mineral ownership

Mineral rights: Owning land doesn’t necessarily mean you own what’s beneath it. We have had several instances where prospective clients believed they owned the minerals beneath their property. However, upon closer inspection, it was discovered that they only had surface rights. Understanding the difference is crucial. Surface rights concern the surface of the land, while mineral rights pertain to the resources underneath.

Royalties: Royalties are like the golden ticket of mineral management. When clients receive their first royalty check, the excitement is palpable. Think of royalties as your share of the production revenue. They differ from rent or bonuses, which are often one-time payments or periodic incentives.

Working interest: We have had several clients dive headfirst into mineral management without consulting a mineral management company first. They were shocked when they had to contribute to the well’s operational costs. As a working interest owner, you share in the expenses but also the potential profits of oil and gas production.

The leasing process

Lease agreement: This binding contract determines how minerals are explored and produced. Just like when you rent an apartment or build space, terms and conditions apply. Always read it thoroughly!

Bonus payment: This is akin to a signing bonus. It’s a one-time upfront payment given when the lease is signed.

Primary term vs. secondary term: Think of these as the “lease life stages.” The primary term is the initial lease period, while the secondary term extends as long as there’s production.

Shut-in royalties: A client once referred to these as “rain checks.” If a well is temporarily non-producing, shut-in royalties help keep the lease alive.

Key terminologies in drilling and production

Spud date: The day drilling begins. It’s akin to the first step of a marathon, marking the beginning of a potentially fruitful journey.

Pooling: Imagine neighbors coming together for a community garden. Pooling combines small tracts for efficient production, ensuring everyone gets their fair share.

Unitization: This is pooling’s big brother. It involves combining large tracts, sometimes entire reservoirs, to maximize production. When our client’s land is unitized with others, they benefit from a much more efficient operation.

Net Revenue Interest (NRI): This percentage determines your share of the profits. This is something clients very quickly learn to recognize to be extremely important. The importance of accurate NRI calculations – even a small decimal point difference can amount to thousands over time!

Managing production revenues and costs

Division order: The division order is every mineral owner’s roadmap to understanding payments. It ensures everyone gets paid their rightful share.

Depletion: This is a tax perk, allowing mineral owners to account for the reduced quantity of minerals. Like depreciation for assets, it’s a way to offset production income.

Joint Operating Agreement (JOA): When several parties co-own a producing property, this agreement lays out responsibilities.

The environmental and safety lingo

Reclamation: After production, land can be in need of maintenance and enhancements. Reclamation ensures sites are restored. We have seen firsthand barren lands turned into green fields, all thanks to rigorous reclamation efforts.

Plugging and Abandonment (P&A): When a well’s life ends, it’s sealed and abandoned safely. It’s the final goodbye, ensuring no environmental hazards remain.

Environmental Impact Assessment (EIA): Before drilling, companies assess potential environmental impacts.

Navigating legal and compliance jargon

Held by Production (HBP): If a property produces minerals, the lease remains active. We often compare HBP to a light bulb – as long as it’s shining, the energy (or production) continues.

Severance taxes: These are state taxes on produced minerals. They are similar to that of paying dues – a little share to support state initiatives.

Force majeure: This clause in contracts accounts for unexpected disruptions, such as unforeseen drilling delays due to a natural disaster.

The mineral management journey, with its intricate jargon, can seem daunting. But with our mineral management terminology guide, and equipped with understanding, you’re not just an owner; you’re an informed stakeholder. Lean on experts, ask questions, and always stay curious.

Still have questions? Contact our team today!

The difference in allocation vs vertical wells

Posted on August 2, 2023May 8, 2026 by Valor

Understanding the differences and percentage variations

The energy industry has many complex aspects, and when it comes to drilling techniques, understanding the difference between an allocation well and a vertical well can be critical. These two types of wells represent different methodologies for extracting oil and gas, with specific applications, benefits, and drawbacks. The allocation percentages associated with these wells also differ, reflecting their distinct operational features.

Allocation Wells

An allocation well is a horizontal well that is drilled across multiple lease boundaries or units. These wells are designed to exploit a broader range of oil and gas deposits without the need to drill multiple vertical wells. Allocation wells are commonly used in unconventional reservoirs where a more complex approach is needed to tap into the resource efficiently.

Allocation Percentages in Allocation Wells

The percentages in allocation wells represent the division of production between different leases or units. These percentages are generally determined by the length of the horizontal well within each lease or unit boundary and might be negotiated by the involved parties. Allocation percentages must be carefully calculated and agreed upon to ensure fair distribution among the various leaseholders or interest owners.

Vertical Wells

A vertical well is drilled straight down into the earth, targeting a specific oil and gas reservoir. This traditional drilling method is typically used when the desired resource is located directly beneath the surface location of the well.

Allocation Percentages in Vertical Wells

In vertical wells, allocation percentages are typically straightforward, as the well is located within a single lease or unit. The revenue is then distributed according to the ownership interest in that specific lease or unit. The calculation here is usually more straightforward compared to an allocation well, where horizontal drilling may cross several boundaries.

Key Differences and Considerations

Drilling Technique: While vertical wells go straight down, allocation wells use horizontal drilling to cross multiple boundaries.
Efficiency: Allocation wells can cover larger areas and access reservoirs that might be challenging for vertical wells, often making them more efficient in unconventional plays.
Complexity of Percentages: Allocation wells require careful calculation of percentages based on the well’s path through multiple leases or units. Vertical wells typically involve simpler percentage calculations.
Regulatory Considerations: Allocation wells may involve more complex legal and regulatory requirements, as they cross different lease boundaries.
Cost: Allocation wells are often more expensive to drill due to their complexity, but they may lead to increased production, justifying the additional investment.

Conclusion

Allocation and vertical wells are vital tools in the oil and gas industry, each with its own unique applications and complexities. The percentage calculations for these wells reflect their respective operational characteristics, with allocation wells necessitating more intricate distribution agreements.

Understanding these differences is essential for anyone involved in the energy industry, whether they’re an investor, operator, or mineral owner. Proper planning, collaboration, and adherence to regulatory guidelines are key to maximizing the benefits of both allocation and vertical wells while ensuring fair and transparent revenue distribution.

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Unraveling the Role of a Landman

Posted on July 25, 2023May 8, 2026 by Valor

Quick Answer: A landman is a professional who handles land and mineral rights transactions for oil and gas companies. Key duties include: researching ownership records, negotiating leases with mineral owners, preparing title opinions, managing lease records, and coordinating right-of-way acquisitions.

Landman’s play a crucial role for mineral management companies

The oil and gas industry plays a pivotal role in powering our modern world, and at the heart of this industry is the unsung hero known as a “Landman.” These skilled professionals serve as key players in mineral management companies, facilitating the exploration and extraction of valuable resources buried deep within the Earth. In this blog post, we’ll delve into the multifaceted role of a Landman and shed light on their vital contributions to the dynamic world of mineral management.

1. Defining the Landman’s Role

A Landman, also referred to as a Land Manager or Land Specialist, is an essential figure within a mineral management company. Their primary responsibility is to negotiate and secure land and mineral rights on behalf of their clients. This can involve identifying potential areas for exploration, negotiating lease agreements with landowners, and ensuring compliance with legal and regulatory requirements.

2. Research and Due Diligence

One of the fundamental tasks of a Landman is conducting extensive research and due diligence on the properties and mineral rights their clients intend to acquire or lease. This process involves investigating property records, historical deeds, title abstracts, and any existing agreements to verify ownership and any potential encumbrances. The Landman must ensure that the company has a clear and unambiguous title to the mineral rights before proceeding with any exploration or drilling activities.

3. Negotiation and Contracting

Landmen are skilled negotiators, adept at striking deals with landowners and mineral rights holders. They work closely with their clients (the mineral owners) to reach mutually beneficial agreements for mineral exploration or production rights. The resulting contracts must be meticulously drafted, addressing critical aspects such as royalties, payment terms, and surface use agreements.

4. Regulatory Compliance

Navigating the complex web of regulations and permitting requirements is another crucial aspect of a Landman’s role. They must stay up-to-date with local, state, and federal laws pertaining to mineral exploration and production. Compliance ensures that the operating company is within the bounds of the law and mitigates potential legal and financial risks associated with non-compliance.

5. Liaison and Communication

In the mineral management world, effective communication is vital. Landmen support their clients by facilitating communication with various stakeholders, including operators and other industry professionals. They convey information clearly and professionally, fostering positive relationships that are crucial to the success of the company’s operations.

6. Surface Use Agreements

Aside from securing and managing mineral rights, Landmen are often involved in negotiating surface use agreements if applicable to their clients.

Conclusion

In conclusion, Landmen play a pivotal role in the intricate world of mineral management companies. Their skills in negotiation, research, compliance, and communication are indispensable in securing the rights to valuable mineral resources. By diligently navigating the complexities of land and mineral rights, these unsung heroes enable the oil and gas industry to thrive while ensuring that landowners’ rights are respected. The contributions of Landmen may go unnoticed by the general public, but their impact on the industry is immeasurable, shaping the energy landscape for generations to come.

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Oil & gas leases & their benefits for mineral owners

Posted on July 25, 2023May 8, 2026 by Valor

Mineral owners who sign oil and gas leases stand to gain numerous benefits. These individuals or entities own the rights to the underground resources on a piece of property. Here are some specific benefits these mineral owners can receive:

Signing Bonus: Mineral owners often receive a signing bonus at the outset of a lease agreement. This upfront payment can be substantial, depending on the area’s potential for resource extraction and market conditions at the time of the lease signing.
Royalty Payments: This is arguably the most significant benefit to mineral owners. As a part of the lease, the oil and gas company agrees to pay the owner a percentage (commonly between 12.5% and 25%) of the revenue generated from the extracted resources. These royalty payments can provide a significant and steady income stream for the owner over the life of the well.
Property Value Appreciation: If the exploration and production activities are successful, the value of the land can significantly increase because of its proven reserves. This can lead to higher future lease payments and increased land value if the owner decides to sell the property.
No Operational Responsibility: The mineral owner does not bear the operational burden or financial risk of the exploration and production process. The oil and gas company handles all aspects of operations, from exploration to rehabilitation, and bears all the associated risks.
Free Natural Gas: In some cases, mineral owners can negotiate for free gas as a part of their lease agreement. This benefit allows the mineral owner to use a certain amount of the natural gas produced on their property for personal use, saving on energy costs.
Economic Freedom: The financial benefits derived from oil and gas leases can provide mineral owners with economic freedom and security. The steady stream of income can be used to invest in other ventures, improve living conditions, and even fund community projects.
Control over Lease Terms: While negotiating the lease, mineral owners can define specific terms to minimize potential disturbances, limit environmental impact, and define the extent of land use, providing them with a degree of control over their property.

Remember, while these benefits can be substantial, signing an oil and gas lease also comes with potential risks and drawbacks. It’s essential to thoroughly understand all the terms & clauses of the lease, and when possible, to consult with a legal or industry expert before signing an agreement.

Need an extra set of eyes? Contact us today.

Oil & gas lease clauses

Posted on July 19, 2023May 8, 2026 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!

What to consider when leasing mineral rights

Posted on March 9, 2023May 8, 2026 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, 2023May 8, 2026 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, 2023May 7, 2026 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, 2022May 7, 2026 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.