Oil rig
If you have oil and gas deposits underneath your property, these deposits may be worth far more than the value of the surface. It is possible to sell or lease the rights to these deposits while retaining the right to use the surface. Most owners of mineral-rich property choose to lease their mineral rights to extraction companies and pocket periodic royalty payments on the value of the minerals that are extracted. This approach can provide you with a high passive income.
Instructions
1. Hire a professional geologist to conduct a mineral rights survey on your property. A geologist will not only be able to provide a rough estimate of any oil and gas deposits underneath your property, but may also be able to estimate the likelihood of deposits of other minerals such as coal. Have the geologist issue you a geologic survey report.
2. Contact extraction companies and use the geologic survey report to get them interested in leasing the rights to the oil and gas deposits underneath your property. Consider working with a professional oil and gas broker, because they have many contacts in the oil and gas extraction industry.
3. Commence negotiations with at lease two oil and gas extraction companies at the same time, in order to encourage them to compete with each other to offer you better lease terms.
4. Negotiate the basis of your royalties. There are two primary ways to calculate royalties: based on the value of the minerals that are extracted, and based on their volume. Most property owners and extraction companies prefer to base royalties on economic value. However, royalties based on volume are a safer bet in a volatile market.
5. Work out the amount of the royalties. If your property has large oil and gas deposits, you should demand a signing bonus due as soon as the lease is signed. If you choose royalties based on value, demand royalties of between 12 percent and 25 percent of the value of the oil and gas extracted from your property.
6. Demand a minimum monthly royalty. This will give the extraction company an incentive to proceed aggressively with extraction activities, instead of putting higher priority on other properties while you wait for royalty checks that never arrive.
7. Draft detailed provisions that spell out exactly how much the extraction company is allowed to disturb your use of the surface of your property in its extraction activities. Overly intrusive activity could make the surface useless, and might even subject you to nuisance liability from neighboring property owners.
8. Set the term of the lease. Most first-time oil and gas leases run only 2 to 3 years. This allows property owners to find out if the extraction company is effective, and allows extraction companies a period in which to conduct extensive exploration activities before committing to a long-term lease.
Tags: your property, extraction companies, deposits underneath, deposits underneath your, extraction company, property owners, royalties based
