How Mineral Rights Work

Mineral rights are like real estate, flipped upside down. Instead of owning property above the surface, mineral rights investors own everything below the surface. Owning mineral rights means you have the right to extract a
mineral— or receive payment for the extraction of minerals—from the earth.

In the United States, mineral rights work like property. They can be sold, transferred, or leased, and they can be separate from the surface rights. Minerals rights can be owned for an entire parcel of land, in fractions, for specific types of minerals, or to a specific depth interval.

How Mineral Rights Work
So, how does this all work? Let’s say you own some 128 mineral acres in the middle of Oklahoma’s Anadarko Basin. If you lease it to an oil company for three years, you could get $2,000 per mineral acre as a lease bonus ($256,000 total). On top of that, you could also receive 18.75% of all future revenue for oil and gas produced and sold from your 128 mineral acres. As wells are added to your drilling unit, you would get more revenue streams added to your net income. As a mineral owner, you would pay $0 for exploration, $0 for production, and would be responsible for 0% of the liabilities.

Benefits of Owning Mineral Rights
While rental income from real estate can be subject to market fluctuations and tenant vacancies, mineral rights typically provide dependable monthly income that supplies investors with a reliable and passive income stream.
These benefits include receiving royalties from the sale of minerals as monthly checks. These are paid by energy companies that lease the rights and develop the minerals. In this situation, a very typical royalty is 12.5-25% of
the revenue generated by the minerals on that land. It’s quite lucrative!

Conveniently, mineral rights owners don’t have to pay for the cost of drilling, developing land, or maintaining equipment. Also, mineral rights owners don’t take on the liabilities that, say, the actual oil company that does the drilling takes on. Furthermore, it’s more liquid than general real estate and usually generates recurring income.

Another advantage to mineral rights ownership is being able to use tax code 1031. This lets you defer capital gains taxes on any real property sale by reinvesting the proceeds in mineral properties. These benefits make mineral rights ownership a low-risk, high-yield, and attractive source of passive income.

Conclusion
If you want to invest in mineral rights to generate passive income from the real property but have limited time or experience, you could partner with an existing mineral rights investment professional. In this scenario, you need to be a high-net-worth individual or an accredited investor. You would have direct access to and ownership of tangible assets without the pain of trying to untangle mineral rights laws on your own.

There will always be a need for minerals. At Eckard Enterprises, our goal is to use our deep expertise in oil and gas to maximize investments and returns. Let us be your guide. We’ll provide you with the expert resources and
background necessary to make insightful energy investments. Contact us to learn more about mineral rights investing today.