Revenue From Mineral Rights Ownership

Mineral rights ownership can offer greater returns than just equity appreciation from typical real estate ownership. By directly owning the rights to depletable natural resources such as oil, coal, and natural gas, you can earn
royalties without the need for a hands-on approach. With proper due diligence and careful consideration of market conditions, mineral rights can be an attractive asset to own. However, mineral rights ownership is not
always as simple as it appears. This article will help educate you on many of the details involved in mineral rights ownership.

Key Takeaways
At the end of this article, you will:

a. Better understand mineral rights ownership opportunities.
b. Appreciate the advantages and potential risks presented by mineral rights ownership.
c. Gain a better understanding of how mineral rights ownership compares to other asset classes out there.

How do Mineral Rights Work?
In the United States, mineral rights owners have legal possession and control over minerals underneath their property. These rights give the owners the authority to extract any of the minerals listed on the original deed. Some of these minerals include oil, natural gas, and coal. However, the mineral rights do not include air and water rights.
Many people assume that mineral rights naturally come with a real estate purchase, but it’s very common for US properties to have severed mineral rights. Sometimes, a property can have two separate owners because
previous property owners sold their mineral rights, or sold their surface property while keeping the mineral rights. A sticky situation may occur when surface and mineral rights owners don't know the other exists.

Mineral Rights Industry Background
Although mineral rights ownership can be lucrative, the process can stymie the uninitiated with its unique language, rules, classifications, and negotiation protocols. Also, mineral rights laws vary from state to state. Even
the process of finding out whether a property has mineral rights and ascertaining its value requires a mineral rights consultant, attorney, or broker. 

Eckard Enterprises has more than 35 years of experience in the US oil and gas industry. Eckard focuses on educating qualified individuals on direct ownership of energy assets in the oil and gas space.

Mineral Rights Classification 
Whether sedentary or fluid, the industry classifies natural minerals by characteristics and functions. Each mineral rights classification comes with a separate set of contracts, tax implications, and conditions. The official
government mineral right classifications are:

• Locatable: Metallic and non-metallic minerals like gold, silver, hard rock, and feldspar
• Leasable: Energy minerals like oil, gas, and coal
• Salable: Minerals (sand, gravel, and dirt) sold in bulk at low unit prices
• Meteorites/ New mineral discoveries: These minerals can be more valuable than precious metals

Owners must acquire mineral rights according to these classifications. If you purchase mineral rights, you should make sure you understand all of the tax and regulatory requirements of the minerals’ classifications. 

Mineral Right Royalties
The task of excavating and extracting minerals from the earth requires a lot of money, time, equipment, and expertise. Even the exploration phase is a difficult, intensive project that requires a company with a proven track record in the exploration and mining of minerals. For this reason, the easiest and most efficient opportunity is typically to sell or lease the rights to a company that can extract said minerals. In return, mineral owners receive
compensation in the form of monthly royalty checks from the mineral rights sale or income based on a lease or royalty agreement.

The most popular option is to sell the rights to a mineral rights broker or a reputable company that mines the types of minerals on your property. With this arrangement, you can either sell your property outright or sell the mineral rights and keep the surface property.

If you decide to keep the surface property, make sure the company’s plans for the property don’t conflict with yours. 

For owners who want to enjoy assets that generate monthly royalty checks and also maintain ownership of their mineral rights, leasing the underground property to an established mining company is a good option. This
arrangement yields income from lease payments and royalties from the yield of extracted minerals. The leasing contract establishes specific time frames, the royalty agreement, and other conditions. Also, if you own both mineral and surface rights, an oil company may pay you a flat rate to retain future rights to drill on the land. 
Although mineral rights ownership offers many beneficial opportunities, it also has other positive and negative features to be aware of. Here are some important factors to consider before delving into mineral rights ownership:

Benefits
Mineral rights ownership has advantages that other asset classes don’t have. Mineral rights ownership provides flexibility, granting you the options to:

a. Sell the rights for a lump sum.
b. Generate cash flow without managing laborers, assuming liabilities, or
incurring big expenses.
c. Sell all or part of the royalty agreement while maintaining ownership of
the mineral rights.
d. Receive a lease bonus by leasing the mineral rights to an oil company.
e. Disperse your income.

Risks 
Most of the risks in mineral rights ownership involve the element of the unknown. For instance, if the leasing company doesn’t find minerals on your property, you don't get royalties. There is also the remote possibility of buying mineral rights that are being developed by a subpar exploration and production company. This type of arrangement can bring about negative financial and legal repercussions.
 
Royalty rates for minerals like oil and gas depend on current demand. As a result, a major drop in commodity prices will negatively impact the value of your mineral rights. However, you can considerably reduce the risks in
mineral rights ownership through education and thorough due diligence. 

Want To Learn More?
With the proper due diligence and professional help, direct ownership of mineral rights can provide consistent royalties. These royalty-generating assets can serve as a reliable source of long-term income in the form of monthly checks. 

Whether you have a long-term or short-term strategy, mineral rights ownership can be profitable. To learn more about opportunities for direct ownership of mineral rights and other oil and gas assets, contact Eckard today.