Things to consider before Leasing or Selling Your Mineral Rights
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Texas is the second-largest state in the United States, due to its geological features and size, the land is rich in mineral resources. According to an article by 24/7 Wall Street, Texas accounts for nearly a third of both natural gas and crude oil reserves in the United States. One of the best facts about Texas, is that if it were a country, it would be the sixth-largest oil producer in the world!
One of the most heated topics regarding real estate, especially in Texas, is that should owners lease and hold their mineral rights in Texas or sell them entirely? There is no perfect answer here because it is a personal decision to be made by the mineral rights owners based on their current or future financial needs.
What are Mineral Rights?
If you own a piece of land in Texas, then your property will most likely be rich with mineral resources. According to an article by the Texas State Historical Association, minerals and mineral products of Texas include aluminum, coal, lead, and zinc, to name a few.
Landowners that have surface estate also have the right to the mineral deposits that exist beneath a particular parcel of property. However, an individual that has mineral rights in Texas might not have the interest or the resources to produce the minerals underneath his or her property, and this is where leasing or selling of mineral rights come in.
Why Sell or Lease Mineral Rights
Texas land is rich in coal, and production of it exceeds fifty million short tons annually, which has numerous uses all over the world. Steam coal is used for electricity generation while coking coal is used in the metallurgy industry for steel production, according to World Coal.
Oil is another significant mineral resource, according to UKOG, because it has been the primary source of energy for decades, the energy needed by the power industry, homes, and fuel for vehicles.
These mineral resources have high demand because of their importance, which means they have high value in price. Selling or leasing your mineral rights to companies gives you the chance to earn money from these resources.
Leasing Mineral Rights
Leasing your mineral rights is much like renting out a piece of real estate. This means companies have the right to drill for minerals, and they also assume all the expenses of operation; this is considered as a “mineral lease,” according to Farah Legal. But they do not own the property. You can lease your mineral rights for a certain period and receive payment in agreed intervals during the period.
Leasing mineral rights allows you to get mineral royalties. US Legal defines mineral royalties as payments based on the volume or price of mineral resources extracted to mineral rights owners. This means if operators locate oil or other minerals beneath your property, you get additional income on top of their lease payments.
Leasing mineral rights is perfect for individuals who don’t need to sell anytime soon and would like to hold on to their properties for ten years or more.
Selling Mineral Rights
Leasing your mineral rights does not necessarily mean that drilling will occur, which means there is no assurance that you will earn a considerable amount of money because royalties may never come. Fortunately, selling your mineral rights offers a solution to this predicament.
When selling your mineral rights, you no longer need to wait for interval lease payments or royalties, because you will be getting a lump sum payout.
Holding on to your mineral rights can be a risky decision because you may suffer from opportunity cost. Holding on to your property for numerous years without leasing or drilling means you won’t be earning money in the future.
Selling mineral rights, the best decision for individuals who need a lump sum payout because they need money for particular financial needs. If you need money to start a new business or investment, then selling your mineral rights is a good thing.
A family member might be in the hospital, and you need money for hospitalization. Medical bills or your children may need cash for educational payments, or you are merely preparing for retirement. Selling is undoubtedly a wise financial choice.
There is no right or wrong opinion regarding selling or leasing of mineral rights, because it is really up to you, depending on your current financial needs. Selling or leasing both have their advantages; you need to find out what’s perfect for you.
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