Mineral Rights
Mineral Interest Under common law, a real property landowner owned the land, including everything to the sky above and down to the depths below. Yet a landowner can sever the surface estate from the mineral estate, also called the “mineral interest,” and each estate is considered an interest in real property. The severance of the mineral interest is achieved with a deed. It can be further divided and severed, as follows: Right to develop–enter, occupy and make such use of the surface as is reasonably necessary in the exploring, drilling, mining, removing and marketing of the minerals Right to lease–execute oil, gas and mineral leases, thus conveying the right of exploring, mining, removing and marketing to one or more lessees Right to receive bonus payments–receive from the working interest owner an initial lease bonus usually computed on a per-acre basis Right to receive delay rentals–receive payment from the lessee to maintain an oil and gas lease during the primary term without drilling Right to receive royalty payments–share a percentage of production under the oil, gas and mineral lease, or the proceeds from the sale of such production, without the burden of drilling, operating and production costs * *
PASSIVE
Mineral rights are the deeded, income-producing real estate beneath the surface.
LIMITED LIABILITY
POTENTIAL BENEFITS OF OWNING MINERAL RIGHTS
RELATIVE LIQUIDITY
RECURRING INCOME *
USE TAX CODE 1031
Royalty Interest A royalty interest is created when a mineral interest owner signs an oil, gas and mineral lease. Upon the execution of a lease, the lessee gains the exclusive right to drill and develop the minerals. In return for gaining the right to develop the minerals, the lessee agrees to pay the mineral interest owner a royalty on any oil and gas produced during the term of the lease. A non-participating royalty interest owner is entitled to a share of production under the oil, gas and mineral lease, or the proceeds from the sale of such production, without having to bear or participate in any of the costs of drilling, development and operations. The owner of a royalty interest generally is not required to pay any portion of the costs of drilling or operating the wells on the leased acreage.
* Potential cash flows are not guaranteed and could be lower than anticipated.
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