For those unfamiliar with the oil and gas industry, the term ‘mineral rights’ may seem foreign. Put in layman’s terms, mineral rights are the vehicle by which unrecovered oil and gas assets are bought, sold, leased, owned, and bequeathed. Mineral rights are measured as a percentage of the total minerals that lay under the surface of a piece of land, and the holder of these rights has the option to capture or recover those minerals, or to delegate a third party to capture or recover those minerals.
Because mineral rights are often inherited, some individuals may have no idea that they own them until they receive a lease proposal in the mail. These proposals are typically submitted by an oil company that is interested in recovering minerals for which you hold rights. So what should you do if you receive a lease proposal in the mail? This blog will walk you through the process.
1. Call Your Relatives
If you inherited mineral rights, there’s a good chance that some of your of relatives have also received a lease proposal. If so, you’ll want to put your heads together. While your individual ownership stake may be quite small, a combined stake can help you drive a better deal if you work together.
2. Do Your Homework
If the proposal came through a broker, find out what oil company hired them. Research that company’s reputation online, ask nearby landowners if they have any experience with them. Try to find out the going rate for a comparable lease in that area. Also, check records for other wells in the area. How much are they producing? This information will help you negotiate from a more informed perspective.
3. Check Your Division Order!
Once you arrive at a deal, the oil company will send you a division order that outlines the royalties to which you are entitled. It is important to confirm that the division order accurately reflects the deal you negotiated. Just like any other contract, once you sign a division order, you are bound by its terms. If it assigns you a smaller percentage than you negotiated, you’ll end up leaving money on the table. The reverse is also true: If it assigns you a larger percentage than you were owed, you may be on the hook to pay up.
4. Get an Oil and Gas Bookkeeper
Okay, everything is up and running. Should be smooth sailing right? In theory, yes, but as with any investment, managing a new oil and gas asset takes some work. Oil and gas bookkeeping requires a specialized expertise that few traditional bookkeepers possess. In addition to helping you understand your ownership rights, an oil and gas bookkeeper can help you manage the ongoing responsibilities that come with owning oil and gas assets. An oil and gas bookkeeper can help you in the following ways:
- Verify check detail to ensure consistency with production reports and division order
- Maintain record of the wells, rights, and royalties you possess
- Compare your year-end tax documents to ensure they match your payments
- Create customized reports to assist in your state and federal tax filings
Families and private individuals have trusted Eddye Dreyer to manage their mineral interests for nearly 30 years. Whether you need help with monthly management, record keeping, or tax support, the experienced bookkeepers at Eddye Dreyer can help you navigate the ins and outs of your new asset.
Interested in scheduling a free consultation? Contact us today!