If you own land in eastern Ohio, chances are, you probably also possess Ohio mineral rights. If you do, then you may have already received letters from oil companies that are giving you the chance to profit from your holding.
Selling Can Come with Unexpected Disruptions – A Point in Case
However, before you respond to any of the missives, you need to understand the basics of selling these kinds of rights. For example, John Q. Landowner owns Ohio mineral rights, which he leased to ABC Oil for five years. The owner, in return, received a bonus in cash of $400 for his 100 acres and negotiated a 10% royalty on the lease. However, since the agreement was implemented, no drilling has occurred within the last three years.
The Advantages and Disadvantages of a Sale
As a result, John Q. Landowner is thinking about selling a part or all of his Ohio mineral rights at this point. The primary advantage of selling is the reduction of risk. In addition, John Q. Landowner can use the money to buy a dream piece of real estate. However, there is also a downside to this option. If John cashes out and relinquishes his Ohio mineral rights, then he also forfeits the money he could have received if drilling goes forward and production is realized.
As a result, the Ohio mineral rights holder is faced with one of a number of alternatives. He can wait and see, sell a part of the rights or obtain cash. In order to make an informed decision, John Q. must consider his tolerance for risk, which is also contingent on age, and his debt load. If he is near retirement age or older, then it is probably in his best interest to take a lump sum payment instead and sell all his Ohio mineral rights to the property.
Negotiating a Price
If the mineral rights are sold, then the land owner and buyer will negotiate a price. The price, which is figured on the cost per net mineral acre, is further determined by several factors, including the percentage of the royalty on the lease, the term of the lease, proximity to existing pipelines and wells and the EUR, or estimated ultimate recovery, of a well. In some instances, a company may not purchase rights if the real estate’s location is inaccessible because of pipeline restrictions.
Finalizing the Agreement
A purchase and sale agreement, or PSA, for buying mineral rights states the price that is paid for each net mineral acre and the amount of time the mineral buyer must complete its due diligence. Normally, the process takes about one to two months.
Needless to say, if you live in Ohio, especially in eastern Ohio, it pays to know how to proceed if you are the owner of a mineral rights property.
