Mineral rights are so complex that we’ve written multiple articles on the REALTORS® Land Institute Blog, and have still barely scratched the surface. Oil and gas leases are just one tiny fraction of mineral rights, but they can be a very lucrative one. Leasing out the oil and gas rights to your property lets you make extra cash off your property with very little effort on your part after you sign on the dotted line. But before you sign, there’s a lot you need to know. If you aren’t up-to-date with the specifics on oil and gas leases, you could be flushing thousands of dollars down the drain.

When you lease out oil rights to another person, they have the right to the oil and the money they make off of it for the term of the lease. This can be an extremely profitable side business if done correctly. By following these tips, you’ll be able to feel confident you are getting the maximum profit off of your oil and gas lease.

Keep It Simple

Sometimes, buyers will ask for one overarching oil or gas lease for multiple properties. While that might seem simpler for the buyer and seller in the short term, this can complicate things if you want to sell your land later. For example, if a future buyer wants to buy one property but not the other, what happens to the oil rights? Oil and gas leases are already complicated, and having one lease for multiple properties can make it even more difficult for future buyers to untangle. Ask for separate leases for separate properties.

Do Your Homework

Make sure you have all paperwork surrounding the oil and gas leases. This means deeds, wills, previous leases, easements, and maps that plot out where the oil is. This is a great way to protect yourself and your oil rights from any potential legal problems down the road.

How Much Money Is On The Line?

If you have black gold on your property, you should know how much it is worth before accepting any offer. One of the best ways to find out how much they are worth is by listing them on the U.S. Mineral Exchange website and see how much people are willing to pay.

You should also know how much you’d want to make off of leasing your oil rights. Have that number ready before you are approached by a buyer. Leasing out oil or gas rights comes with a lot of benefits that many people don’t know about.

So, what are you entitled to?

Royalty: Whoever leases their oil gas rights has a right to a royalty interest from the production. Traditionally, the lessor gets a 1/8th royalty, but in modern times, people can get anything up to 1/4th.

Shut-In Royalty: This is included in every lease. Shut-in royalties are payments made by the lessee to the lessor to keep the lease “in force” (or preventing it from expiring) if a well is not utilized.

Bonus: Paid when the lease is signed and delivered, the bonus depends on the net mineral access or the amount of land the lessee has oil and gas rights too. The more land with access to oil you lease, the bigger the bonus.

While mineral rights are one of the hardest parts of land real estate, oil and gas leases are a bit more straightforward. There are a lot of benefits for lessors in the fine print of oil leases, but they often get overlooked. Take some time to find out the true value of your oil and gas leases to make sure you are making the money you deserve off of your land.

Want to learn more about oil and gas leases? Be sure to tune in to RLI’s Webinar Negotiating Oil and Gas Leases Course on June 13th.

This guest post is courtesy of the REALTORS® Land Institute. For more information, visit www.rliland.com.