When looking at managing your oil and gas mineral rights, you have to know what your duties, responsibilities, and obligations are and why they matter. Essentially, it takes a trifecta of due diligence to understand national oil production needs, your rights, and royalty payments.
Therefore, let us take a quick look at the nation’s oil needs, and then have a closer look at your rights and royalties.
Oil Production Concerns
America has had three major gas crisis: 1973, 1979 and 1990. We solved most of them by buying extra oil from the middle east. However, the fundamental problem of dwindling fossil fuels reserves energy consumption. Oil spills, due to testing new technologies, such as at the Deepwater Horizon offshore platform, will continue to happen at a terrible cost of life. Can we continue to lose 11 highly trained men? When we evaluate the situation in its entirety, it is clear we need help from everyday citizens.
Maintain Your Rights
Rights mainly concern your ownership of the surface land above and the surface minerals below. Landowners can lease or sell oil and gas mineral rights. Likewise, when the time runs out, they can choose to renew or stop. However, mineral rights can only be granted using an Oil, Gas, and Mineral Lease contract.
Maintain Your Royalties
Royalties are a little trickier to discuss. There are two forms of payment: an upfront signing bonus, which is done per acre and a post-production royalty that runs between 12-25 percent. However, if no gas or oil is found, then no royalties are paid. Also, in rare cases, payments can be held in suspension.
Secure Your Rights in the Contract:
1. Check Your Deed
Your deed is the legal statement of what property you own, its parcel location, zoning, etc. Your title company and the Assayer’s Office can verify that your surface and mineral rights have not been severed. Depending on your situation, they both might have a copy of your deed. The title company’s version might only discuss the surface features and not the minerals underneath. If this is true, then you will have to go to the government office for the rest of the information. Your contract lawyer can conduct a thorough legal title search as well.
2. Check the Going Rates
There are several kinds of bonus rates: conventional, unconventional, and limited. Check with the Assayer’s Office to determine what the going bonus rate and royalty percentages are for your area.
3. Check Your Royalties to Get Paid and Taxed Properly
Monitor the “check meter” to the storage tanks to ensure that you are paid properly. Also, be certain to set taxes aside for your royalties. Check with the IRS for more royalty guidelines.
4. Check Damage Compensations for Follow-up Care
Obtain a geological survey for your land. Not only will you be able to see why the company is interested in your property, but also it may identify potential collapse areas. Negotiate up front for damage compensations in the event of such an event, as well as damage to aquifers, buildings, electricity, hydrostatic pressure loss, livestock, plumbing, roads, trees, toxic cleanup, and more.
5. Develop a Drilling Problem Checklist
Begin with this walkthrough checklist. Consider this checklist as important as any you would leave to a babysitter for your only child. The company might provide a list, or you might have to create one, but it is a lifesaving necessity. It should clarify what the safety guidelines are for equipment interaction during a crisis; what to do in the event of drilling problems, as well as who to call for emergency response.
Secure Your Tax Duties & Payment Obligations:
6. Know Your IRS Tax Deductions
Expect to have a severance tax deducted from your royalties. This tax occurs when you tear or severe the surface and mineral rights apart. The company is obligated to pull these taxes before paying you. However, you should make certain they are using the correct withholding for your tax bracket.
7. Know Your County Tax Deductions
Expect to see an Ad Valorem tax from your county office. All counties base their taxes on the Fair Market Value of your property. For example, if you bought your land for 25K in 1972, but all the surrounding acres have been bought at 80K in 1989 and not sold since then your taxes will be calculated at the higher level.