Selling or Leasing Mineral Rights: Risks from both Alternatives

Posted by on Jun 13, 2014 in Natural Resources | 0 comments

One major concern resident in areas where shale gas abounds is whether to sell their property, along with their mineral rights, or sell or lease just their mineral rights. Shale gas, which relates to natural gas, are trapped inside shale formations, that is, fine-grained sedimentary rocks and, according to the U.S. Energy Information Administration (EIA), the six top shale-gas producing areas in the US are the Eagle Ford Shale, which is located in Southern Texas, the Bakken Shale region in North Dakota and extending up to Montana, the Niobrara, which occupies parts of the states of Nebraska, Colorado, Wyoming and South Dakota, the Haynesville region along Texas, Arkansas and Louisiana, the Permian region found in Western Texas, and the Marcellus, one of the longest shale regions in the United States.

Experts estimate that with the continuous discovery of new regions rich in shale gas plus the use of the most modern drilling equipment, the shale gas business is just starting towards its peak. Shale gas is the source of petroleum and natural gas, which is used in American homes and commercial buildings.

The greatest advantage, probably, of selling your property or mineral rights is the high offer made by interested companies, which can amount up to $12 million (an example of offer already made in the past); and this is cash up front, which you can use to pay existing loans, buy a new property, save for the education of your kids and for your retirement. The price of a property may still be higher, depending on where it is located.

Compared to leasing your mineral rights, which will give you a much less amount, and which may still get lower or lose any value if the property produces little gas or nothing at all, respectively, selling your rights will let you enjoy a huge sum, whether your land produces something or produces nothing at all – this is the risk faced by firms in buying mineral rights.

What some owners do is lease or sell half of their mineral rights, while just holding on to the other half or keeping it untouched. If the land is really productive, then this may be a perfectly wonderful decision. The problem is, what is the half you leased proves to be worthless as nothing can be extracted from it? Not only will the half you leased lose value, but your whole property will be considered worthless. Well, if you sell your mineral rights, surely, there will be advantages and disadvantages, but so will leasing it.

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