Oil and Gas Leases For Dummies 2020

Oil and Gas Leases For Dummies 2022

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Updated: July 25, 2022

Made for those who are new in this industry, oil and gas leases for dummies is a quick guide on some of the basic ins and outs of the industry’s most commonly asked questions. Below, we will outline some beginner-friendly information in order to give you a good foundation for understanding how an oil and gas lease works.

What is an Oil and Gas Lease?

An Oil and Gas lease is a common agreement between a property owner and an oil and gas company, giving the company permission and access to produce valuable minerals from the property owner’s land.

How Does an Oil and Gas Lease Begin?

More often than not, an oil and gas company will determine that a piece of land is likely to be a highly producing plot for oil, gas, or other valuable minerals. They will then approach the owner of the land and offer to lease it in order to explore and drill below the surface.

If you are a mineral rights or surface rights owner being approached by an oil and gas company that would like to lease your land, it is highly suggested that you speak to a professional before agreeing to anything. Doing so will enable you to earn the highest possible royalty from any oil or gas produced from your land.

When Does an Oil and Gas Lease End?

Although all contracts are different, most oil and gas leases follow a familiar format. Initially, there is a primary lease term with an ending date that is honored if the land is not actually drilled or producing minerals. If the land is being actively explored or mined, then the lease will go into its secondary term. In the secondary term, an oil and gas lease will end on a specified date or after a predetermined period of idleness such as 60 or 90 days.

Should I sign an Oil and Gas Lease?

As mentioned above, it is always best to consult a professional before signing an oil and gas lease. If you are a mineral rights owner and are approached to sell or lease your rights by an oil and gas company, you may be headed towards a profitable venture if you take the right steps to fully understanding your oil and gas lease.

1031 exchange tax for dummies

1031 Exchange Tax for Dummies: Deferring Capital Gains Taxes on Mineral Rights

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Selling mineral rights or royalties is a great way to cash in on an extremely valuable asset. Whenever you choose to sell your mineral interests, however, the huge influx of cash is subject to a hefty capital gains tax. In order to maximize your earnings, read this “1031 exchange tax for dummies” guide and you can defer the capital gains taxes on your sale with a 1031 exchange for another qualifying property.

What Kinds of Property Qualify for a Mineral Rights Exchange?

So what qualifies for 1031 exchange? In order to qualify for a 1031 exchange to defer capital gains tax, sales of mineral rights must be exchanged. According to the IRS, it should be for a “like-kind” property. This means that you could obviously use your profits to invest in another mineral rights estate, or you could purchase another, similar property such as surface rights or real estate. Other types of property include:
1. Farms
2. Land
3. Businesses
4. Parking Lots
5. And so Much More

So basically, it is possible to 1031 exchange multiple properties as long as it is qualified. You just also need to process the legal 1031 exchange documents needed.

Avoiding Paying Capital Gains Taxes on Lesser Property

If you are using a 1031 Exchange to purchase new property with the sale of your mineral rights or royalties, it is important to note that the new property must be of equal or greater value to the sale of your mineral rights or royalties. If you choose to buy something of lesser value, the difference will be calculated and taxed.

The Benefits of a 1031 Exchange

Over $50 billion worth of property utilizes a 1031 exchange each year, but why? Well, by deferring capital gains taxes, 1031 exchange users are able to:
1. Maximize the amount of capital used to invest in new properties
2. Postpone tax payments
3. Diversify their portfolios without taxation

How to Begin a 1031 Exchange for your Mineral Royalties

A Qualified Intermediary is necessary for negotiating a 1031 exchange and the process can be grueling. Ranger Minerals have a team of representatives that are well versed in 1031 exchanges that can help assist you in maximizing the sale of your mineral rights or royalties.

Again if you have 1031 exchange multiple properties, make sure that you have all the 1031 exchange documents needed. Remember, who and what qualifies for the 1031 exchange are those with knowledge on how it works.

If you learn about this 1031 Exchange tax for Dummies guide, we have more in store for you. Reach out to us here.

selling mineral rights

How to Buy Mineral Rights & Royalties in the United States

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Mineral rights are defined as the property rights to exploit an area of land for the minerals that it harbors.  Buying mineral rights or royalties is a highly profitable investment if done correctly. We’ve created this quick guide to help you understand the purchasing process, however, the best way to learn about how to buy mineral rights or royalties in the United States would be to talk to an expert at Ranger Minerals.

Find Potential Mineral Rights Sellers

Finding the right seller for mineral rights or oil and gas royalties is often the hardest part of the process.  There are few resources, such as Mineral Owners, specifically for Texas that break down land by county available for oil and gas investment.  At Ranger Minerals, we have a strong portfolio of cash flow properties,

Make Offers

Once you have calculated the percentage of the royalty you would like to own, what’s next? Now you can begin to contact the mineral rights owner with offers to purchase.  Buying mineral rights can require a Marlon Brando-like proposition of an offer that cannot be refused. This is eue to the highly profitable nature of oil and gas royalties. If the acquisition is particularly high, the purchasing process may start with a declaration of interest, rather than a valued offer.  You can skip the hassle of finding and bargaining with mineral rights owners by working directly with Ranger Minerals.

Verify and Strike a Deal

The response rate for mineral rights and royalty offers is very low.  However, once you begin speaking with an owner, it is best practice to verify the revenue stream by asking for the past few months of royalty stubs.  Of course, if you are working with Ranger Minerals, you will not have to worry about a low response rate or verification, as each property is pre-vetted and our process is fully streamlined. If all looks well and good, draw up the contract and sign the agreement.

File the Paperwork

Once the deed is signed, the paperwork must be filed both with the local courthouse and the existing oil company.  If you are buying mineral rights independently, it is crucial to have the appropriate legal counsel to approve and verify the legitimacy of all of the paperwork.  Once everything is official, you should begin receiving royalty payments in as little as three months.

If you have further questions on how to buy mineral rights, feel free to reach out to us here. 

Ohio’s Shale Energy Industry Attracts $74B in Investment

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Total investment in Ohio’s resource-rich shale energy sector has reached $74 billion. It was since tracking began in 2011, according to a Cleveland State University study.

Prepared for JobsOhio, the report represents the most recent data available. It covers shale investment through the first half of 2018. It comes just weeks after IHS Markit released estimates that by 2040. The Utica and Marcellus shale region, of which Ohio is a significant part, will supply nearly half of all U.S. natural gas production.

The study from CSU’s Energy Policy Center at the Maxine Goodman Levin College of Urban Affairs. It was shown that drilling activity slowed but remained significant in Ohio from January to June 2018. During the first half of the year, investment in Ohio’s upstream, midstream, and downstream energy ecosystem totaled $4.6 billion, the study showed.

Upstream activities, such as drilling or royalties, accounted for more than $3.4 billion of this total. According to the Ohio Department of Natural Resources, 157 wells were listed as “drilled, drilling or producing” in Ohio. It is with Belmont, Monroe, and Jefferson counties represent the most active areas.

Investment continued in Ohio’s midstream assets. This include assets such as pipelines, processing plants, and storage, in the first six months of 2018. The investment included nearly $400 million worth of construction starts for processing plants, which represent the compression, dehydration and fractionation necessary in the processing of natural gas resources.

However, the period saw more limited investment in transmission lines, largely due to the recognition of the Nexus pipeline investment being attributed completely to the second half of 2017.

Read the full article here
Source: Construction Equipment Guide

If you have further questions, feel free to reach out to us here.