Many people are unaware that the United States is one of only a few countries in the world where private citizens own the minerals that lie below the surface of their property.
To sell the rights to those minerals, U.S. landowners have three choices: an outright sale, a lease agreement or a lease options arrangement.
If you are looking to cash out, selling your mineral rights to a broker or directly to a company will put immediate money in your pocket. Depending on the current price of the mineral like coal or oil, that can be a good or bad decision.
If you sold your oil rights back in July of 2008 when the price of oil spiked to $129 per barrel, you did well. By 2015, the price had dropped to $37 per barrel. No one has a crystal ball to determine when to sell to get the best price.
When you sell your mineral holdings outright, the buyer or any future owners have the right to extract those mineral whenever they want. When the decision is made to begin mining, you have no say as to when or how they do it. You must also grant the buyers access to your property whenever they want to survey or collect samples or actually begin the mining process.
Often mining companies are willing to lease your mineral rights rather than buy them in order to determine the size, quality and value of the mineral bed that lies below your property.
A lease gives the mining company a specific time period to come onto the property and conduct their tests. For this right, the mining company will pay the landowner a fee when the lease is signed.
If test results are positive and the company plans to extract the minerals, the property owner is usually paid a percentage of the production income in the form of a royalty payment that is will be spelled out in the lease agreement.
When the lease date expires, the rights to whatever minerals remain once again revert to the land owner.
Mineral speculators and brokers will often try to buy an option for the mineral leasing rights instead of signing a full-blown lease. This transaction takes place by the speculator offering the property owner a fixed amount of money up front for the option of to buy to buy the mineral rights at a specific price in the future. This option right has an end date, so the speculator hurriedly attempts to find a third party who will pay a higher price that what he paid for the mineral rights and earn a fast profit on the transaction.
If the speculator fails to find a buyer for his option and fails to pay the option price at the end of the option period, the contract is voided and the property owner keeps the original option payment.