Mineral Rights 101

Quick Start Guide to Royalties and Mineral Management

Whether you are new to owning minerals or have received mailbox money from oil & gas producers for years, managing your mineral interests can be tricky with the complex legal and oil & gas language involved. This quick reference guide breaks down key mineral management concepts into clear definitions.

What are Royalties and Mineral Interests?

For most individual mineral owners, there are only two types of ownership that matter.

Royalty Interest

If you own the Mineral Rights under your land and have signed a lease with an oil & gas company to drill and produce wells on the property, you own a Royalty Interest. This entitles you to receive payments from well production sales first without having to pay the related expenses. You are also eligible to receive lease bonus payments. However, as the landowner you must maintain lease agreements.

Non-Participating Royalty Interest

If you have inherited mineral interests and are receiving checks from a producer, chances are you have a Non-Participating Royalty Interest (NPRI). NPRIs allow the Mineral Rights owner to easily designate a portion of their Royalty Interest for family members or even retain mineral income even if the owner sells the land. NPRI owners do not have to manage lease agreements but do not receive lease bonuses.

If you own Mineral Rights and a Royalty Interest, you might be interested to know what types of mineral interests the oil & gas company operating on your land owns. An oil & gas company owns a Working Interest, which entitles it to revenue from wells on your property after Royalty Owners have been paid while also bearing the cost of drilling and operating the lease. Some producers have a 100% Working Interest, but many companies split the costs, in which case you will receive payment from the majority owner (the operator). An Overriding Royalty Interest (taken from the Working Interest) is often given as a bonus to people at the oil & gas company involved in leasing your land, such as a landman or geologist.

Top Oil & Gas Terms Every Mineral Owner Should Know

Lease: Legal document that governs the terms of what an Operator can and cannot do with a landowners mineral estate.

Division Order: Document that provides the decimal ownership in a well for multiple owners. It must be signed before you can receive royalty payments.

Forced Pooling: A legal statute that allows an Operator to “pool” or group multiple leases together in order to drill a well without having all mineral owners consent.

Check Stub: A term used to describe the statement you receive from an oil & gas company listing sales for a lease and your specific portion.

Severance Tax: A common state tax listed on your check stub that charges your producer for oil & gas sold in other states.

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Understanding Activity Around your Properties

One of the more common questions heard by MineralIQ is: what should I know about activity around my property? Not understanding activity around your properties can lead to loss of revenue from funds held in suspense or from selling your minerals for a lower multiple than they are worth. A benefit of MineralIQ is the ability to leverage the data and technology from Enverus, the leading energy analytics company. Not all data is created equal and the unique and proprietary datasets that we provide to MineralIQ users will put owners in a better position to understand the activity and value around their assets.


Not all activity is treated equally. Permits and rigs are the most common activity. A permit is a regulatory filing with the state indicating interest in drilling a well, and it must be approved for drilling to commence. However, not all permits are drilled. On average, less than 60% of permits were drilled in 2019. There are multiple reasons for this, but some companies drill higher percentages of their permits than others. For example, a large operator in Reeves county permitted 115 wells in 2019 but only drilled and completed 90%. Permits are filed for new drills, recompletions, and other activity. MineralIQ pre-filters permits to new-drill as these are the permits that will generate new revenue for mineral owners. When a permit is filed, it is important to understand that your minerals might not fall underneath the unit that will be paid on if a well is drilled. Until a rig shows up and starts drilling there is not much a mineral owner needs to do. If you would like to learn more about the specifics of the permitted well, you can click on the well API number for more information.

Mineral owners need to begin diligence once a rig shows up on a permitted well location. MineralIQ is the only mineral tracking platform that tracks the actual location of drilling rigs daily. This is due to Enverus having GPS units on drilling rigs, ensuring owners have the most up to date information. MineralIQ will inform users which permits are being drilled daily. To determine if you will receive royalties on the well being drilled, owners can do one of three things:

  • If the well being drilled has the same Well Operator and Well Name as a well within your portfolio (meaning you are currently receiving royalties on it), there is a high likelihood you will also be paid on this new well.
  • You can reach out to the landman or owner relations of the Well Operator to determine if your lease is included in the well being drilled. Ask for the drilling plat to be emailed to you. The drilling plat will help you determine how much of your lease is included in the new well.
  • MineralIQ will provide the drilling plat for certain wells, if available.

If your minerals are not underneath the new well being drilled, all is not lost. A well being drilled within two miles of your current minerals—MineralIQ limits the data we show you to a radius of two miles—will increase the value of your minerals. Mineral buyers look at offset activity as an indicator of the potential of your minerals to produce. Mineral buyers will discount the value of a potential, future well being drilled using a discounted present value, sometimes referred to as PV-10 (or present value discounted 10%).

The journey for a mineral owner does not stop at the well being drilled. MineralIQ knows the difficulty of sifting through oil & gas information. Many mineral owners have had to try and find information on government websites such as Railroad Commission of Texas or other free data providers. The problem is that these sites expect owners to know exactly what they are looking for in the dozens of pages filed per well. MineralIQ uses a timeline on every well detail card to let you know where the well is its lifecycle (example below). Once a well is drilled it can take up to a year for the well to be completed. Completing a well is when an operator stimulates the rock to allow for oil & gas to flow. After completion, a well will start to produce oil & gas after being connected to pipelines or stock tanks. Well Operators will start to send out division orders sometime between drilling and first production. This is the first task that a mineral owner must take to begin to receive checks. Realize that the decimal stated on your division order is generally binding if you sign and return. Ensure your decimal is correct before signing. Reach out to MineralIQ if you have questions.

After your division order is signed and returned, the well is producing, and first sales have been made, an owner should receive a check three to four months later. Royalties on your minerals are generally paid in arrears, so there is an expected lag time between first production and first check. Warning: If a well is producing for more than six months and you have not received a division order, click on the operator to determine if your minerals were underneath that well. After a well is producing and your checks are being mailed, there is not much to do as an owner except continue to audit that you are receiving all of your checks and that you are not seeing excessive post production charges.

MineralIQ has auditing features to ensure that you are receiving your checks every month. If a payor fails to send you a check, you will notice a yellow caution symbol in the payor card. If it has been more than 60 days, a red “X” will appear. Reach out to the payor by clicking on their name to determine why this is occurring. Your checks will continue until a well is plugged and abandoned (P&A). You will notice on the well timeline that MineralIQ tracks when a well reaches this final point.

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Minerals and Inheritance

According to the National Association of Royalty Owners (NARO), the average age of a mineral owner is nearly 57 years old. This means that many of these minerals will change hands to younger generations over the next few decades as part of what financial planners call the Great Transfer of Wealth. For many Gen X, Millennials, and Gen Z, minerals are not seen as an attractive investment. Many in this group see the oil & gas sector as a dying industry and would rather not be associated with it. Regardless of personal convictions, owning a real asset is recommended by many financial planners. Like a house, minerals are considered real property. While you pay taxes on the value of the minerals and on the revenue that is generated, minerals can provide a stable income that can be used to invest in other assets over time.


The main problem many families have is even knowing that they own minerals. There are rumors that a parent or grandparent owned minerals, but no one really knows where, how many, or how much. Many families spend years trying to determine what they own and where it is located. Even then, if the paperwork is not transferred, your checks can be held in suspense until you prove the death of the previous owner and your ownership of the estate. This can cost a family a lot of money and pain. Luckily, there are solutions to help families get their portfolios in order. MineraliQ is a simple, free solution that allow families to track revenue, wells, and value of assets. It can be included in your estate plan by adding your login information in a legal document, such as a will or subsequent account sheet, where other important information (like bank account numbers) is stored. If something does happen and your next of kin needs help in getting the proper documents to operators, MineraliQ can help. Since MineraliQ processes the revenue checks for more than 150 operators, representing almost 90% of U.S. production, we have firsthand knowledge to provide peace of mind.

For families that receive less than $250,000 in annual revenue from their minerals, MineraliQ is there to help. Not only is MineraliQ free, it is the only service that provides direct access to your checks from more than 150 operators automatically every month. MineraliQ is backed by Enverus, the leading energy analytics company, so you will have access to the most up to date rig, permit, and well information on the market to help you understand the value of what you own. For those that have more than $250,000 in annual revenue, you can continue to use MineraliQ at no cost or choose to manage your assets more actively with MineralSoft.

For those trying to get a better handle on what they own or just inherited, there are two main activities owners need to track. Revenue is the first. Many families just receive mailbox money—a monthly check to cash. These checks are either stored in a folder or thrown away after cashing, leaving little to no paper trail for family to know what was paid. MineraliQ will track your revenue every month for each operator that pays you. Since we automatically bring in more than 150 operators every month, there is no additional work on your end once you connect to MineraliQ. If you have an operator or check that does not show up in MineraliQ, you can manually add them at any time.

Wells or properties are the second thing that families need to track. MineraliQ automatically will determine the wells you are being paid on and add them to your My Wells dashboard. You can add or delete wells on this list at any time. My Wells allows families to track rigs, permits, and wells around their properties to better understand what their assets are worth and if new wells are being drilled. We are the only company that tracks daily rigs through GPS units so we have the most up to date information on wells being drilled around your properties. No more guessing or checking with regulatory websites to understand where your assets might be.

Passing on an inheritance or estate is an emotional time. Let MineraliQ help take some of the burden off your family or estate planners by making it easier to track both your revenue and assets. For those that are inheriting these assets or are not sure if they want to own minerals, let MineraliQ make managing hands-free.

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Choosing the Right Operator to Lease With

Choosing which operator to lease with is one of the most difficult choices a mineral owner must make. In plays that are considered hot or active, a single mineral owner can get offers from dozens of companies, each claiming they are offering the best deal. Owners will have different needs and need to balance those needs with offers. We will evaluate some of the top lease clauses and offers to help you make a better decision in choosing your operator. Remember—all terms of a lease are negotiable and you should lead with what you want from the operator.


Lease Term

The length of your lease will be one of the most basic terms. The length of time in which the lease is valid is known as the primary term length. Most leases have a term of 36-72 months. We have seen some leases as long as 120 months, but those owners have supplemented their lease with other provisions as a sweetener. Most operators also include an extension, the right to extend a lease when the primary term expires. Extensions generally are 12-36 months. These extensions are pre-negotiated so that they operator knows the cost to extend the lease if they cannot drill a well within the primary term. Some owners strike out extensions or include a provision that their bonus will be the prevailing rate or a specific dollar amount. Do not overlook this clause; when oil prices are down, extensions are more likely to be enacted and most have very little bonus money tied to them.

Owners should also pay attention to the clause of right of first refusal in your lease term. Many operators hold the right to re-lease your minerals if you get another offer prior to the primary or extension terms expiring. There are companies that top-lease or try to lease from the owner prior to the expiring of the primary term. This is common when an owner is not happy with an operator or feels the new company trying to lease their minerals has a better deal. Ensure that you, as the owner, have the right to receive other offers and that the company you currently lease with will have to meet or exceed the offer as a right of first refusal.

Royalty Rate

Standard royalty rates are 1/8th or 12.5%. Many conventional operators are still able to lease for this rate, but very few owners in active plays lease for under 20% royalty rates. In today’s environment, royalty rates are typically 25%.

Post-Production Charges

Transportation and distribution expenses are also known as post-production charges. Prior to shale, these charges were minimal and in good faith. Since shale, there have been numerous lawsuits based on the exorbitant amount of charges levied to owners. Many owners are not aware that they are charged for the transportation of the oil & gas that is produced from the well on their property. Sometimes these charges can exceed the payment, meaning your check will be zero or negative. Many states have enacted laws that protect owners and enforce a minimum royalty payment, but they very rarely protect owners to eliminate the overcharging of these fees. There are specific clauses you can include in your lease to ensure that these charges are kept to a minimum or eliminated. An owner may have to take a lower royalty rate or longer term to get these clauses within your lease. We would recommend getting this clause in place by extending your term and lowering your royalty rate so that your terms are honored even if the company that leases your minerals sells to another, as some companies will not allow for this provision to be included. It also ensures that you will be paid something, as it is rare that a higher royalty rate would cover the losses from these charges. Consult a lawyer to get your state-specific phrasing to have this clause included.


While rarely used, pricing clauses can help protect mineral owners from an operator who has a poor midstream contract. The most common situation we have seen is owners negotiating to be paid the highest monthly sales price within a county or multi-county region. For example, your payor sells oil at a wellhead price of $42.00/bbl and an offset producer sells oil for $42.75/bbl. This clause would provide an extra $0.75 of revenue per barrel sold. Realize that this clause is difficult to enforce due to oil & gas having varying compositions, even offset wells.

Shut-in provision

In a low-price environment, many operators will shut in wells to preserve revenue. It is better to hold oil & gas in the ground then produce it at a loss. If you are an owner being charged post-production fees, you will be thankful for this as those fees will generally be more than the revenue of selling the produced volumes. For many years, operators have used standard language on the fees paid to royalty owners if the wells must be shut in for more than a specified number of days. Always have shut-in provisions within your lease and try to negotiate down the number of days until the clause kicks in. Our recommendation is closer to 15-30 days. You can also try and negotiate the fee paid for shutting in the well. Understand that shutting in a well is generally a last option for an operator; they also lose money when not producing.

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Understanding Post-Production Charges

Post-production charges were not a topic of discussion…until the shale boom. Essentially, they are fees that are deducted from sold volumes of oil & gas for the marketing, transporting, and processing of the products. When a well simply produces oil & gas, the charges are straightforward. With the entrance of wet-gas, or liquid heavy gas, operators have many more fees associated with moving produced volumes. Leases in many states did not include a provision to make the minerals free and clear of all post-production charges and so these fees were taken out of a mineral owner’s check. Some owners have seen higher post-production fees taken out of a check than the sold volumes were worth, meaning their check has a negative value. This does not mean you owe money, but rather that you will not receive a positive payment until those negative amounts are paid off from the sales of new royalties. Many operators operate in good faith with their owners and have not charged outrageous fees to mineral owners to pocket the difference, but some have. In the past few years, there have been numerous lawsuits against operators for post-production fees taken out of a mineral owner’s check. If you are signing a new lease, we recommend getting a lawyer to write in your state-specific free and clear clause so that you can avoid post-production charges entirely.

What Operator Bankruptcy Means for Mineral Owners

Mineral owners are generally protected in a bankruptcy, but there are always exceptions to the rule. As E&P companies struggle financially, royalty owners need to take proactive steps to protect their interests. Watch our recent webinar, Protecting Your Mineral Investments When Operators File Bankruptcy, to learn:

  • How to identify, quantify, and monitor risk
  • Preemptive strategies to protect your interests
  • How the bankruptcy process impacts royalty owners

Watch Webinar Replay:

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Subsurface vs. Surface Leasing

A common misconception is that a mineral owner who also owns the surface must lease both surface and subsurface rights to the same operator. Operators lease your surface rights at a discount when they add it to your subsurface lease. Surface rights had little value until the last 10 years. With the boom in production from shale wells, there was an inherent need to build infrastructure—pipelines, compressor stations, etc.—which all need surface rights. Operators who had included surface rights with their subsurface leases sat on a goldmine that they monetized by selling the rights to pipeline companies to build out needed infrastructure. Mineral owners and surface owners were held to contracts that had little protection or compensation for the building of these pipelines. While oil & gas pipeline construction has slowed down, water infrastructure has supplemented as operators try to reduce costs of transporting disposed water. In locations such as West Texas, alternative energy has also led to a boom in surface rights and the selling of leases from operators to other firms.

Almost all mineral owners are also surface owners, even if it is not of the property their minerals sit on. If you are a homeowner, you own surface rights! We, at MineraliQ, suggest omitting your surface rights from your subsurface lease. There is no reason to lease your surface acreage without a separate agreement that ensures you are protected and compensated for any encumbrances on your property. Unlike an oil or gas well, surface operations are visible and can be detrimental to your property value. While a pipeline is buried, it must be disclosed; can you imagine trying to sell a house with a 15-inch pipeline running through the middle of it? Or trying to sell a farm with a large windmill and access roads in the middle?


Figure 1: Pipelines across Texas vs. oil & gas rig locations


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Alternative Energy and Mineral Owners

The term ‘mineral owner’ refers to the sub-surface ownership of an individual. Most mineral owners also own surface rights. Surface rights can be severed from mineral rights, meaning you do not have to live on top of the minerals you own. If you are lucky enough to own the minerals under your property or the surface rights in an area with alternative energy activity, you may profit. Alternative energy compared to conventional energy is based on the surface of the earth. Historically the value of surface rights has varied based on location. One sees this in housing all the time—property near a lake has a higher value. Move that same house into the desert and its value declines. The same goes for owning property near potential locations for solar or wind farms. In West Texas, owners of surface rights have seen their values increase substantially with the boom of alternative energy and conventional energy activity, such as pipelines, water disposal, impoundment, etc. Historically, surface owners had little incentive in the exploration of oil & gas, but with the need for water impoundment for activity, pipeline expansion, equipment storage, etc., the value can exceed that of the mineral estate in some areas.

Figure 1: Wind turbine locations across Texas vs. rig locations

Figure 2: Texas energy sources

Alternative energy is produced from non-carbon-based sources. The components that make up an alternative energy’s power is carbon-based, but that is rarely discussed. Wind turbines are built using plastic or refined alloys/metals, conduit that transfers the power to the grid is made of similar material, many need natural gas generators to start moving, components of electric panels are mined much like coal, etc. Alternative energy is also very visible. Even the largest pad in the U.S. only takes up a few football fields of surface ownership and is not very tall. Many oil & gas wells are hidden behind beautification so that you do not see the pump jacks. Once the well has met the end of its life cycle, it is plugged and the land reclaimed. Alternative energy takes up space both vertically and horizontally and rarely goes away. If you have driven in West Texas or California, you have seen large wind or solar farms in the distant. There is a trade off to the growth of alternative energy and that is the sheer sight and size of it. Alternative energy is an important part of the energy supply chain and will continue to grow as we try and find cheaper methods of energy production. The question many mineral owners will have is, at what cost?

For those that live in Texas, maps are made public to give owners an idea on whether their surface acreage might be within a wind corridor (Figure 3). While you may not have a wind or solar project in your area today, owning acreage in an area that has potential does increase your valuation. Solar and wind leases pay less than an oil & gas lease but are for much longer terms. Many alternative energy leases are 20-30 years long. So, while you may not get a large check in the mail, you can get consistent, long term payments. For many families, it can be better to have a constant stream of money than a few years of large checks. Those that are in an area with both oil & gas and alternative will benefit from the expansion of both energy sources. Energy is not a one size fits all solution and all sources will be explored in powering the U.S. and world over the next few decades.

Figure 3: Potential locations of wind energy based on annual average wind speed


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