Issues with Mineral Rights

You're sitting at home and there's a knock at the door.  It's an energy company wanting to buy your mineral rights.  What do you do?

With all the new issues coming up regarding energy mineral rights is becoming a major and new issue for some farmers depending on where they're located.

Despite the monetary gain a farmer could make there are environmental issues at stake.  Particularly oil/gas drilling.  And even more so with hydraulic fracturing (fracking) method of extracting natural gas.

In an interview by Delta Farm Press, James Isonhood, Mississippi assistant attorney general said, "There is a lot of misinformation about this."

Making a mineral rights deal is a very serious business he said.

"If someone knocks on your door offering to buy mineral rights, the first thing you need to do is find a lawyer who is knowledgeable about oil and gas mineral rights.  Don't use just any lawyer - be sure it's one who has knowledge of and is experience in dealing with the complicated issues in mineral rights."

Just because you own the land doesn't mean you own the mineral rights.  The mineral rights may have been sold separately many years ago.

"If someone owns the mineral rights for your property - dominate estate - they have an absolute right to recover those minerals," Isonhood says.  "If you own the mineral rights and sell or lease them to a gas company, that gives them dominate estate."

Determining who owns the mineral rights can be difficult.  "You may have to go all the way back to the original patent in the 1800's," He says.  If the property is inherited then the land would go to the heirs.  If not, then it would go to who ever it was sold to.

If their are several heirs to the property then things can get really complicated.  Have you ever had to get numerous people to make a decision?  It's like herding cats sometimes.

Stanley D. Ingram, an attorney in Jackson, Miss said there is no such thing as a "standard" oil and gas lease form.  "If there is one thing certain about today's oil and gas lease, it is that it's uncertain.  Every oil and gas lease is unique, requiring the utmost of the lawyer's review and interpretation."

How to Make Money Off Cropland

There are many ways people get revenue off of cropland.  The most traditional way is through the annual income, such as cash rent or share crop, and land appreciation.  

Annual income can come in various different ways.  One way is cash rent.  This is usually gain by receiving bids from farmers and they tend to be competitive.  This is the way most first time investors go.  It's the simplest way and has the least amount of risk to the investor.  The second way is share crop.  This tends to be done by more experienced investors.  They are typically 1/3 2/3 shares.  The positive is the investor usually makes more money this route.  However, they are usually more involved in the day to day decision making and if the crop fails or comes in poorly they take a hit along with the farmer.  And the final way to make income is through land appreciation.  I've gone over this a lot but to summarize it, cropland averages a 6% increase in appreciation annually over the last 40 years.  And we saw a massive jump in the last two years averaging 10% to 30%.

Now for the additional streams of revenue most people don't think of.

One additional source would be mineral rights.  This pertains to everything below ground of the property.  Things such as oil and gas leases and coal are the most common.  Another one is hunting leases.  The price of a hunting lease varies from property to property and how it's decided.  For example, you can decide the lease per acre, per hunter or, if it's a wetland, it could be a wetland lease.  Sub surface water rights is also another issue to think of.  Not too big of a deal in wet areas but places like western Kansas it can be an issue.  There are also government programs in place.  There is the conservation preserve program or CRP.  That is when the government pays the land owner a yearly amount to allow the land to grow naturally.  The is wildlife habitat incentive programs or WHIP.  It's similar to CRP but instead of just leaving it alone the government creates a habitat to promote wildlife growth.  There is also wetland reserve program or WRP.  Similar to CRP.  Allows a wetland to remain untouched and promote wildlife growth.  And finally there are wind leases.

Wind leases are becoming more and more common.  The issue is you have to have your land adjacent to other turbines to tap into a wind lease.  You have to think of it like an electric grid.  And it's expensive to put in so they will only add on to wind farms and rarely put up new ones.