real estate

Oil, gas leases usually return to owner

Steve McLindenQuestionDear Real Estate Adviser,
Do mineral rights regarding oil and natural gas usually revert to the landowner after a time of, say, 10 years?
-- Roger R.

AnswerDear Roger,
That all depends on what kind of deal you signed with a gas, oil or other mineral firm, or with an investor-speculator who may be buying up those rights. If you have sold or otherwise conveyed your mineral rights directly to another party, then they are gone for good and the buyers are free to do with them as they please.

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But if any entity has leased them from you for a set term, which is a far more common scenario, those rights will eventually revert to you and usually in fewer than 10 years. You will first need to check your lease for the "primary term," which is the number of years the lease is to remain in effect. This can range from two to three years, but can be much longer in some instances, depending on your contract.

Buried in the fine print, you see, can be lease terms that allow an energy company more time to milk a gas or oil vein dry. Many leases have provisions stating something to the effect that "the lease will expire three years from the date you sign it, unless XYZ Energy exercises its two-year option and pays you again for the extra two years." The same document may also state that a lease "will be held in production (extended beyond the primary term) so long thereafter as oil or gas is produced from the land or lands pooled therewith in paying quantities." That latter proviso, in particular, can add years to the life of a mineral lease because it only expires when production ceases. The positive for you is this can also result in more royalty payments. Some leases have a "waiting on pipeline" clause that extends a lessee's rights to the minerals for a limited period.

Of course, the mineral rights in question would still technically belong to you during such a period. You have just legally assigned them for a limited period.

As general advice to readers planning to put their homes on the market, you should at least attempt to retain your mineral rights and water rights in a sale, if at all feasible. (Water rights, by the way, are usually separate from mineral rights and can be leased, sold or transferred as well, but with some exceptions in water-restricted areas.)

Yes, retaining these rights in a home sale might be more of a challenge in this predominantly buyer's market. However, some savvy sellers are skirting this issue by conveying those rights to a relative or other trusted party before putting the house on the market. "Sorry, but I had to sell them," the seller can explain to the buyer.

A little-known fact on mineral rights: Mineral resources in most countries belong to the government. Only in the United States and a handful of other countries is mineral ownership granted to individuals or organizations that own the surface property. So "hurrah" for that freedom, which has resulted in found money for tens of thousands of homeowners.

Good luck.

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