What Are Oil and Gas Royalties?

If you own land with oil and gas under it, you might be looking for ways to maximize your oil and gas royalties. To do that, it helps to understand how the gas industry and federal government regulate payments to royalty owners. 

In this article, you’ll learn what oil and gas royalties are, how you can profit from your rights, and the best strategies for getting the most value from your mineral assets.

‍

Key Takeaways

• Oil and gas royalty payments are the earnings you receive when you lease your mineral rights to an oil and gas company for drilling and production.
• The average royalty payments for oil and gas vary by state, typically ranging from 12% to 25% of production revenue.
• If you want to sell your oil and gas rights for maximum value, you can work with a trusted broker like The Mineral Auction.

‍

What Are Oil and Gas Royalties?

Oil and gas royalties (also known as oil and gas royalty payments) are the payments a mineral rights owner receives after leasing their land to an oil or gas production company. In this arrangement, the company gains the right to explore, drill, and produce oil or natural gas from the land. Once oil and gas have been successfully extracted and sold, the company pays the property owner a percentage of the revenue. The specific percentage, known as the royalty rate, is usually stated in the lease agreement.

‍

Average Oil and Gas Royalty Payments

To determine the value of your oil and gas, you need to understand what royalty rates are calculated nationally. Nationwide, oil and gas royalty rates vary based on the lease and the region. On average, oil and gas royalty rates typically range from 12.5% to 25%, with a royalty rate of 25% being common in high-producing areas. 

‍

Lease Bonuses for Oil and Gas

In addition to royalties, many oil and gas companies pay a one-time lease bonus when a landowner signs a lease agreement. Unfortunately, there’s no set range for these rates, and they are completely negotiable. In general, lease bonuses can range from tens of dollars per acre to thousands of dollars per acre, depending on negotiations.

‍

Leasing vs Selling Mineral Interests

If you own natural resources beneath your land, you can earn income by either leasing or selling your mineral interests. Both options have their advantages and disadvantages. Here’s a quick breakdown to help you understand each option:

‍

Leasing Mineral Interests

When you lease your mineral rights, you’re giving an oil or gas company permission to explore and produce resources from your land for a set period of time. In return, you receive financial compensation in two main forms: a signing bonus and royalty payments, which are ongoing payments based on the oil and gas extracted and sold.

‍

Pros

• Leasing your mineral interests allows you to maintain ownership of your mineral rights.
• A mineral lease provides steady passive income in the form of gas and oil royalty payments as long as the wells continue to produce.
• Leasing your mineral interest means you can renegotiate once the current oil and gas lease expires, potentially on better terms.

Cons

• If no drilling occurs, you may never receive royalties.
• Gas royalty payments can drop sharply if production slows or market prices decline.
• The company you lease your land to may use up the mineral supply before returning the land for development.

‍

Selling Mineral Rights

Selling your mineral rights means transferring ownership to a buyer for a lump-sum payment. After the sale, the buyer receives royalty payments and production income from the property. Some people advise against selling, believing that holding on might bring bigger profits later. But the truth is, royalty income isn’t always certain.

‍

Pros

• Selling your mineral rights provides immediate cash.
• It removes the uncertainty of oil price swings or poor well performance.
• The lump-sum payment can help with debt payoff, retirement, or reinvestment.
• You no longer have to deal with any management responsibilities.
• Your tax burden may be lower thanks to the capital gains tax on mineral sales compared to taxable income from leasing.

Cons

• You give up potential future royalties if production increases.
• You no longer hold ownership of the mineral rights.

‍

Selling vs Leasing: Which Comes Out on Top?

While leasing can seem appealing at first, it often comes with years of waiting, unpredictable royalty payments, and the risk that drilling may never happen. Selling, on the other hand, allows you to turn that uncertainty into an immediate upfront payment.

If you're ready to sell mineral rights, The Mineral Auction can help you. Our team will connect you with competitive buyers in the oil and gas industry who bid against one another to offer you the best possible price.

‍

Tips for Mineral Owners: Pitfalls To Avoid

If you’re thinking about selling your mineral rights to gas companies or other buyers, it’s important to avoid common mistakes. Many landowners lose out on thousands of dollars simply because they didn’t know what to watch for. Some pitfalls to avoid include:

• Accepting Offers Too Quickly – Many sellers take the first offer that comes their way, especially when they need quick cash. Rushing the process can lead to undervaluing your mineral rights. Take time to review multiple offers and get clear on what your property is truly worth before saying yes to any deal.
• Waiting Too Long to Sell – The value of mineral rights can change quickly when oil and gas prices go up or down. If you wait too long, the market might dip, and your assets could lose value before you sell.
• Trusting the Wrong Buyers – Some buyers known as “flippers” try to buy mineral rights for cheap and then resell them at a higher price. That means you lose out on money that should’ve been yours. Always work with trusted professionals who have your best interests in mind.
• Not Reaching Enough Buyers – Selling privately or to just one buyer might feel easier, but it limits your chances of finding someone willing to pay more. The more buyers who see your property, the higher your final price could be.

‍

How To Get Maximum Value for Your Mineral Rights

If you’ve decided to sell oil rights, the goal is to get the best possible price for what you own. But that doesn’t happen by luck. Whether you’re selling oil and natural gas or other natural resources, here are a few proven ways to help you walk away with maximum value:

• Market Your Mineral Rights – Strategic marketing helps attract serious buyers and build competition. Doing this often leads to higher bids and better terms.
• Compare and Negotiate Offers –  Before accepting any deal, take time to understand what your mineral rights are really worth. Look into recent sales in your area or get a professional valuation. When you know the numbers, you can confidently push for a better offer instead of settling for less.
• Get Professional Guidance – Work with an experienced mineral rights broker that truly understands the market. The right expert can connect you with qualified buyers and help you secure stronger offers.
• Use an Auction – Auctions create competition among qualified buyers, which helps to drive up the final sale price. This process makes it easy for you to receive fair market value for your property.

‍

Sell Your Mineral Rights for Maximum Value with The Mineral Auction 

If you’ve made it this far, you now know how oil and gas royalties and oil and gas leases work. While leasing may bring steady cash flow, it often comes with uncertainty and long waiting periods. Selling, on the other hand, gives you immediate financial security and the freedom to reinvest or use your earnings however you choose.

‍

At The Mineral Auction, we help mineral rights owners like you sell your rights for maximum profit. Our team will connect you with serious buyers who compete through a transparent auction process. This competitive process helps drive up offers so you can sell your mineral rights for true market value.

‍

Ready to get the most value from your mineral rights? Contact The Mineral Auction today to reach serious buyers.

‍