How to Find Oil on Your Land?
The United States of America is one of the few countries in the world that allows private citizens to claim valuable resources below their property. Whenever land is bought in a fee simple estate, the new owner is able to claim mineral rights.
For some, mineral rights, which are also known as subsurface rights, can be very valuable. That is, of course, if your land has valuable natural resources such as crude oil, natural gas, and more.
If you are so lucky to own a property that contains oil or natural gas below the surface, then it can be tough to know what to do or where to begin. To help answer some of the most common questions on the subject, we’ve put together this guide on how to find oil on your land and what to do afterward.
Hiring Professionals to Find Oil on Your Land
In some instances, investors will purchase land for the sole purpose of gaining ownership of a working or defunct oil well. Although mineral rights exchanges are not required to be made public, it is generally very easy to see a land parcel’s history if there have been previous oil or gas operations onsite.
If there is no oil or gas history on your property and you want to find oil on your land, then there are a few different actions you can take without sinking too much capital into the investigation. Most commonly, you will want to hire a professional, such as a geologist or geophysicist. Both experts will be able to use scientific methods to determine whether or not it is likely that there is oil or gas on your land.
Beyond this, if you are in a high-producing area, some oil and gas companies may be interested in performing the resource search for you and see if they can find oil on your land. If you enter into an oil or gas exploration lease, then you may not have to pay for a geologist, but rather let the extraction company handle it in exchange for overriding royalty interests.
What is a landman in oil and gas?
In the oil and gas industry, a landman is a person who acquires subsurface mineral rights in order to begin a drilling operation. A landman may not always be the direct owner of the land, but rather associated with a larger entity that works to explore, extract, and sell valuable minerals.
In the United States, a landman can be one of three certification levels. From most basic to most advanced, these are:
- Registered Landman (RL)
- Registered Professional Landman (RPL)
- Certified Professional Landman (CPL)
Although a landman may specialize in one area of another, in general, duties are generally the same. A landman’s most common roles in mineral rights negotiations include:
- Researching public and private records to determine ownership of mineral rights
- Reducing title risks of mineral right ownership
- Negotiating the sale or purchase of mineral rights
- Determining ownership, managing, or combining mineral rights
- Contracting surveyors and extraction teams for procurement
Learn more about what a landman is in oil and gas.
How does an Oil Well affect my Property Value?
An oil well can affect property value in many different ways. For example, let’s assume you already found oil on your land — an active oil well tied to the mineral rights of the property owner can lead to a steady stream of income each month in oil royalties. With this as part of the deal, active oil wells will increase a property value if the mineral rights are included.
Inversely, having an oil well may not always be a selling point for some buyers. Oil wells in close-knit or semi-residential areas can be seen as an eyesore, with neighbors not interested in watching the extraction process. Likewise, abandoned or “dried up” oil wells on a property may decrease the value of a property.
Of course, if there may be oil or gas on your property that has not yet been explored, then the value of the land may dramatically increase if natural resources are found in the subsurface. Selling the property, or simply the mineral rights can lead to a large payout for land with drilling potential.
Read more about how an oil well affects property value.
How Much Money Can You Make From an Oil Well?
As much as we would love to say that an oil well on your property is going to make you a millionaire, there are many contributing factors that determine how much money can be earned. For properties in the United States, oil well payouts are determined by:
- Property Size
- Property History
- Estimated Number Size of Oil Reserves
- Percentage of Mineral Rights Ownership
- Royalty Percentage as Defined in the Lease Agreement
- The Price of Oil
- And the Volume of Oil Produced and Sold
So obviously, there is not going to be a “one-size-fits-all” solution to determine how much money you can make from an oil well. Instead, earnings are highly individualized, based on the property, well output, and nature of the contract.
In order to determine how much you can expect to make from your oil well, there are a few things that you can do. First, you can analyze the property history of your land or neighboring parcels that have records indicating well output and financial gain. Alternatively, you can work with an oil and gas broker to leverage your land with several companies. After all, you can only earn as much money from an oil well as your contract allows.
Learn more information about how to make money from an oil well.
How Long Does an Oil Well Last?
Of course, the expression “well runs dry,” means that an oil operation is not going to last forever. Instead, crude oil is a limited resource that can only be extracted until it is no longer available.
In the United States, most oil wells last between 20 and 40 years of significant production. Of course, this is an average lifespan of an oil well that is actively being tapped for the extraction and sale of crude oil. In reality, moderately rated extractions can allow an oil well to last much longer than a few decades.
After the operation has been deemed completed, the equipment of an oil well is removed and the surface land is restored back to its original form. Depending on the stage of its life, an oil well can be classified in one of five conditional categories. They are as follows:
- Inactive
- Suspended
- Abandoned
- Orphaned
For full definitions of each term, you can read more about how long an oil well lasts.
How Many Barrels of Oil Does a Well Produce?
Instead of asking how long an oil well lasts, determining how many barrels of oil it can produce is perhaps a better way to measure its lifespan. Unfortunately, like in many aspects of the industry, the number of barrels an oil well produces is highly individualized and largely dependent on the size and location of the reserve.
On average, most actively tapped oil wells will produce anywhere between 500 & 5,000 barrels of oil per day. Over a thirty-year lifespan, this has the implication of some oil well being able to produce millions of barrels of oil. This is largely unsurprising, as the state of Texas produces 3 billion barrels of oil per day among its estimated 150,000 oil wells.
Learn more about oil well production.
How Much Does an Average Natural Gas Well Produce?
Although crude oil is a bit easier to visualize, many people also wonder how much natural gas an average well can produce. Like oil wells, natural gas wells that are actively being drilled will typically last between 20 and 30 years.
Likewise, the production of a natural gas well is largely dependent on the reserve size and rate of extraction.
The largest natural gas wells in the country are known to produce nearly 3,000 billion cubic feet of natural gas. This is per year!
The exact numbers vary from year to year. Moreover, there are the top five natural gas-producing states in the US are largely consistent. They are as follows:
- Texas
- Pennsylvania
- Oklahoma
- Louisiana
- Ohio
Read more about average natural gas well production.
A Quick Guide to the Oil and Gas Laws of the United States
If there is oil or gas on your property, then it is a good idea to become familiar with it. This includes learning the basic oil and gas laws in the United States. There are many highly specific laws filled with painstaking industry jargon. Also, there are a few main laws that are critical to understanding. This includes:
- Mineral rights can be claimed by private individuals, corporations, Indian tribes, or by local, state, or federal governments.
- The mineral rights of a piece of land can be sold, bought, gifted, willed, or leased. It is as if they are any other piece of property.
- The General Mining Law in the United States allows individuals and companies to “locate” mining claims on public lands.
This is only scratching the surface of all of the mineral rights and oil and gas laws in the USA. For further information, you can learn more about oil and gas laws in the United States.
FAQs
What is the difference between mineral rights and royalties? ›
In simple terms, a mineral interest refers to a real property interest, which can be received when minerals are severed from a land's surface. On the other hand, royalty interests ensure that their holders enjoy a fraction of the generated production revenue.
How do mineral rights royalties work? ›When minerals are produced from a leased property, the owner is usually paid a share of the production income. This money is known as a "royalty payment." The amount of the royalty payment is specified in the lease agreement. It can be a fixed amount per ton of minerals produced or a percentage of the production value.
How are mineral royalties paid? ›Royalties are calculated as a percentage of the revenue from the minerals extracted from your property. For example, if oil is selling for $60 per barrel and the you negotiated a 1/16th royalty, you would receive $3.75 for every barrel of oil recovered from your land.
Does most land come with mineral rights? ›Mineral rights are automatically included as a part of the land in a property conveyance, unless and until the ownership gets separated at some point by an owner/seller. An owner can separate the mineral rights from land by: Conveying (selling or otherwise transferring) the land but retaining the mineral rights.
Do mineral rights ever expire? ›Every mineral rights agreement is different. However, most mineral rights agreements can last anywhere from 2 to 20 years. There is typically a primary, and sometimes a secondary, term for mineral rights leases that determines mineral rights expiring, depending on if any drilling has occurred.
Can you get rich off mineral rights? ›Mineral rights can be a very valuable – and profitable – property interest if you know how to utilize them. Mineral rights can refer to oil and gas, but can include other valuable substances like gold, silver, coal, and even sand, gravel and clays.
How much royalties do you get from an oil well? ›They generally range from 12–25 percent. Before negotiating royalty payments on private land, careful due diligence should be conducted to confirm ownership.
Who owns mineral rights in Canada? ›In Canada, property owners generally hold the surface rights, while mineral rights are usually owned by the provincial government. The government may award a time-limited (3-10 year) lease for the mineral rights to a company that wants to develop natural gas or oil.
How often are mineral royalties paid? ›Once your mineral rights are leased and producing, you'll most likely receive monthly royalty checks from the company operating the well.
How do I collect my royalties? ›- Step 1: Select a Music Distributor For Recording Revenue. ...
- Step 2: Affiliate Yourself With a Collection Society For Performance Royalties. ...
- Step 3: Associate With a Publisher to Collect All Your Global Publishing Royalties.
Should you ever sell mineral rights? ›
When it comes to mineral rights, the standard admonition has long been consistent and emphatic: Avoid selling them. After all, simply owning mineral rights costs you nothing. There are no liability risks, and in most cases, taxes are assessed only on properties that are actively producing oil or gas.
Are mineral rights worth anything? ›The value of mineral rights depends on various factors, including the mineral, the location, whether the right is producing, and more. The rule of thumb is widely accepted as a multiple of three to five times the income the right is currently producing, which doesn't apply to non-producing rights.
What is the difference between property rights and mineral rights? ›Surface rights are what you own on the surface of the property. These include the space, the buildings and the landscaping. Mineral rights, on the other hand, cover the specific resources beneath the surface.
Who has mineral rights on land? ›The Supreme Court, in 2013, conferred rights to mineral wealth on owners of surface rights rather than vesting them in the state. The Supreme Court, however, is yet to rule on certain aspects of ownership of minerals such as the liability of private owners to pay royalties to the state.
How many royalty acres are in a mineral acre? ›The net royalty acre is a term that explains the mineral royalty interest in one-eighth of 8/8 in one acre of land. Simply put, this is the number of mineral acres if leased at a 12.5% royalty. Calculating the net royalty acre is critical since it helps compare different tracts of land within an area.
How do you know if you have oil on your land? ›Experts believe the presence of certain rock types can indicate oil in an area. Oil is formed through decayed organic materials caught in areas of sedimentary reservoir rocks, and so inspecting rock types found within your property may help identify the existence of oil.
How to negotiate a gas and oil lease? ›- Don't Respond That You're Not Interested. ...
- Don't Rush to Hire a Lawyer. ...
- Don't Start Spending Money You Don't Yet Have. ...
- Don't Warrant the Mineral Title. ...
- Don't Lease Multiple Non-contiguous Tracts on One Lease Form. ...
- Don't Spout Off during Negotiating.
The 60-day period may be extended by BLM if necessary to comply with other applicable requirements of law.
How do I sell mineral royalties? ›- Find out if it is a good time to sell.
- Learn about the legal requirements for selling.
- Compile GIS Map Data.
- Advertise your mineral rights to buyers.
- Assess offers as they come in.
- Draft a PSA.
- Sign Buyer's Deed.
- Close the Deal and Get Paid.
While the royalties you could earn from your ownership of mineral rights are taxed as ordinary income, the IRS considers the amount gained from selling those rights to be a capital gain. As with the sale of real estate or other capital assets, you report the sale of mineral rights on Form 4797.
When should you sell mineral rights? ›
If your mineral rights make up more than 5% of your net worth you should consider selling. After selling mineral rights, you can invest in a total stock market ETF that will give you diversification AND give you a dividend payment every quarter.
How do I value my oil and gas royalty? ›To calculate your oil and gas royalties, you would first divide 50 by 1,000, and then multiply this number by . 20, then by $5,004,000 for a gross royalty of $50,040. Once you calculate your gross royalty amount, compare it to the number you see on your royalty check stubs.
How much is the average royalty check? ›Generally, the standard royalty rates for authors is under 10% for traditional publishing and up to 70% with self-publishing. That's right. In the example above, self-published authors make over $24,000 more than traditional authors for the same number of books sold.
How do you value oil mineral rights? ›As a mineral rights value rule of thumb, the 3X cash flow method is often used. To calculate mineral rights value, multiply the 12-month trailing cash flow by 3. For a property with royalty rights, a 5X multiple provides a more accurate valuation (stout.com).
Can you inherit mineral rights in Canada? ›Canada granted those rights for land in Alberta to the Crown in Right of Alberta in 1931. *About 90 per cent of freehold mineral rights are held by corporations or trusts, some of which have been set up by family owners, to manage inherited rights together.
Who owns the land on a mining claim? ›A patented mining claim is one in which the government has passed its title to the claimant, giving them exclusive title to the locatable minerals, and, in most cases, the surface and all resources. The purpose of the General Mining Law of 1872 was to encourage mineral development on federal land.
How far under the ground do I own Canada? ›As for how much of the land below your property you own, there's no real limit enforced by courts and there have been cases of people being prosecuted for trespassing on other people's property for digging even in the thousands of feet below the ground in the search for oil.
Do royalties ever expire? ›For artists in the US, the copyright protection of a song lasts for the lifetime of the copyright holder and an additional 70 years after their demise. This law applies to all bodies of works that have been published since 1978. The payment on these royalties also lasts for the duration of the copyright protection.
What percentage of profit do you pay for royalties? ›Calculating royalty percentages
Musicians and authors can usually expect between 2% and 10% from their publishers. Patent owners can usually set their own rate and will be able to demand a higher royalty for exclusive rights to their patents.
Royalties. Royalties from copyrights, patents, and oil, gas and mineral properties are taxable as ordinary income. You generally report royalties in Part I of Schedule E (Form 1040 or Form 1040-SR), Supplemental Income and Loss.
What is the difference between royalty deed and mineral deed? ›
A mineral deed is less restrictive and grants more rights over the mineral interest than a royalty deed. The second distinction between these types of deed has to do with the size of the financial stake. The mineral deed holder receives a higher reward but at the cost of higher risk.
What are mineral royalties? ›A royalty is a fee that is imposed by local, state or federal governments on either the amount of minerals produced at a mine or the revenue or profit generated by the minerals sold from a mine. A royalty can be imposed as either a “net” or “gross” royalty.
What is the meaning of mineral royalties? ›Mineral Royalty payable or paid is a non-deductible levy for computing company income tax when arriving at the gains and profits of a person carrying on mining operations.
What are the advantages of owning mineral rights? ›After all, simply owning mineral rights costs you nothing. There are no liability risks, and in most cases, taxes are assessed only on properties that are actively producing oil or gas. (In contrast, owning undeveloped real estate has carrying costs like insurance premiums and taxes.)
What are the three types of deeds? ›In India, some of the important types of deeds are:
Lease Deed. Gift Deed. General Warranty Deed.
As for receiving an oil and gas royalty payment, you will receive it ONLY IF the oil company drills a well and ONLY IF the well is a successful producer. Most wells drilled in a new area have only a 20% probability of being successful. There is a lot of money to be made in receiving monthly royalty checks.
What is a typical royalty percentage? ›Royalty Rate For Services
The average royalty percentage applied to licensed services varies between 2-15 percent of the total buy, depending on the attractiveness of the property.