Avoiding Legal Trouble

Details Surrounding Mineral Leases And Royalties

One of the main aspects of oil and gas law involves the leasing of properties. It is common for companies to lease land from property owners rather than buying the land outright. When a property owner chooses to lease land to a company for extraction of minerals, it is possible for royalties to be an integral component of the lease. There are a variety of different components of mineral leases and the function of royalties that must be understood before a lease is signed by a land owner.

No Purchase of Land

There are many instances when a mining company would choose to lease land from land owners rather than buy the property in full. This often occurs when a mining company is not completely certain the amount of minerals that can potentially be extracted. When there is uncertainty, it is common for a mineral lease to be agreed upon between a land owner and the company looking to extract minerals. It is possible to lease just the mineral rights or a certain percentage of the mineral rights on any land.

What a Lease Agreement Provides

A lease agreement that is binding between a land owner and a mining company offers certain rights to both parties. The mining company has the ability to go onto the property and perform a variety of tests. These tests are designed to determine if there are enough minerals within this area. Simply to have the right to conduct these tests, it is necessary for mining companies to provide payment for the amount that is specified in the lease agreement. The land owner often gets access to these funds once the lease is signed. This payment that is given to the land owner allows the mining company to have access and rights to the property for a specified amount of time that is detailed within the lease agreement.

Royalty Payment

If a sufficient amount of minerals are found to exist on the land, it is likely that the mining company will begin producing minerals. Once the minerals are produced, the land owner will begin to receive royalty payments. The actual amount of the royalty owed should be stipulated in the lease. It is normally a share of the income made during production of the minerals. The amount of royalties can be based on volume of minerals produced from land or a percentage of value when produced. Any terms that a land owner would prefer to be included in the lease can also be added as long as the mineral company agrees to terms. For more information, contact lawyers like Roberts Miceli & Boileau LLP