Risks of Leasing Mineral Rights

Should you lease or sell mineral rights? Before you decide, you weigh the advantages and disadvantages of leasing and selling, compare them, and determine what advantages you want to have and what disadvantages you may have room to tolerate.

For many, leasing mineral rights have been the option, because they like the idea of getting constant cash flow from royalties and whatnots more than the idea of getting a lump sum from selling mineral rights. It should also not be overlooked that leasing, in the long run, can translate to bigger overall money compared to the lump sum that can be acquired through selling.

But as said earlier, mineral rights owners like yourself should not just focus on the advantages. They should look into the disadvantages as well, so they can determine whether they can tolerate them. The main disadvantage of leasing is that it is open to risk, because owners are still greatly involved, as opposed to sellers, who are completely out of the picture once they sold the rights. Below are just some of the risks.

The price of the resource may decrease

The good thing about selling mineral rights is that you can valuate the minerals underneath your property at current pricing, so you can get the equivalent money in return. But you cannot say the same thing about leasing.

The price of the minerals may decrease over time, and this is not a big if, as it is actually very possible. The rise of renewable resources and alternatives will decrease the demand for your minerals, and therefore will cause price reductions and decreased royalties on your part. In this sense, you can make less money in leasing than selling, and worse, you will get this money incrementally and not immediately.

The resource may not be as abundant as expected

Your property will be studied, to determine the possible amount of minerals underneath it and give a proper value to them. Only then can a negotiation between you and a possible buyer can gain traction. But there are instances where the amount of minerals that have been determined in the study is not accurate, resulting into misestimated values and less royalties.

Again, if this happens, you may get less money in leasing than selling, just because your property has not been as productive as expected.

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