43
Let the seller of mineral rights beware
Youngstown
Oil and gas rights expanded quickly with more than 2,500 leases signed in April in Trumbull County, and now the community also has drawn businesses that want to buy mineral rights.
In many cases, they go after property owners with old leases who cannot sign another lease, said Alan D. Wenger, attorney for Harrington, Hoppe & Mitchell Ltc. of Youngstown.
“They are typically offered the same amount or just a little more to sell the rights than what their neighbors are receiving for leasing,” he said.
Selling mineral rights to a company is much more valuable than signing a lease, Wenger said. Those who sign a lease will receive some type of royalty payment if production is successful on their property. Individuals who sell their rights will not receive any royalties.
Royalty payments in this area average around 15.5 percent, he said.
“The landowner will likely lose whatever protection was given by an existing lease. The lessor’s rights under that lease would become rights enjoyed by the buyer of the mineral rights. Provisions concerning surface use, setbacks, environmental protections and the like might be jeopardized or lost to the selling landowner,” Wenger said.
There are reasons that some would want to sell mineral rights, said Eric Johnson, a Canfield attorney who specializes in oil and gas issues.
“I look at mineral rights like a pie. Once you’ve signed a lease, you’ve given up most of the pie,” he said.
Those being offered a deal to sell rights have to be careful and educate themselves just like those signing leases, Johnson said. Levels of mineral-rights sales range from the sale of all mineral rights to selling only the rights to existing production.
Today, private equity groups are willing to take a chance that Utica Shale production will be widespread and profitable, he said.
“They’re willing to bet that all the necessary hurdles will be cleared,” Johnson said.
The one caveat for selling mineral rights of any type is having a lease already signed and limiting the type of minerals being sold, he said. Then the lease will control the rights to access the property to drill for minerals.
“Get the lease money first, then go do the mineral sale if that’s what you want to do,” Johnson said.
Some people find just getting cash payments makes sense, he said. The key is to do research and understand what constitutes a good offer before agreeing to a sale.
Some question how much companies are paying to buy rights. Many companies are in the area, and if the rights were worth substantially more, the companies would offer more, Johnson said.
Dennis Kuchta, a Braceville Township trustee, said he had seen people who already have signed leases for mineral rights be approached by another company about selling their mineral rights and the royalties they would receive for production.
“These companies wouldn’t be doing this unless they expected it to pay off,” he said. “I don’t think it’s a very good deal for the landowner.”
Residents have to be on guard. Many companies are making phone calls and talking to residents about potential deals, Kuchta said.
“I never would have thought I would say this, but after nine months of working on this, people need legal representation” to make agreements on oil and gas rights, he said.
The companies often try to take advantage of the elderly, who might not understand the difference between selling and leasing mineral rights, Wenger said.
Selling mineral rights also could hurt the value of surface property, he said.