How Are Mineral Rights Passed Down?

When a loved one passes, you might inherit more than memories; you could also receive mineral rights: rights to underground resources on a piece of land. But how are mineral estates passed down, and what happens when you suddenly become the owner of oil, gas, or mineral interests?

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For many, these rights can be confusing or easily overlooked. But if you're new to mineral ownership, the information you need is available. Keep reading to understand how mineral rights are passed down and what it means for you.

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Key Takeaways

• Mineral rights are passed down through a will, a transfer deed, a trust, or by intestate succession.
• If you've inherited mineral rights, you have the option to hold, develop, lease, or sell them.
• To sell your mineral rights, you can get in touch with the team at The Mineral Auction.

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How Are Mineral Rights Passed Down?

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Sometimes mineral rights are passed down through a formal will. At other times, they are transferred through estate paperwork or local laws. If you've recently inherited mineral rights, it helps to understand how that ownership may have been passed to you. Here are some of the most common ways mineral rights are transferred:

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Through a Will

If the previous mineral rights owner created a will and named you as the beneficiary, the rights are passed to you through the probate process. This is the legal process through which the will is reviewed and carried out by the court.

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In a Trust

Some mineral rights owners place their rights into a legal agreement called a trust, where a third party, the trustee, manages the assets. When the owner passes, the trustee transfers the rights to the named beneficiaries as outlined in the trust. This can make the process faster and simpler than going through a will.

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By Intestate Succession

If a mineral rights owner dies without a will or trust, their rights are passed down through intestate succession. While the rules vary, the rights are typically divided among close relatives like a spouse, children, or siblings. Even if you weren’t named directly, you might still inherit a share as a legal heir.

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Transfer by Deed

To simplify things and avoid probate, some people who own mineral rights choose to transfer their rights while they’re still alive. They do this through a deed and update the records to make the handoff official. Transferring mineral rights before death is a simple way to prevent confusion or disputes after a person passes away.

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How Are Inherited Mineral Rights Different Than Other Inheritances?

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Inheriting mineral, oil, and gas interests isn’t quite like receiving a house, car, or savings account. Mineral rights are often less visible, more complicated to manage, and may not come with clear instructions. Here are a few ways inherited mineral rights tend to stand apart:

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Ownership Is Often Shared

Unlike a car or home that’s usually left to one person, mineral rights are often divided among multiple heirs. You might inherit just a portion, especially if the rights have been passed down through generations. This can make decisions like leasing or selling more complex, since multiple people may need to agree.

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Information May Be Limited

When you inherit mineral rights, you may not receive key documents like a lease agreement, royalty statements, or production records. Unlike other assets that come with clear paperwork, mineral rights often lack the information needed to understand what you own or how to manage it fully.

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Income Isn’t Always Guaranteed

Unlike a home that can be rented out or an investment that pays dividends, mineral rights don’t always produce regular income. Even if they are generating royalties, the amount may fluctuate depending on production levels, market prices, and other factors. In some cases, inherited mineral rights might not bring in any income at all.

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Mineral Rights Can Be Severed from Surface Rights

Mineral rights can be legally separated from the land itself. This means you can inherit mineral rights without owning the surface rights. While traditional inheritances like homes or land are usually passed down as a full package, mineral rights are often treated as a separate asset that’s inherited on its own.

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What To Do If You Inherit Mineral Rights

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Inheriting mineral rights can feel a little overwhelming, especially if you weren’t expecting them or aren’t sure how they work. It’s not always clear what steps to take next, and the process can feel unfamiliar at first. Here are two major things you can do if you inherit mineral rights:

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Lease Them

If you inherit mineral rights, one option is to lease them to a company interested in drilling for minerals. You can do this through a lease agreement, which gives the company the temporary right to explore and extract minerals for a set period, known as the primary term.

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In most cases, you’ll receive an upfront signing bonus when the lease is signed. If the company drills and produces during the lease term, you’ll also earn monthly royalty payments based on your share of production. However, it’s important to know that not all leases result in drilling.

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Sell Them

Another option is to sell mineral rights outright and receive a lump-sum payment. This choice can be appealing if you prefer a guaranteed value now rather than waiting on uncertain royalty payments tied to future drilling or market prices.

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Buyers usually calculate an offer based on three things:

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• Any existing production and royalty income
• The potential for new wells to be developed
• Current and projected prices for oil or gas

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Why Sell Mineral Rights?

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Selling your mineral rights can be a straightforward way to turn an uncertain asset into immediate value. For many mineral owners, it’s a smart choice, especially when future drilling or royalty income isn't certain.

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Here are some reasons why you may wish to sell your mineral rights:

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• Control – Unlike stocks or property, you have no real control over how or when mineral rights generate income. So, selling gives you more freedom over your financial assets.
• Taxes – Royalty income is taxed as regular income, but selling your mineral rights may be taxed at a lower capital gains tax rate.
• Timing – Waiting for drilling can take years, or it may never happen at all. But selling gives you immediate value without the long timeline and uncertainty.
• Risk – Holding onto mineral rights can be a gamble. You could wait decades for development that never comes or results in minimal income.
• Financial Need – If you’re facing urgent expenses, such as medical bills or housing costs, selling mineral rights can provide the quick funds needed to stabilize your situation.

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How To Determine the Value of Your Inherited Mineral Rights

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Before you sell mineral rights, it’s important to have a general idea of what they might be worth. You don’t have to handle the valuation alone; experts like those at The Mineral Auction can guide you. In the meantime, here's how to get a rough idea of the value of your mineral rights: 

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• Estimate recoverable reserves using geological surveys or past production data.
• Check production potential, like areas with strong drilling activity or existing wells.
• Review your lease agreement by checking royalty rates, bonus payments, and expiration dates.
• Consider future development, such as nearby drilling plans or advances in drilling technology.

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Who Might Buy Your Mineral Rights?

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If you’re new to mineral rights, it can be hard to figure out who might be interested in buying them. The truth is, several types of companies  actively look for these assets, including:

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• Production Companies – These buyers in the oil and gas industry already operate wells and aim to increase their existing production. They buy your mineral rights to increase their reserves.
• Oil and Gas Exploration Companies – Oil and gas companies look for new areas to drill. If your mineral rights are in a location that fits their goals, they might buy your rights to begin exploration.
• Investment Funds and Private Equity Firms – These groups buy mineral rights as investment assets and may partner with other companies to develop or lease them.
• Mining Companies – Mining companies acquire mineral rights either for future extraction or to hold as reserves. They usually begin production years after the purchase.
• Investors – These buyers purchase the rights as an investment and later sell it to mining companies, which handle the actual extraction.
• Royalty Companies – These companies purchase mineral rights to collect the royalty payments for oil and gas that are extracted and produced from the land.
• Independent Operators – These operators are smaller companies that operate in a specific region. They generally focus on acquiring and developing the oil and gas reserves in that limited area.

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We Can Help You With Your Inherited Mineral Rights

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Learning how mineral rights are passed down helps you understand what you own and what to do next. Unlike other assets, mineral rights ownership can be complex, especially if you're unfamiliar with the industry. Whether they came through a will, trust, or deed, knowing your options matters.

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If you’re ready to sell mineral rights, The Mineral Auction is here to help. We work with a variety of companies and a vast network of buyers to help you access competitive offers. Whether you own producing or non-producing mineral rights, our team of mineral rights brokers can guide you through the process.

‍If you've inherited oil and gas interests and are planning to sell, get in touch with The Mineral Auction to maximize your profits.