How to Lease California Mineral Rights

Minerals at the surface may indicate geological resources below ground.

Geological information, deed title and good negotiation skills are required to successfully lease mineral rights in California. Most productive mineral deposits are already being developed by oil and gas companies, however, there are still opportunities to lease mineral rights for exploration. Innovative drilling techniques continue to produce from previously inaccessible mineral deposits, making mineral leases in the right locations more and more valuable.

Things You'll Need

• Geological maps
• Deed titles
• Lease agreements

Instructions

1. Review all available geologic information for the specified location. Some mineral leases are for purely exploratory purposes, which entails drilling wells to determine if minerals of sufficient volume and accessibility occur. Before preparing a lease agreement and paying for exploratory wells, an extensive review of available geologic information is prudent.

2. 

   County offices are a good place to search for mineral ownership records.

   Examine deed titles at title company offices and county record offices to identify or clarify mineral rights ownership. Mineral rights may have been separated from the surface rights of a property so it is imperative to determine, with legal proof, rightful ownership.

3. Prepare a lease agreement representing the initial negotiation vehicle. The lease agreement should describe in detail information on rents and royalties to be paid. Rental is usually expressed as a rate per acre based upon 100-percent ownership of minerals. Royalties are expressed as a share of the production value of oil, gas or other minerals, usually 12.25 percent (1/8) or 16.75 percent (1/6) of net proceeds from the sale of minerals. The owner's royalty can be taken in kind or in money equivalent and is written as such in the lease agreement. Taxes are paid from the owner's royalty share, at the percentage rate, before distribution.

4. Contact owners and negotiate a lease relying on a prepared agreement. The potential lessor, the owner, will need verification that the potential lessee, the renter, is a legitimate organization. Key negotiation points will be the rent and royalty payments and type of drilling operation (exploratory or production well) as this type will affect the production value of the lease. Once an agreement is reached and a lease is signed, it becomes a binding legal contract between lessee and lessor.

Tips & Warnings

• Some lease agreements will grant limited term access where the rights will revert to the owner if there is a failure to obtain production.

• Mineral leases are binding contracts. Consult an attorney before signing agreements, make sure signed agreements are conveyed in a timely manner and keep good records with updated addresses and locations of signatories.

References

• California Division of Oil and Gas: Leasing Land for Oil and Gas Development in California
• California Division of Oil, Gas and Geothermal Resources:Laws for Conservation of Petroleum and Gas