How Are Land Mineral Rights Holders Compensated by Oil Companies When They Drill?
To drill on a particular portion of land, an oil company must first purchase the mineral rights to the land. These mineral rights may be owned by a number of different parties, including individuals, businesses and governments. If the oil company fails to purchase the rights to these minerals, it can be sued for damages. Oil companies may attempt to compensate these mineral rights holders in a variety of ways.
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Mineral Rights
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In the case of oil companies, the term "mineral rights" will generally refer to subsurface mineral rights. These include all minerals found beneath the surface of the earth, including natural gas and crude oil deposits. A person who owns this land must provide permission to another party to collect and harvest these minerals, even if the other company accesses these minerals from a location adjacent to the property, such as in the case of "slant" oil drilling.
Purchase
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One of the main ways that an oil company can purchase land rights is to purchase them outright. In some cases, an oil company may purchase an entire plot of land. However, in other cases, the oil company may simply purchase the right to mine minerals there indefinitely. The U.S. Minerals Management Service holds regular auctions of mineral rights to government land that oil companies can purchase for exploration and drilling.
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Percentage
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In other cases, oil companies may choose to compensate mineral rights holders by providing them a percentage of the profits earned from minerals taken out of the land. The oil company will bear the costs of production, but, in exchange for providing the company with the right to drill, the mineral rights holder will receive a cut of revenues or profits generated from the sale of the crude oil or natural gas extracted from his property.
Rental Rights
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In lieu of buying the rights to a property outright, some oil companies may lease the land for a short time. This is often the case if the land has not been surveyed and it is unknown how much oil the land contains. Oil companies will frequently lease the rights to a piece of land and the drill test wells. If the company strikes oil, it may attempt to extend the lease or buy the rights to the land outright.
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