The Different Types of Mineral Leases in North Dakota: What You Need to Know

If you own mineral rights in North Dakota, one of the most important decisions you’ll make is choosing the right type of mineral lease. The type of lease you choose can affect your income, the length of the agreement, and how involved you need to be. In this post, we’ll break down the different types of mineral leases commonly used in North Dakota, including fixed-term leases, royalty-based leases, and more.

1. Fixed-Term Mineral Leases

A fixed-term lease is a lease that lasts for a set period, such as 3, 5, or even 10 years. The company leasing your land has the right to explore and extract minerals during this time.

• Duration: The lease specifies a set time frame, and drilling or exploration must start before the lease expires.
• Termination: If no drilling occurs within the agreed time, the lease ends, and you can lease your land to someone else.
• Pros: You get a clear timeline, and you can renegotiate or sell your rights once the lease term is up.
• Cons: If drilling is delayed, you might not receive any compensation.

2. Royalty-Based Leases

In a royalty-based lease, the landowner receives a percentage of the revenue from mineral production, usually oil or gas.

• Royalty Payments: The landowner gets paid based on the amount of oil or gas extracted. The royalty rate is usually between 12.5% and 25%.
• Payment Structure: Payments are made regularly (monthly, quarterly, etc.) based on production levels.
• Pros: You receive ongoing income as long as minerals are being extracted.
• Cons: Income can vary based on production levels, and it’s dependent on the success of drilling operations.

3. Paid-Up Leases

A paid-up lease involves the oil or gas company paying you a lump sum upfront, regardless of whether they extract any minerals during the lease.

• Lump Sum Payment: You receive the full payment at the start of the lease.
• No Ongoing Royalties: You don’t receive regular payments based on production.
• Pros: Immediate cash, no need to wait for royalties.
• Cons: You miss out on ongoing payments if the company extracts significant amounts of oil or gas.

4. Gross Revenue Leases

A gross revenue lease gives you a percentage of the total revenue from mineral production, not just the royalty.

• Gross Revenue: You get a share of all revenue from oil or gas sales, not just the profits after expenses.
• Pros: If the production is high and the company keeps costs low, you benefit more.
• Cons: If the company’s costs are high, you may receive less compensation.

5. Market Value Leases

A market value lease calculates the royalty based on the current market price of the minerals rather than the company’s revenue.

• Market Value: Your payment depends on the current market price for oil, gas, or other minerals.
• Pros: Payments can reflect the current market conditions, ensuring fair compensation.
• Cons: These leases may be more complicated to track and manage, especially when prices fluctuate.

6. Shut-In Royalty Leases

A shut-in royalty lease occurs when a well is drilled but temporarily not producing oil or gas. The landowner still gets paid during this time.

• Shut-In Royalties: You receive payments when a well is “shut-in,” meaning it’s not producing at the moment but could produce in the future.
• Pros: You still receive some income even if the well isn’t producing right away.
• Cons: The payments are often lower than payments for an actively producing well.

Conclusion

Choosing the right mineral lease for your land in North Dakota depends on your financial goals and the level of involvement you want. Whether it’s a fixed-term lease with a set end date, a royalty-based lease for ongoing income, or a lump sum paid-up lease, it’s important to understand your options.

Before signing any lease, it’s a good idea to talk to an attorney who specializes in mineral rights to ensure the lease terms are in your best interest. This will help you make the best decision for your property and your future earnings. Contact us at 1280 Royalties for more information.