The amounts of money that change hands in mineral property transactions can be huge in comparison with the average person’s financial experience. The total yield (lease + royalties) or mineral sale price can often exceed the value of the surface rights. Let’s consider two examples:

Example A: A 100-acre property is completely underlain by a coal seam that is eight feet thick. The owner agrees to let a mining company remove the coal for a royalty of $3 per ton that will be paid upon extraction. Assuming a coal recovery rate of 90%, the owner would be paid nearly $4 million.

Example B: A 100-acre property is drilled for natural gas, and the royalties will be shared by owners of a 640-acre unit that immediately surrounds the well. The property owner is to receive a 12.5% royalty based upon the wellhead value of the gas, which at the time of production is $8 per thousand cubic feet. Assuming an average well production rate of 2 million cubic feet of gas per day throughout the calendar year the property owner would be paid over $100,000 dollars for one year of gas production.

Oil and natural gas transactions involve large sums of money, but the true value can be difficult to estimate – especially in areas where very little drilling has occurred in the past or where deep rock units are being tested for the first time.