[strider3700]

I'm currently looking at purchasing a chunk of land that has an oil well(maybe more then one) on it. Here's what it's description says

"Have a look at this revenue generator. Quarter section in **location removed** with a full 160 acres in cultivation. Current revenue $7,000 per year including land rental. Two year lease remaining on land."


I'm curious if anyone has experience with this sort of arrangement? $7000 per year of income would cover the loan on the land after having made the down payment necessary. I'm not sure what the Two year lease refers to. Perhaps the cultivation aspect?

It looks like one person is selling off an entire section in the 4 parcels. Two have oil wells and two don't. $100,000 for the wells, $90,000 without.

[emersonbiggins]

Well, my experience is that drilling rights (and, in your case, land) are leased to the oil company for X years, usually for a fixed fee. Any royalty income generated by the production of oil is above and beyond this, and distributed across the entire section (640 acres). I would hope that the transfer of mineral rights to you is explicitly stated; otherwise, you might only be entitled to the land rent, though I'm not even sure about that.

I know just enough about this to get someone in trouble, I'm afraid.

*EDIT* There may be a much simpler explanation for the lease: contract farming? In that case, you basically can't touch the land in cultivation for two years, unless you break the lease.

[strider3700]

Up here mineral rights almost never come with the land. It's so rare that I think in years of reading land ad's I've seen it listed twice. The land was also 4 times the cost of an identical parcel right beside it that didn't have mineral rights.

So if the lease is referring to the oil wells then I may only get $14,000 and then they could decide not to renew meaning I get 160 acres of pasture land I can pay for. Crappy deal being so remote.

[emersonbiggins]

$this->bbcode_second_pass_quote('strider3700', 'S')o if the lease is referring to the oil wells then I may only get $14,000 and then they could decide not to renew meaning I get 160 acres of pasture land I can pay for. Crappy deal being so remote.

[I_Like_Plants]

Ask the Iraquis how they feel about living on property with oil under it......

[rockdoc123]

My recommendation is this is not something for someone who is not completely well-informed. Here are some of the issues you need to be aware of:

- oil wells don't keep going forever without some sort of intervention or maintenance. There is an operating cost associated with pumping oil. So-called stripper wells have profits that are generated just slightly above the operating costs and are at the margin of being economic....a minor drop in production can put this into the realm where you lose money.
- there are often substantial costs associated with abandonment. These can run from a few thousand dollars to hundreds of thousands of dollars dependant on the condition of the wellbore
- Superfund. This is the extremely onerous environmental liability act in the US which came about as a result of the Valdez incident. Basically if you owned an oil well at any time you can be held liable for environmental damages. Eg: you get cross flow of hydrocarbons into an aquifer, or sepage at surface. Even if you sold this well you can be held responsible if the person you sold it to has no money. You are required to fix the problem no matter how much it costs.....jail terms are an option.

IT can be done, people do it all the time but you need to understand what you are getting into.

[pip]

In this part of the world it is rare to get mineral rights when buying property. If the ad does not mention it, you're probably not getting the minerals. I've even seen sellers reserving wind rights on property.

[strider3700]

I seriously doubt the mineral rights are included.

This would be all about the land lease which unless the original owner somehow got screwed real bad means you don't have to worry about any of the liabilities and so on. It should all be the responsibility of the company that is running the rig. The lease would have to be read over of course to see whats involved.

I'm not super interested mostly because the land is too far away to be useful to me at this time. It's way up north and would take close to 24 hours of driving to get there. It seemed like an interesting prospect when I came across it and figured I'd ask around about it.

[seahorse]

Strider,

In the U.S., each state will have different laws pertaining to land rights. For example, in the State I live in, Arkansas, if you buy land you buy both the real property and mineral rights, unless those rights are specifically excluded. Mineral rights can be sold separately or leased. Typically, in Arkansas, mineral rights are leased.

Whether the rights are leased out or in fact owned by the energy company, here's the problem you have as a landowner, the mineral company either under its deed or its lease has the right to enter your property and drill whereever the hell it wants to drill whenever it wants to. Normally, they try to be reasonable and are in fact reasonable, however, this can be a serious problem for the landowner and can seriously effect the FMV of the land you are buying.

Rockdoc also makes an important point, which is responsibility for "remediation" of the land after the gas/oil/ or coal company pulls out. Arkansas clearly makes it the responsibility of the mineral company to remediate, however, I have looked under the Federal "CERCLA" laws to know what the Federal statutes say. What applies to you, I don't know, but you would want to consult a local attorney that does know.

It sounds as if you would be buying the land and mineral rights, but the mineral rights have already been leased. Not having seen the deed of course, I don't know, but based on what you describe, that sounds like it.

If the mineral rights are under lease, you would want to see a copy of the complete lease and understand its terms. Again, if this were Arkansas, the lease would be a public record as it would have to be on file with the county clerk's office. I don't know what your laws require.

My advice, do not buy a property like this unless you have an attorney review both the proposed deed and the mineral lease to make sure they both say the same thing and that you know exactly what you are buying and leasing. Prevetion first, always, worth a pound of cure.