Mineral right drilling for oil

Recently many residents on the Far East side of Aurora and other cities extending north of Aurora have received offers to lease their sub surface rights to allow drilling for oil.  A recent television report suggested that homeowners receiving such lease offers contact their Realtor. So let's unpack this lease offering:

1. What is known as the Denver-Julesburg Basin extends south from Nebraska/Wyoming into El Paso County on the South, and encompasses large areas of front range counties such as Arapahoe, Adams, Boulder, Douglas, Weld and others and extends into Kansas. There are considerable oil and natural gas reserves in this basin, but much of the remaining accessible oil is trapped in rock formations miles below the surface.  To access this oil, a process known as "fracking"  is employed.  Without trying to explain the entire process of "fracking", one element involves horizontal drilling, where a bore is extended sideways from a vertical well, often 3 or more miles below the surface.  Those sideways bores often extend as much as 2 miles from the vertical bore, and may extend under residences and other private property.

2. Real property (homes, shopping centers, etc.) is often sold with mineral (including oil) rights excepted, meaning the home owner does not own the rights to the oil or other minerals below the surface.  This exception is shown on the Title Insurance Policy that home and other property owners should receive at the time of purchase.  It also just as likely that the mineral rights were not excluded, and the homeowner has ownership of the oil (gold, coal, natural gas) located in the earth below their lot.

3. The practice of securing lease rights to the homeowners and their many neighbors allows the oil exploration company to drill under the ground, and if oil is located, to extract the oil.   In return, the home or property owner receives a small stipend to allow for the drilling, and a percentage of the profit from any recoverable oil. This is what is involved in the lease offerings homeowners are receiving.

4.  Before too many people get excited about the prospects of getting rich from "their" oil, understand that even if a well is successful, that actual compensation will not be great for most home owners.  

5.  What to do:  If you have received such a lease offer, or receive one in the future, do contact your Realtor. If may be wise to review your Title Insurance Policy, and speaking with an attorney may be beneficial.  All cases are different, and the lease offerings are different.  If is often difficult to understand exactly what your lease entails, or the potential benefits or risks a homeowner may derive from executing such a lease.

6. Lastly, anyone receiving a lease should investigate the lease thoroughly, and obtain expert assistance as necessary.  And remember, the exploration companies offering the lease do not work for you, nor do they necessarily represent your best interests.

-Larry McGee, Broker
The Berkshire Group