Leasing my land: oil, wind or solar? Or all of the above?
Oil leases for landowners:
We have all heard of landowners who leased their properties to oil companies and benefit from decades of royalties. Even if nobody has dropped by yet, your land may be suitable, and some landowners have successfully combined oil leases with solar or wind leases, creating multiple income streams.
Landowners whose properties sit above oil and gas reserves can hit the jackpot – if all the right factors converge: the oil or gas reserve needs to be sufficiently large and easy to access in order to be economic to extract, and the chance of success is much higher whenever oil and gas prices are high and investors are expanding their drilling budgets. Even so, most exploration wells are dry – which means that even if you lease your land and drilling starts, your lease royalties might not last very long, and might not start for a long time if oil prices aren’t high.
As a landowner, you also need to find the right oil company with whom to partner. You can start by learning about mineral rights and how to work with landmen if they approach you to offer to lease your land. In Texas, the Railroad Commission of Texas regulates the oil and gas industry and has relevant information for landowners.
Although renewables such as wind and solar are fast growing industries, oil and gas remain the backbone of the world economy, which means that landowners for generations will continue to benefit from lease royalties even as solar and wind projects grow around them. If agriculture is still your primary priority, Telkes can make sure that whoever leases your land does not impact your farming activities. Contact us to learn more.
If I have an oil lease, can I also lease my land to a solar or wind developer?
Yes!
Leasing your land to an oil company for drilling does not exclude also leasing it to a solar developer, and is your best bet to ensure stable and reliable lease income over the long term.
Oil leases yield income based on how much oil is produced by the wells drilled on your land, which can vary greatly based on the available resource, and even the most successful wells eventually decline. Additionally, the price of oil varies greatly – when oil trades at $40 per barrel, your drilling royalties will be much lower than when oil trades at $120 per barrel.
Solar and wind energy is not as variable – weather is constantly changing, but over the long term, the annual solar or wind electricity production is fairly constant. Although electricity prices do vary, most solar and wind developers sell their electricity at fixed prices through a Power Purchase Agreement, so their revenues are stable, which means that developers lease land for fixed rates per acre, that are escalated each year based on inflation. Solar leases last between 20 to 30 years, so the landowner’s income is guaranteed during this time. Moreover, solar and wind resources are inexhaustible – unlike oil and gas, a solar or wind project can potentially yield lease income for the landowner forever, while oil and gas are eventually depleted.
How can my land host both oil wells and a solar project?
When a landowner enters into an oil lease, he is granting the oil company the mineral rights to his land, but the surface of the land is available for other uses. James is a landowner in the Texas Hill Country and has several oil wells on his 300 acres of land, which have yielded variable royalties over the last fifteen years. The oil company also has the right to drill more wells on his land, which is currently used for cattle grazing. James has recently signed a solar lease and a solar project is under construction that will soon yield $70,000 in annual lease income. This is in addition to the oil royalties.
How did James lease his land to both an oil company and a solar developer?
The first step was to understand if there is an opportunity for a solar project, which Telkes helped evaluate before finding a solar developer who offered to lease 100 acres of James’ land, in order to build a 35 MWp solar project that the developer designed. Although James and the solar developer reached agreement on a solar lease within a few weeks, the solar company had to negotiate with the oil company that has the mineral rights before leasing the land from James.
In order to propose a solar lease that was compatible with James’ preexisting leases to the oil company, the solar developer had to consider the oil company’s rights when designing the solar project. Since the oil company has the right to drill more wells anywhere on the ranch (within the red boundary), the solar developer had to make sure that a future solar project will not get in the way of new oil wells and won’t prevent the oil company from drilling.
The solar developer had to negotiate with the oil company to agree on which parts of the ranch were most likely locations for future drilling. The oil company agreed to only drill within the green shaded areas, and the solar company agreed to only build the solar project within the yellow shaded areas. If the oil company needs to access oil located under the yellow shaded areas where the solar project will be built, they will do so by drilling a deviated well from a wellpad in the green shaded area. Since wells do not need to be vertical and horizontal drilling is an option, the oil company can still access oil under the future solar project (yellow shaded area) without disturbing the solar project.
Although it took longer to negotiate a solar lease that was compatible with James’ preexisting leases to the oil company, it was still possible to combine a solar lease with an oil lease on James’ land, allowing him to benefit from an additional income stream.
If you are a landowner who has granted mineral rights to an oil company, this should not prevent you from also leasing your land to a solar developer. It might take longer to negotiate a solar lease that is compatible with the oil lease, but many landowners like James have been able to benefit from both oil and solar leases, and there are some who have even been lucky enough to combine oil leases with solar and wind projects. Telkes can help you find the best partners to lease your land for multiple purposes, in order to maximize the income from your land.
LEARN MORE
How valuable is my land? How to negotiate a solar lease
How can I make money from my land? Grid interconnections needed for solar
Texas land use past and present: how solar fits in
Case Study: A Texas Landowner who found a solar lease that allowed him to retire
Tell us about your land, so that energy developers can propose a solar project on your plot. Make money from your land and make the world more sustainable.
