Defining Mineral Rights

Mineral rights are different from surface rights. Mineral rights are best defined as the ownership rights to mineral properties in the ground. Examples include fossil fuels, such as natural gas, coal, oil, etc. It also includes gold, silver, and other metals and ores. It even covers quarry materials, such as rock, gravel, and sand. Owning the mineral rights allows the owner to capitalize on any of the minerals found on their acreage. (It does not include water rights.)

The primary scenario is for a surface landowner to also own the mineral rights. Oftentimes, this is referred to as fee simple, unified tenure, or unified estate. Simply, the surface and mineral rights are still attached.

That said, it’s common for mineral rights to be severed. (This is sometimes referred to as a split estate.) According to Investopedia, in some states, it’s almost always expected. For states such as Colorado, Louisiana, New Mexico, Oklahoma, Pennsylvania, Texas, and others, it’s the norm, and not the exception. In contrast, in other states, severed mineral rights is the exception, and not the norm.

“It’s one of the bundle of rights that are tied or not tied to the piece of property“, said Cody Robertson, a Whitetail Properties Land Specialist in Texas. “In Texas, it most often has been severed. Generally, most of my listings don’t have mineral rights attached to them. Occasionally, we come across a property that does. Most of the time, it’s fractional ownership.”

Fractional ownership of mineral rights is where multiple people or entities own shares of the mineral rights. Each member might have 50%, 25%, etc. This is common when land is passed down to children, grandchildren, and other beneficiaries.

“Generally, within the mineral rights, even if it’s a fractional interest, the bundle of mineral rights is fully intact,” Robertson said. “That’s to say, if it’s a 1/8th percent ownership on 100 acres, it still has the royalty rights attached to it.”

Other mineral rights ownership types exist but are far less common. The above three scenarios are the most common in America.

Overall, the United States offers much more freedom, especially compared to other countries. Canada, and many other governments around the world, retain ownership of mineral rights. It isn’t possible for private landowners to capitalize. In these areas, private landowners can buy land, and own surface rights, but nothing more.

What Are Mineral Royalties?

Mineral royalties are best defined as a share of mineral revenue. In most cases, a mining company extracts the minerals, and the mineral rights owner receives royalties. Sometimes, this is the surface landowner. If the mineral rights were previously severed from the property, it might not be.

Of course, there is a difference between selling mineral rights and leasing mineral rights. Generally, selling the mineral rights translates to the severing of mineral rights from the surface land. The landowner no longer owns the mineral rights, and usually, does not receive mineral production royalties. They receive a one-time payment.

In contrast, leasing the mineral rights means the landowner still owns them, but leases the right to drill, mine, or otherwise explore for minerals on their land. Under this arrangement, the landowner generally receives a signing bonus and subsequent royalties. If the minerals are greater in volume than initially expected, this can be the better choice.

When considering leasing mineral rights to a company, keep important considerations in mind. Study the buyer’s reputation, reliability, offered price, contract terms, and much more. Work with a proven real estate lawyer to secure the best deal possible. It’s important to recognize the details within royalties, including gross royalties, net royalties, and more, all which impact profits.

Mineral Rights and the Impacts on Land Price

Usually, excluding water, anything below the surface of the ground is included under the mineral rights umbrella. Depending on location, the severing of mineral rights can impact the price of land. In areas of Texas, where mineral rights exclusions are expected, it has less impact on price and interest in listings. In other states, where mineral rights usually go with the property, severance has a greater impact on price and interest.

“As with most things with real estate, location is key,” Robertson said. “In the bulk of my territory, it’s basically expected that minerals have already been severed or will be excluded. It really has no impact on value.”

“That said, if there is a fractional interest attached, it impacts the value in a positive manner,” Robertson said. “Usually, in my area, it’s more for surface protection than royalty generation.”

If the mineral rights are still attached, the real estate agent and landowner should converse about this prior to listing.

“In Texas, the most important thing to keep in mind is that most property owners, even if they think they own something, they don’t know for sure,” Robertson said. “But the burden is on the property owner, and their representative, to reserve those minerals. In Texas, if a mineral addendum is not included in the contract, minerals automatically pass with the property. It needs to be included in the deed, or they’re giving away mineral rights they own.”

Determining if Mineral Rights Are Still Attached

Do you still own the minerals? Do you have anything showing the mineral rights ownership? Are they currently leased? Have they been leased in the past? These and more are important questions to answer.

In some states, it’s required to disclose to buyers the status of mineral rights ownership. In others, it isn’t required. In either instance, it’s best landowners reveal the status, and if they don’t, buyers should inquire about it.

In some instances, neither the seller nor the buyer will know. And the details don’t always turn up in initial title searches. This can lead to problems, as it can produce issues down the road, especially if someone who doesn’t own the mineral rights attempts to cash in on these.

Fortunately, there are some safeguards against this. First, study the title records. Examine the current and historical deed transfers. Sometimes, mining companies file paperwork, including maps, of the areas they own and/or have mined minerals. Furthermore, hire a real estate lawyer who’s experienced in this field. Additionally, consult the services of a proven land man.

“Unfortunately, at least in my region, a lot of property owners think they still own something, but unless you have a mineral report from a land man, or previous lease showing how many mineral acres you own, it’s very difficult to tell whether you own mineral rights or not,” Robertson said.

So, how would someone go about determining if a property still has the mineral rights attached to it?

“If it hasn’t been leased in recent years, that’s generally going to require engaging the services of a land man. (A colloquial terms for minerals experts who work the process of researching mineral interests.)” Robertson said. “That process generally starts with the original deed (in Texas, going back to sovereignty). They have to chart the flow of those minerals from deed transfer to deed transfer to present time to determine which portion, if any, is owned.”

If at any point the mineral rights were severed, they no longer transfer with the property. If so, you don’t own them as the seller, and won’t if buying the property, either.

Are There Minerals Under Your Land?

Determining whether minerals exist under your land, or not, is a significant undertaking. Oftentimes, only true professionals can determine if you have minerals, or not. Sometimes, appraisers, geologists, and other officials can conduct tests and examinations to determine this. If you have minerals, it might just be a sign of good times to come.