Drawing the Line – Mineral Rights versus Surface Rights
Landowners in mineral-rich regions of the U.S. might just be lucky enough to find themselves standing on abundant energy resources that are waiting to be tapped into. However, who reaps the benefits of oil and gas extraction all depends upon who owns the mineral rights, which in many instances, isn’t the landowner. If you own land or are contemplating purchasing a plot along a shale play, it’s important that you know just what you own.
Surface Estate vs. Mineral Estate
In the last century, as oil became a primary energy source and more oil companies set about drilling, people began severing their property into two separate estates – the surface estate and the mineral estate. The surface estate is exactly what it sounds like, the surface of the land, including its buildings and the right to use the land for activities like farming. The mineral estate, on the other hand, is the right to oil, gas, and other minerals that are found beneath the earth’s surface. Mineral rights can be extremely valuable if drilled, but oil and gas extraction takes a lot of effort and expensive specialized equipment. In order to cash in on their mineral rights, many landowners sell their mineral rights to oil and gas companies who have the resources to properly explore and drill. This effectively severs property into two different parcels. For current landowners, that means you may not own your property’s mineral rights if rights were severed in the history of the property.
Who Owns What?
The good news is, you can find out whether or not mineral and surface rights are severed and if so, who holds the mineral rights. The county courthouse or local title agent can access all the public records pertaining to the land if you provide an accurate legal description. Following the “chain of title,” an examiner can discover from deeds and liens if the original fee simple ownership was ever severed as a matter of record. If ownership was not severed, you may own some very valuable mineral rights.
As a mineral owner you have some very lucrative options for cashing in on your mineral rights:
- Lease your mineral rights: When you lease mineral rights, you retain ownership of those rights, but allow an oil and gas company to explore and drill these rights for a specified time frame. The company basically pays you a small rental fee for the right to drill, and additionally compensates in the form of oil and gas royalties if they end up extracting resources from your property. Leasing can pay off in the long run, but can also be risky. There’s a chance that the oil and gas company may not find anything or may choose not to drill at all, so you may never see a royalty check.
- Sell mineral rights: Your other option is to completely sell your mineral rights, severing your surface estate from the mineral estate. In doing so, the buyer will be able to access your surface estate in order to exercise their rights over the mineral estate. However, many people like the option of selling because it guarantees an immediate lump sum of cash that’s more certain than waiting around for royalty checks.