What Are Mineral Rights?

Tyler HumphriesThe mineral estate is a real property interest and more commonly referred to as a party’s “mineral interest” or “mineral rights”. Owning this interest provides the mineral owner with the right to exploit, mine, and/or produce the minerals lying below the surface of a piece of property. Contrary to what a lot of people believe, the mineral estate is not always owned by the surface owner. The mineral estate, being a real property interest, is like any other real property interest and is capable of being conveyed or reserved. So, depending on how a piece of property has been conveyed over the course of time the surface owner doesn’t always necessarily own the mineral interest under his land. It’s possible the mineral interest has been severed by a grantor somewhere in the chain of title.

When you think of mineral rights, the best way to think of them is to imagine a bundle of sticks. It’s very important to note that the individual “sticks” can be sold or conveyed while others are retained. These “sticks” include the following:

  1. The Development Right – this is exactly what it sounds like. This is the right to come onto the land and develop and produce the minerals.

  2. The Executive Right – this is the right to execute oil and gas leases and authorize any other actions related to the exploration and development of the mineral estate.

  3. The Right to Bonus – this is the right to receive bonus payments under an oil and gas lease.

  4. The Right to Delay Rentals – this is the right to receive delay rentals under an oil and gas lease.

  5. The Right to Royalties – this is the right to receive royalty payments under an oil and gas lease if a well is successfully drilled and production obtained.

Let’s see these in action: The mineral interest owner exercises their Executive Right and enters into and Oil & Gas Lease with Company A for a certain period of time, typically 3 to 5 years. By doing so, you effectively convey the Development Right to the oil and gas company (*only while the Lease remains in effect), which makes sense since they have the means, technology and resources to explore (and hopefully discover and produce) the minerals you own. As consideration for executing the Lease, you will usually receive an up-front Bonus payment on a dollar per net mineral acre basis (For example: $500/acre) and should a well be drilled and actually produce oil and gas then you will begin receiving Royalty payments, which are a cost-free, fractional share of production usually stated as a fraction (For example: 1/8). Delay Rentals are pretty much non-existent these days, but in the old days these were payments the oil & gas companies would make to the mineral interest owner on an annual basis during the primary term of the Lease if they had not drilled a well on the Lease. Oil & gas companies now utilize the up-front Bonus payment, which allow the company to drill a well at any point during the primary term of the Lease.

If you are unfamiliar with Oil & Gas, hopefully this provided a basic understanding of the mineral estate and if you are familiar with it hopefully you found it a quick refresher.

Feel free to call us if you have additional questions (479) 202-5200.