What are Mineral Rights

What is Mineral Rights

Mineral rights are the ownership rights of underground resources like oil, natural gas, gold, silver, copper, iron or uranium. Mineral rights differ from surface rights, which give the holder the right to improve upon or sell the surface of a tract of land.

Owners of surface rights often have the right to dig beneath the surface to construct foundations for buildings, or to install infrastructure like a septic tank. However, surface rights holders who do not own mineral rights beneath their land do not have the right to exploit any valuable resources therein


BREAKING DOWN Mineral Rights

Mineral rights which can be bought and sold by private individuals, separately from surface rights, are scarce outside the United States. The owners of the mineral rights receive royalties from the businesses who mine these products. In many countries, private citizens only have the right to buy surface land, while all the minerals within the country’s borders belong to the people, the state or the monarch. For example, in the United Kingdom, mineral rights for oil, gas, coal, gold, and silver belong, in theory, to the Queen.

Separate ownership of land and the minerals and other resources beneath it can often cause conflict. In 2013, the news agency Reuters published an expose on the practices of American home builders. Many were selling homes in suburban developments but retaining the mineral rights to the oil, gas, water, and other natural resources.

This practice was due to most states not requiring the home seller to notify buyers that they are severing, or breaking-out, the mineral rights of a property which they are selling. Reuters found many homeowners who felt misled.

Investing in Mineral Rights

The development of technologies like horizontal oil drilling has made it increasingly common for resource-extracting companies to purchase mineral rights separately from surface rights. The Texas Permian shale basin and New Mexico are examples of where this technology is in use to extract oil and gas.

According to a Bloomberg report, companies like Texas-based EnCap and New York-based Blackstone are actively working to acquire mineral rights. The highest sought after areas producing oil and gas is in the shale oil fields of the Permian, Bakken, and Marcellus areas. According to the report, companies were expending over $120 million by July 2017 in this enterprise. The cost per acre for mineral rights continues to climb and can reach $40,000 per acre. 

Investors in these speculative products assume risk from several directions. They must depend on the pumping company to continue to drill and for worldwide oil and gas prices to remain high. Falling petroleum prices make the shale field oil less profitable to mine.

Checking Your Property Ownership Record

It is essential for property owners to consult land records related to their property. The Property Appraiser's office usually houses these records. Contacting the County Clerk's office to research or requesting a property lien, or record search, before buying is the best course of action for buyers.

At the County Clerk’s office, you can construct a chain of title to understand if the mineral rights to a piece of land are severed from the surface rights. It’s likely that the original landowner had the grant to both surface rights and mineral rights. However, a later owner may have sold the mineral rights to another party.

If you do own the mineral rights to a piece of property, it may become worthwhile to sell those rights to a resource-extracting company. These companies will often entice landowners to sell their rights in exchange for a one-time cash payment, ongoing royalty payments, or both.

SOURCE: https://www.investopedia.com/terms/m/mineral-rights.asp