Understanding Mineral Rights



Posted: Monday, February 23, 2009

by Billy Long
Ranch Marekting Associates

A mineral right is a right to extract a mineral from the earth or to receive payment, in the form of a royalty, for the extraction of minerals. "Mineral" has a different meaning depending on the context of how the word is used. However, in general, when referring to real estate transactions, a "mineral" generally refers to fossil fuels (oil, natural gas, coal), metals (gold, copper, silver, iron), mineable rock products (limestone, gypsum, salt), as well as sand, gravel, or peat.

A common concern when purchasing a parcel of land is who owns the mineral rights? A mineral right is a part of property rights and may be sold, transferred, or leased in a similar manner as other more familiar property rights such as those associated with dwellings, outbuildings, etc. Mineral Rights are much different than Surface Rights. Surface Rights are the right to use the surface of the land for residential, agricultural, recreational, commercial or other purposes. Mineral Rights may be sold with the land or retained by the seller when a new owner takes possession of the land. Mineral Rights may be owned in their entirety or in fractions. In addition, an owner of mineral rights might own only one or a few of the total minerals on the land or may only own the rights to certain minerals by a specified depth below the ground. When buying land, the ownership of the mineral rights can be determined by examining the deed abstract for the property.

A mineral owner has the right to extract his or her own mineral deposit, though is seldom done due to the high costs associated with exploration and production activities. Typically, a mineral owner leases his mineral rights to a mineral development company through executing a lease which grants the mineral development company the right to develop and produce minerals in the leased parcel of the land containing the minerals. The mineral owner is usually paid a set amount of money, called a bonus, when the lease is signed. The lease outlines provisions by which the mineral owner is paid their royalty, which minerals can be extracted, how much of the mineral can be extracted and how long extraction can take place. In addition, a lease will specify agreements with the land owner on the right to use the land to extract the minerals from the property as well as what the compensation will be if any damage to crops or trees occurs in the process extracting minerals.

Every state has laws which provide for the establishment of drilling for minerals. Tracts of land must be of a specified size, shape and in a specified location for a well or mine to be developed to extract minerals. When a land owner refuses a mineral right owner the opportunity to extract his minerals, the mineral right owner usually petitions the Department of Environmental Quality to compel the non-consenting land owner to participate in the exploration and development of the land's minerals. Special laws provide for fair compensation to the non-consenting land owner for their share of the minerals produced from their land.

Because mineral extraction can generate a great amount of money to a mineral rights owner, a land owner's best interests are served by a thorough understanding of the history and all existing contracts associated with a parcel of land. These agreements are often constructed in legal language that requires a Real Estate and/or Contracts Attorney to interpret and explain all terms to the potential land owner. While legal consultation is never inexpensive, it is the surest way to protect your interests when buying or selling land. When determining whether to enter into a mineral rights agreement or when considering purchasing land, legal consultation is the only way to prevent signing over more rights to your property than you desire and understanding exactly what the sale of a piece of land includes.

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