What Are Mineral Rights?
Mineral rights are the legal rights to explore, extract, and sell minerals found beneath the surface of a property. In the United States, mineral rights can be owned separately from surface rights, meaning the person who owns the land surface may not own the minerals underneath. This concept of severed estates is fundamental to understanding mineral ownership and is unique to American property law.
When you own mineral rights, you own the oil, natural gas, coal, metals, and other subsurface resources beneath a defined tract of land. This ownership includes the right to lease those minerals to exploration and production companies, receive royalty payments from production, sell or transfer the mineral interest, and pass the minerals to heirs through inheritance.
How Mineral Rights Become Severed
Historically, when land was originally granted or sold, the owner typically held both surface and mineral rights together. Over time, these rights were often separated through various transactions. Common ways mineral rights become severed include:
- Reservation in Deed – When a landowner sells property but reserves the mineral rights, creating two separate estates
- Mineral Deed – When a landowner sells or conveys only the mineral rights while retaining the surface
- Inheritance – When estates are divided among heirs, some may receive surface rights while others receive minerals
- Corporate Transactions – When companies that owned both surface and minerals are split or sold in parts
Many severances occurred decades ago, sometimes in the early 1900s when oil was first discovered in various regions. This means current surface owners are often surprised to learn they do not own the minerals beneath their land.
Types of Mineral Interests
Fee Simple Mineral Interest
A fee simple mineral interest represents complete ownership of the minerals beneath a tract of land. The owner has the right to lease the minerals, develop them directly, sell them, or pass them to heirs. This is the most complete form of mineral ownership and continues in perpetuity unless sold or transferred.
Royalty Interest
A royalty interest entitles the owner to a share of production or revenue without the right to lease or develop the minerals. Royalty interests are typically created when a mineral owner leases to an operator and retains a royalty, or when a mineral owner carves out and sells a royalty interest while retaining the executive rights. Royalty owners receive their share free of production costs.
Non-Participating Royalty Interest (NPRI)
An NPRI is a royalty interest where the owner receives a share of production but has no right to participate in leasing decisions. The NPRI owner cannot negotiate lease terms or bonus payments—those rights remain with the mineral owner who holds the executive rights. NPRIs are often created in estate planning or when mineral interests are divided among family members.
Overriding Royalty Interest (ORRI)
An overriding royalty interest is carved from the working interest under a lease rather than from the mineral estate itself. ORRIs are commonly assigned to landmen, geologists, or other parties as compensation for their work in acquiring leases. Unlike mineral royalties, ORRIs terminate when the underlying lease expires or is released.
Working Interest
A working interest is the right to explore and produce minerals, along with the obligation to pay a share of drilling and operating costs. Working interest owners bear the financial risk of development but also receive the largest share of production revenue (after royalties are paid). Working interests can be operated or non-operated depending on who manages daily operations.
The Mineral Leasing Process
Lease Negotiation
When an oil and gas company wants to drill on land where you own minerals, they must first obtain a lease. The lease negotiation process typically involves a landman who contacts the mineral owner to propose terms. Key terms include the bonus payment (upfront payment per acre), royalty rate (percentage of production revenue), primary term (initial lease duration), and various clauses governing operations.
Lease Terms to Understand
Important lease provisions include:
- Royalty Clause – Specifies the percentage of production the mineral owner will receive
- Primary Term – The initial period during which the lessee must begin drilling or the lease expires
- Habendum Clause – Governs how long the lease continues once production begins
- Pooling Clause – Allows the lessee to combine your minerals with neighboring tracts to form drilling units
- Depth Clause – May limit the lease to certain geological formations
- Surface Use Provisions – Define how the surface may be used for drilling operations
- Shut-In Clause – Allows the lease to be maintained by payment when a well is not producing
Lease Expiration and Extension
Leases have a primary term, typically three to five years, during which the operator must establish production or the lease expires. Once production begins, most leases continue as long as oil or gas is produced in paying quantities. Some leases include extension options or continuous drilling clauses that can maintain the lease even without production from the specific tract.
Royalty Payments Explained
How Royalties Are Calculated
Royalty payments are calculated based on your decimal interest in a well multiplied by the value of production. Your decimal interest depends on your mineral ownership (expressed as a fraction of the whole), your royalty rate under the lease, and how your minerals were pooled into the drilling unit. For example, if you own 50% of the minerals in a 640-acre unit with a 1/4 royalty, your decimal interest would be calculated as: 0.50 × 0.25 = 0.125 (or 12.5% of production revenue).
Understanding Deductions
Depending on your lease terms and state law, certain costs may be deducted from your royalty payments. Common deductions include post-production costs such as gathering, transportation, compression, and processing fees. Some leases specify that royalties are paid free of these costs, while others allow deductions. Understanding what deductions apply to your payments is important for verifying their accuracy.
Payment Timing
Most operators pay royalties monthly, though there is typically a lag between production and payment. This delay occurs because operators must receive payment from purchasers before distributing royalties, and they need time to calculate and process payments to all interest owners. State laws often specify the maximum time an operator has to make first and subsequent payments after production begins.
Researching Your Mineral Rights
County Records
Mineral ownership is established through recorded documents at the county clerk’s office where the property is located. These records include deeds, mineral conveyances, leases, and other instruments that create or transfer interests. Title research involves tracing the chain of ownership from the original grant through all subsequent transfers to establish current ownership.
State Oil and Gas Commission Records
State regulatory agencies maintain records of drilling permits, well completions, production reports, and operator information. In Texas, this is the Railroad Commission. In Oklahoma, it is the Corporation Commission. These agencies provide valuable information about wells drilled on or near your mineral interests and current production levels.
Division Orders and Check Stubs
If you are already receiving royalty payments, your division orders and check stubs contain important information about your ownership. Division orders state your decimal interest in each well, while check stubs show production volumes, prices, and any deductions. These documents help verify that payments match your understanding of your ownership.
Protecting Your Mineral Rights
Keep Records Current
Maintain copies of all documents related to your mineral ownership, including deeds, leases, division orders, and correspondence with operators. Keep your contact information current with all operators paying you royalties. If you move, notify operators promptly to ensure payments continue without interruption.
Respond to Correspondence
Operators and landmen send correspondence for various reasons—lease offers, division order updates, pooling notices, and more. Responding to this correspondence is important for protecting your interests. Ignoring communications can lead to missed opportunities or problems with your ownership records.
Monitor Production and Payments
Review your royalty statements regularly to verify that payments match production reports and lease terms. Compare payments across wells and over time to identify any unusual changes. If you notice discrepancies, contact the operator for clarification.
Understand Dormant Mineral Laws
Many states have dormant mineral statutes that can affect unused mineral rights. These laws vary significantly by state and may allow surface owners to claim abandoned minerals or require mineral owners to record their interests periodically. Understanding the laws in states where you own minerals helps ensure you do not inadvertently lose your rights.
Transferring Mineral Rights
Selling Mineral Rights
Mineral rights can be sold like any other real property interest. Sales are typically documented through a mineral deed that must be recorded in the county where the minerals are located. The value of mineral rights depends on factors including current and potential production, commodity prices, remaining reserves, and lease terms. There is an active market of mineral buyers who acquire interests from individual owners.
Gifting and Estate Planning
Mineral rights can be transferred to family members through gifts or included in estate plans. These transfers require proper documentation and recording. Many families choose to keep minerals together through entities like family limited partnerships or LLCs rather than dividing them among multiple heirs. Consulting with professionals who understand both mineral rights and estate planning is advisable for complex situations.
Inheritance
When a mineral owner passes away, their interests transfer according to their will or, if there is no will, according to state intestacy laws. Heirs must typically provide death certificates, probate documents, and affidavits of heirship to establish their ownership. Recording these documents in the county ensures clear title for the new owners.
Common Questions from Mineral Owners
How do I find out if I own mineral rights?
Review your deed carefully to see if minerals were conveyed or reserved. If the deed is unclear, research the county records to trace the mineral ownership through previous transactions. A title search can establish whether minerals were severed and who currently owns them.
Why am I not receiving royalty payments?
Several reasons could explain missing payments: there may be no active production on your minerals, your interest may be too small to generate significant revenue, payments may be held in suspense due to title issues, or the operator may not have your current contact information. Contact the operator to inquire about your status.
Should I lease my minerals?
The decision to lease depends on your individual circumstances, the terms offered, and activity in your area. Leasing provides upfront bonus payments and potential royalty income if production occurs. However, lease terms vary significantly, so understanding what you are agreeing to is important before signing.
What happens if I do not respond to a pooling order?
Pooling procedures vary by state. In some states, if you do not respond to a pooling application, you may be force-pooled into the unit at terms set by the state regulatory agency. These terms may be less favorable than what you could negotiate voluntarily. Responding to pooling notices allows you to participate in the process and potentially negotiate better terms.
Mineral rights represent a valuable asset class that requires understanding and attention to manage properly. Whether you have recently inherited minerals, are considering leasing, or want to better understand your existing interests, taking time to learn about mineral ownership fundamentals will help you make informed decisions about your assets.
