What Are Mineral Rights?

What Are Mineral Rights?

If you live in an area where there’s drilling for oil or natural gas, you may have heard some talk about “mineral rights”. You may have even received letters in the mail from companies expressing interest in purchasing or leasing your mineral rights. The first question that might spring into your mind is: Just what are mineral rights?

This is a common question we get from landowners. Until the topic of selling or leasing mineral rights comes up, most people don’t have any idea what mineral rights are. Here’s a quick primer to explain how mineral rights and royalties work.

Defining Mineral Rights

Mineral rights refer to the ownership of the resources beneath the surface of your property (often thousands of feet deep). Most commonly these days, the “minerals” in question are oil and natural gas—but mineral rights also apply to resources like coal, iron, copper, silver, gold, sands, salts, stones, and ores.

Sometimes when you own a piece of land, you also own the mineral rights. But many times (especially today) that is not always the case. While early laws said individuals who owned the land also owned what was underneath, because most people didn’t have the capabilities to extract the valuable resources from thousands of feet below the surface, the laws changed. This is how the idea of mineral rights emerged.

What’s the Difference Between Mineral Rights and Surface Rights?

Surface rights are the ownership of a parcel of land and everything that’s on it—including any buildings like a home, barn, or garage. Surface rights include the right to till the soil and plant crops as you want, change the landscape, or add features like a pool or underground sewage or well-water system.

You can own the surface rights to a piece of property and someone else can own the mineral rights. That means they don’t own your home or land—but they do own the resources underneath your land (like any coal, gas or oil that might be found deep under there). It is fairly common today for the surface rights and mineral rights of a property to have different owners.

What It Means When You Sell Your Mineral Rights

When you sell your mineral rights, it means you are agreeing to let someone else take ownership of the minerals underneath your property in exchange for money. The company or individual that buys your mineral rights does not own your house or land—just the coal, gas, oil, or other minerals found underneath it.

Since these resources do need to be extracted from the land, when you sell your mineral rights you are also agreeing to allow your minerals to be extracted from your land (via drilling or another process). However, most reputable oil and gas companies are respectful of the land and take care to remove resources with minimal disruption to the property. They aren’t going to park a rig in your yard.

What Are Mineral Royalties?

Along with the option of selling your mineral rights, there’s also the option to lease them. When you lease out your mineral rights, you are not giving someone permanent ownership of them—but rather letting them take ownership for a temporary period of time. So a company might come in, lease your mineral rights for a few years to see just what kind of minerals they can find under your land.

Along with the agreed-upon lease price, landowners are typically paid a percentage of royalties based on the amount of oil or gas that is removed from under the land. If the company that leases your mineral rights drills and pumps out a lot of oil and gas, you could get a lot of royalties. If the company finds there is not much oil or gas under your land, your royalties would not amount to very much. Unfortunately for landowners, royalties don’t always guarantee an abundance of riches.

What Does It Mean When You Sell Your Mineral Royalties?

In cases where landowners lease their mineral rights and sign into a royalty agreement with an oil company, it can take a long time to see royalties or small amounts may trickle in over years. The reason is drilling can be a slow process and, as mentioned above, the results are often unpredictable.

For that reason, some landowners choose to sell their mineral rights and associated royalty to a third party for a lump sum. What this means is a company or individual agrees to give you a specific amount of money upfront in exchange for all the future royalties you will collect from your mineral lease.

Why Should You Consider Selling Your Mineral Rights or Royalties?

There are several reasons landowners choose to sell their mineral rights or royalties. Here are a few of the most common:

Cash upfront – You don’t have to wait for money to trickle in from drilling. You can get money to use now, giving you more financial freedom and flexibility.

Less risk – By selling your mineral rights or royalties, you eliminate the risk of a well that doesn’t perform as expected.

Tax advantages – In certain situations there can be a tax benefits to selling your mineral rights or royalties. This is one you should discuss with your accountant.

If you’re an Ohio landowner interested in learning more about selling your mineral rights or royalties, we’d love to talk with you. Drop us a line today!