Mineral Rights: What it is, How it Works, Special Considerations

What Are Mineral Rights?

Mineral rights are the ownership rights to underground resources such as fossil fuels (oil, natural gas, coal, etc.), metals and ores, and mineable rocks such as limestone and salt. In the United States, mineral rights are legally distinct from surface rights. Surface rights give the owner the right to use the surface of the land for residential, agricultural, commercial and other purposes. Mineral rights entitle the owner to own and exploit any natural resources found beneath the land.

How Mineral Rights Work

In the United States, it is possible for private individuals to purchase land and own the right to develop and exploit that land, including any natural resources found beneath its surface. Other places in the world offer less freedom.

Most countries allow private individuals to purchase land, but this ownership right only extends to the land's surface. Any resources found beneath that surface would be owned by the nation itself and controlled by its government. For example, in the United Kingdom, mineral rights for oil, gas, coal, gold, and silver are owned by the state. Minerals for other commodities are privately held.

The fact that mineral rights can be privately owned in the United States means that homeowners with rights to valuable resources on their property can sell those mineral rights to private corporations, sometimes generating substantial up-front or ongoing royalty payments by doing so. A common example of such transactions involves properties located on subterranean oil reserves, which can attract purchase offers from oil extraction companies. 

Generally, the attractiveness of these mineral rights—and, therefore, the royalties that private landowners can obtain for them—is heavily dependent on the price of oil. When oil prices are high, unconventional methods of oil extraction become more economical, raising the value of mineral rights.

Special Considerations

Mineral rights are an important consideration when purchasing real estate. Mineral rights are often "severed" from surface rights in states such as Texas, Oklahoma, Pennsylvania, Louisiana, Colorado, and New Mexico. In North Carolina, property sellers must disclose to buyers whether their purchase includes the mineral rights to the underlying land. However, other states lack similar disclosure laws. This can cause situations in which a homeowner is made aware of valuable resources beneath their land, only to find that they are unable to benefit from those resources. 

To mitigate against this risk, homebuyers should ensure that they carefully study their property's land title records to verify whether the surface rights and mineral rights are included as part of their purchase. These documents are generally available through the records offices of the local property appraisal authority or the county clerk's office.

Real-World Example of Mineral Rights

The development of technologies such as horizontal oil drilling has made it increasingly common for resource-extraction companies to purchase mineral rights without necessarily needing to acquire surface rights as well. This approach is widely used in the Texas Permian shale basin, as well as in New Mexico, in order to extract oil and gas.

Another recent development in this sector is the involvement of large investment firms such as Texas-based EnCap Investments, which has invested in upstream companies focused on the Permian Basin and Marcellus Shale. Black Stone Minerals (BSM), also based in Texas, been concentrating its mineral rights investments within the Permian, Haynesville, and Bakken shale oil fields.