To the casual observer, mineral rights ownership seems fairly straightforward. It gives landowners the rights to any minerals beneath the surface of their land. However, the agreement’s details can drastically influence your control and the potential benefits of mineral rights ownership.
Each mineral rights ownership type comes with unique common rights agreements that govern the nature of each type of ownership. By learning the different types of mineral rights ownership, you will know how to use these common rights agreements to benefit your energy investment decisions. By the end of this article, you will know:
- The 6 types of mineral rights ownership
- The important details of each type
- How to receive everything you are entitled to from your mineral rights ownership
Types of Mineral Rights Ownership
Unlike many countries, the United States allows individuals and public entities to own and profit from mineral rights. These rights allow landowners to excavate, extract, and transport minerals beneath the surface of their land. For the knowledgeable investor, the various types of mineral rights ownership can provide lucrative and diverse investment options. Here are the 6 types of mineral rights ownership.
Also known as a fee simple estate, the unified estate is the most basic form of ownership whereby the owner simultaneously possesses the surface and mineral rights to a parcel of land. The exception would be for reserves with a sovereign claim. The unified estate agreement allows you to sell the rights together or separately. Plus, it gives you full control over the property.
This type of mineral rights ownership splits the surface and mineral mining rights. Typically, in these agreements, one party owns the minerals underneath the ground, and the other party owns the surface land. Split estate ownerships are more common in areas where oil and gas reserves are plentiful and in demand. Over the years, heavy mining activity in these areas has caused landowners to sell their mineral rights for various purposes.
Until an oil company contacts them, many landowners may not realize that their land ownership rights are split. Before starting any exploration and production, the oil company negotiates a surface use agreement with the surface rights owner. This agreement outlines terms and compensation for use of the land.
You may discover that some mineral rights can be fractionalized among several owners. By law, mineral rights owners can structure a will to leave a fraction of their estates to each sibling. This type of ownership arrangement can be problematic. So, especially in states like Oklahoma, Texas, and Wyoming, you should have a title search done on any land you buy.
Rather than owning the mineral rights, royalty rights holders receive revenue from a mineral fee estate through a stream of royalty payments. However, the holder has no control over the sale or purchase of the mineral rights, but royalty interest is salable and transferable.
Usually, the royalty percentage comes from negotiations between the energy companies and the mineral rights owner. The amount on the royalty check depends on:
- Oil and gas production volume from a well on your property
- Oil and natural gas commodity prices
- Various deductions for operational expenses, marking costs, and taxes
- The owner’s division of interest
Because of the volatility of oil and gas prices, royalty checks can vary between pay periods. Also, the checks can stop altogether if production falls below acceptable levels, or if the oil company shuts down a commercially unproductive oil and gas well. Although commodity prices and oil/gas production are out of your control, it pays to note the volume column on the royalty check, which displays the monthly production of oil and gas. However, many operators list volume as barrels of liquid (BBL) for the oil measurement and million cubic feet (MFC) for the natural gas measurement.
Mineral leases give mining companies a low-cost way to explore possible reserves without purchasing the mineral rights. After receiving an oil and gas lease proposal from an energy company, the mineral owner negotiates the terms with the company. Some of the points of negotiation are:
- A bonus based on net mineral acres multiplied by the revenue interest decimal
- The primary term: involves a fixed number of months or years with an extension option
- The secondary term: usually open-ended when the reserve is producing
- Royalties based on the cost of drilling, typically around 12.5% to 25%
- Shut-royalties: compensation for pending production or slow oil and gas sales
An energy operator may seek a license from a mineral rights owner to extract and remove reserves from a property. This license has no other privileges than the agreed-upon amount of reserves possessed by the mineral rights owner. This rule is significant when mineral rights have fractionalized ownership because both parties must ensure that the licensor is the true owner of the minerals to be extracted.
Easements allow a third party to enter and use a property without having possessory rights. For example, when oil and gas companies intend to conduct exploration on a property, they use an easement as a means to access and occupy the land. Eventually, the companies may seek the right to extract the minerals.
Mineral Rights Investing with Eckard Enterprises
Eckard Enterprises is a family-owned energy asset management firm that finds, develops, and matures tangible energy-related assets for the benefit of the firm and its partners. While focusing on oil and gas, the firm’s managed assets include exploration, production, oil, and gas mineral rights, water rights, and steel fabrication. With 35 years of working experience in the U.S. energy industry, CEO Troy Eckard and the Eckard team contend that tangible energy assets are among the safest, long-term investments a prudent investor can make.
As an Eckard’s partner, you would have the advantage of proprietary access to the company’s investment opportunities. Plus, you would have access to a wealth of resources to help you make sound investment decisions. This includes proprietary content about energy investments and annual conferences. By tapping into Eckard’s 35 years of personally investing in and managing investor portfolios in energy, you can add energy investments to your portfolio with more confidence.
How the 6 Types of Mineral Rights Ownership Affect Your Money
Understanding the details and purposes of each type of mineral rights ownership can help you decide which type of ownership suits your investment purposes. Whether you seek income, equity, diversity, or a stake in the commodities market, there is a type of mineral right ownership for your needs.
Although mineral rights ownership laws can vary from state to state, these descriptions are uniform enough to help you understand the capabilities and possibilities of each type of ownership. Also, you can get more in-depth information and assistance with mineral rights and energy investing by contacting Eckard Enterprises.