Something Good Is Going to Happen to You!
If you are purchasing or own a tract of land, the minerals and royalties may be worth more than the surface. Especially with the rapid technological advances in drilling and production techniques. Many families in South Texas who were land poor ten years ago are now dealing with wealth preservation and generational succession issues.
Who owns the mineral rights under your land?
You need to know what mineral and royalty rights come with the land you are buying. You don’t want any unpleasant surprises with royalty revenue after a good producer has been drilled on your tract. You don’t want to end up owning the surface and dealing with production headaches while not receiving any royalties.
In Texas the mineral estate is dominant. The mineral owner has the right to access your surface to explore and produce their mineral assets. You can own the surface and have no right to execute a lease, no right to receive the lease bonus and no right to any royalties from production. You need to know who owns what and how much.
If you currently own land, you may want to make improvements to your surface operations; it would be prudent to know exactly what you own so it is not devalued by oil & gas operations. You don’t want to go out on a limb and borrow money when you don’t know who owns what. Mineral research may reveal that you own more than you think.
A Title Policy does not cover Minerals & Royalty Rights
Title Policies are limited to surface ownership only. Title insurance companies decided long ago not to take on the increased liability of insuring minerals. That’s why exploration companies rely on title opinions prepared by oil and gas attorneys, who are specially trained and assume the liability.
Title Polices are generally prepared using information from a previously issued title policy. If there was a mistake in an earlier policy, then it will be repeated. If the policy is done from scratch and there is an error or omission in the company’s database, the conclusion of who owns what may be affected. The days where an examiner knew every title to every tract in the county are gone.
I act as a double check on the title company while examining the mineral title. I recently examined a tract in Real County and found an additional 20-acres that was not listed on the title policy or the surveyor’s plat. I also found an additional 10 acres or so of minerals under the highway. If either the 20-acre tract or minerals under the highway is leased, the bonus consideration will pay for my report many times over.
Real Estate Agents do not Research Minerals
Most buyers and real estate professionals rely on the seller’s representation of mineral and royalty ownership. The seller may know what they own, and then again – they may not. Many times, the wife and children have inherited the land, and they do not know the mineral ownership. Possibly the land has been sold multiple times, and the seller does not know the mineral ownership. Sometimes a syndicate is selling the ranch, and this information has slipped through the cracks.
The Texas Real Estate Commission Sales Contract addendum entitled “ADDENDUM FOR RESERVATION OF OIL, GAS, AND OTHER MINERALS” (TREC 44-2) in Paragraph D, states in bold lettering that the only way a buyer can know the mineral ownership is by a full examination of the property by an attorney with expertise in this area.
Title research is my stock & trade
I have been hired by exploration companies to conduct mineral title research for over forty years. I can provide you with the same information I provide the exploration companies. This report will be at a fraction of the cost of a full-blown legal title opinion; of course, I limit my liability to the cost of the report.
- When and where can the exploration company drill?
- Where will the drillers locate the drill pad, slush pond, tank batteries and pipeline?
- When, where and how will the fence be cut?
- Can guns and hunting dogs come on the surface?
- How will drilling and production operations affect your hunters and guests?
- Dust, debris, traffic, and road ruts from operations?
- Weed control issue?
Mineral & Royalty Reservation
It is not unusual to find reserved mineral and royalties. Each reservation is different with different terms and conditions. On some tracts, the minerals and royalty reservations are in perpetuity. In others, reversionary interests have been created for a specific time and can revert. Many times, tracts have passed under an individual’s last will where terms, conditions, and amounts of interest are vague. Some interests pass under the Texas laws of descent and distribution and heirs must be identified and located.
Over the years, the wording and phrasing of mineral reservations have evolved. Since minerals and royalty may involve significant sums of money, there is a large body of law relating to reservation issues. The interest reserved may be unclear, and Texas mineral law changes.
- Who has the executory rights, the right to bind the land to the lease?
- Who gets the bonus consideration?
- If multiple party’s own rights to the bonus, who gets what, when and how?
- What is the difference between a mineral interest and a royalty interest?
- What is the difference between a 1/16 mineral reservation and a 1/16 royalty reservation?
- What does the reservation of ½ of the usual 1/8 royalty mean?
- What is a reversionary interest?
- When does a reversionary interest revert and to whom?
- Who owns the minerals under the adjoining highway or roads?
Whether the issue is payment of royalty or holding the lease by a stripper well, I can help. I will review your lease, royalty receipts, and division orders and then suggest a course of action if there are issues.
- Verify if the interest as a mineral or a royalty?
- Verify if the Division Order is correct?
- Rework operations under the lease?
- Minimum royalty payments and lease terms followed?
- Offset production draining reserves?
- Is pooled unit properly allocating production?
- Curative matters?
Prudent Steps to Take
Whatever the situation, it is a good idea to have the mineral and royalty ownership double checked.