The United States is the only country in the world where mineral ownership can be vested in individuals as opposed to government. The origin of these rights in the United States is varied and interesting. It gives the mineral owner the right to collect royalty income as well as the right to sell oil and gas royalties as they desire.
Mineral rights by definition are the legal right to explore for and produce the natural resources located below the surface of the land.
MINERAL RIGHTS TODAY – Minerals, Royalties & Overriding Royalties:
Mineral rights today come in three forms, namely minerals, royalties, and overriding royalties. All are similar in that they share on a pro-rata basis in the production of oil & gas from the lands they cover, and also in that they do not share in the costs associated with drilling and producing the same oil & gas. Beyond those similarities, there are inherent differences.
Mineral owners typically have the right to negotiate and sign leases on their minerals as well as the right to receive bonus consideration and yearly rental payments. They also have the right to receive royalty payments as outlined in the lease. Like any other real property, mineral owners can also sell oil and gas royalties. Royalty owners have the right to receive royalty payments for the oil & gas produced from the lands under which they own royalty, however, no right to lease and receive bonus and rental payments from the lease. Both, however, are considered real estate for tax purposes.
The most common question to be answered when a mineral owner considers to sell oil royalties, is how much are mineral rights worth? Learn more about selling oil and gas royalties and how much they are worth on this website.
Overriding royalty interests are not considered real estate since an override is carved out of the actual oil & gas lease as opposed to being part of the minerals under the ground. An overriding royalty interest shares on a pro rata basis in the production obtained from an oil & gas lease however, once the lease has ceased producing and expired by virtue of its own terms, the overriding royalty expires as well. The owners of mineral and royalty interest maintain ownership after production ceases.
|Mineral, Royalties & Overriding Royalties – What’s the Difference?|
|Share on a pro rata basis in the production of oil & gas from the lands they cover.||X||X||X|
|Do not share in production costs||X||X||X|
|Right to negotiate and sign leases||X|
|Right to receive royalty payments||X||X|
|Yearly rental payments||X|
|Considered real estate for tax purposes||X||X|
|Maintain ownership after production ceases||X||X|
Texas Mineral Rights History In Texas, for example, all of the minerals under some 27 million acres were claimed by the government when Spanish and Mexican rule was established after the battle of San Jacinto in 1836. In 1840, Texas adopted English common law as to property laws. Early disputes regarding ownership of minerals under English law concerned the ownership of salt. Ordinances brought forward in the constitutions of 1869 and 1879 provided for the state of Texas to release to the owner of the soil all mines and mineral substances. In 1912, the Texas Supreme Court ruled that this relinquishment was retroactive. In 1907 the first statutes providing for the surface to be sold and mineral rights reserved were enacted.
California Mineral Rights History In California, the 1848 Treaty of Guadaloupe Hidalgo,under which Mexico formally relinquished its northern territories to the USA guaranteed that the rights to property would be respected. The US Congress then passed the California Land Act of 1851 which established a commission to adjudicate private land claims. The California legislature passed the Possessory Act which allowed settlers to claim 160 acres of public land, but not land with mines or precious metals. A later amendment allowed prospecting on land already claimed by others for agriculture or grazing. In 1858 the Supreme Court ruled that minerals had passed from Mexico to the United States and not to California. Soon after this decision the composition of the Supreme Court changed and a rehearing of the previous case was ordered resulting in a reversal of the previous hearing and resulted in a victory for the landowners. The surface owners rights to the minerals in California were later reaffirmed by a 1955 Federal District court decision.
New Mexico Mineral Rights History In 1854 Congress established the Office of Surveyor General of New Mexico. New Mexico included what we now know as Arizona until 1863 and this commission was given the right to settle all land claims for Spain and Mexico concerning this area. The Supreme Court of New Mexico cancelled a Mexican land grant in 1888 and stated that Mexican land grants did not convey minerals. The same court then reversed itself in 1903 and, like California, gave the minerals underlying a tract of land to the surface owner.
Arizona Mineral Rights History Arizona’s legislature allowed the public to prospect on private lands provided that they compensated the surface owner for damages in their original mining laws. Then, in 1925, they granted the surface owner clear title to the minerals.
The Greatest Real Estate Deal in History! The British crown did not reserve anything in the grants to the original 13 U.S. colonies in the 1600’s in what we now know as Georgia, South Carolina, North Carolina, Virginia, Maryland, Delaware, Pennsylvania, New Jersey, Rhode Island, New York, Connecticut, New Hampshire, and Maine. Furthermore, the colonies did not reserve the minerals when they then granted land to their citizens.
Then, in 1803 Thomas Jefferson engineered what many consider to be the “greatest real estate deal in history” when the United States purchased from France and Napoleon Bonaparte for the paltry sum of $15 million dollars the lands known as the Louisiana Purchase. This transaction covered all or parts of what we now know as Louisiana, Texas, Oklahoma, Arkansas, Colorado, Kansas, Missouri, Wyoming, North Dakota, South Dakota, Iowa, Minnesota and Nebraska. These lands were brought into the U.S. specifically under the same laws that were in place in the existing states of the union meaning that the surface owners would own the minerals under their land.
DISCOVERY OF OIL & GAS: Historians credit Colonel Edwin Drake with drilling the first commercial oil well in the United States near Titusville, Pennsylvania. The well was completed on August 19, 1859 at a total depth of 69.5 feet and produced at a rate of 25 barrels of oil per day. Drake then built a 2 inch pipeline a distance of 5.5 miles to the small town of Titusville. By the end of 1871 the area around the discovery well was producing 5.8 million barrels of oil per year.
The origin of natural gas is a little more fuzzy. George Washington became aware of gas seeps in western Virginia while fighting Indians in the 1750’s. Due to his service in the French and Indian war, Washington was granted lands of his choice. He selected 250 acres around a gas spring near Maiden, West Virginia.
The first recorded commercial use of natural gas was in 1826 when William Hart completed a 27 foot gas well near the city of Fredonia, New York. Locals then completed a 25 mile hollowed log pipeline to their city for lighting.