What is 'Mineral Rights'

Mineral rights are the ownership rights of underground resources like oil, natural gas, gold, silver, copper, iron or uranium. Mineral rights differ from surface rights, which give the holder the right to improve upon or sell the surface of a tract of land.

Owners of surface rights often have the right to dig beneath the surface to construct foundations for buildings, or to install infrastructure like a septic tank. However, surface rights holders who do not own mineral rights beneath their land do not have the right to exploit any valuable resources therein.

BREAKING DOWN 'Mineral Rights'

Mineral rights which can be bought and sold by private individuals, separately from surface rights, are scarce outside the United States. The owners of the mineral rights receive royalties from the businesses who mine these products. In many countries, private citizens only have the right to buy surface land, while all the minerals within the country’s borders belong to the people, the state or the monarch. For example, in the United Kingdom, mineral rights for oil, gas, coal, gold, and silver belong, in theory, to the Queen.

Separate ownership of land and the minerals and other resources beneath it can often cause conflict. In 2013, the news agency Reuters published an expose on the practices of American home builders. Many were selling homes in suburban developments but retaining the mineral rights to the oil, gas, water, and other natural resources.

This practice was due to most states not requiring the home seller to notify buyers that they are severing, or breaking-out, the mineral rights of a property which they are selling. Reuters found many homeowners who felt misled.

Investing in Mineral Rights

The development of technologies like horizontal oil drilling has made it increasingly common for resource-extracting companies to purchase mineral rights separately from surface rights. The Texas Permian shale basin and New Mexico are examples of where this technology is in use to extract oil and gas.

According to a Bloomberg report, companies like Texas-based EnCap and New York-based Blackstone are actively working to acquire mineral rights. The highest sought after areas producing oil and gas is in the shale oil fields of the Permian, Bakken, and Marcellus areas. According to the report, companies were expending over $120 million by July 2017 in this enterprise. The cost per acre for mineral rights continues to climb and can reach $40,000 per acre. 

Investors in these speculative products assume risk from several directions. They must depend on the pumping company to continue to drill and for worldwide oil and gas prices to remain high. Falling petroleum prices make the shale field oil less profitable to mine.

Checking Your Property Ownership Record

It is essential for property owners to consult land records related to their property. The Property Appraiser's office usually houses these records. Contacting the County Clerk's office to research or requesting a property lien, or record search, before buying is the best course of action for buyers.

At the County Clerk’s office, you can construct a chain of title to understand if the mineral rights to a piece of land are severed from the surface rights. It’s likely that the original landowner had the grant to both surface rights and mineral rights. However, a later owner may have sold the mineral rights to another party.

If you do own the mineral rights to a piece of property, it may become worthwhile to sell those rights to a resource-extracting company. These companies will often entice landowners to sell their rights in exchange for a one-time cash payment, ongoing royalty payments, or both.

RELATED TERMS
  1. Gross Production Tax

    A state tax imposed on companies that generate revenues by depleting ...
  2. Energy Trust

    An energy trust is a type of corporation that exists solely to ...
  3. Bundle Of Rights

    A bundle of rights is a set of legal rights afforded to the real ...
  4. Selfish Mining

    Selfish mining is a bitcoin mining strategy that maximizes profits ...
  5. Proof of Capacity (Cryptocurrency)

    Proof of Capacity consensus mechanism uses a mining node’s hard ...
  6. Litecoin Mining

    Litecoin mining is the processing of a block of transactions ...
Related Articles
  1. Investing

    GDX: Market Vectors Gold Miners ETF

    Learn about Market Vectors Gold Miners, one of the most volatile ETFs in the market, which fell 75% from 2011 to 2015 after climbing 300% from 2008 to 2011.
  2. Investing

    Will Gold Mining ETFs Ever Be a Buy?

    ETF investors have numerous choices with gold ETFs, but most concentrate on the gold miners or the commodity.
  3. Tech

    Bitcoin Miners No Longer Turning a Profit Creating Cryptocurrency

    Falling bitcoin prices, a surge in competition among miners and lower transaction fees have cut into miners' revenues.
  4. Tech

    What Happens If China Bans Bitcoin Mining: 3 Scenarios

    China has already banned ICOs and is shutting down Bitcoin exchanges. What would happen if they also banned crypto mining?
  5. Tech

    Bitcoin Cash Miners Took a Loss on Purpose

    When bitcoin cash became substantially more difficult to mine, it saw its profitability decrease. And yet, some miners continued to focus on it. Why?
  6. Investing

    How High Can the Gold Miners ETF Go? (GDX)

    Gold miners have been one of the hottest trades of the year. Is there more room to run with this ETF?
  7. Investing

    4 ETFs For Trading Gold's Falling Prices

    Traders looking to trade gold will likely look to add these for funds to their portfolio.
  8. Trading

    Gold Bounces and Miners Near Breakout Level

    Gold has bounced aggressively off a multi-month rising trendline, and the gold miners are heading toward a possible triangle breakout. (GLD,GDX)
  9. Tech

    How to Choose a Cryptocurrency Mining Pool

    Here are some selection criteria cryptocurrency miners should consider before joining a crypto mining pool.
  10. Tech

    How Do You Mine Ethereum?

    Mining for ethereum is a profitable, essential, and oftentimes confusing process. Here's the basics of how to do it.
RELATED FAQS
  1. What criteria classify a company as a junior gold miner?

    Learn about junior gold miners, companies that exclusively mine for gold. These firms typically rely on venture capital and ... Read Answer >>
  2. What rights do all common shareholders have?

    Learn what rights all common shareholders have, and understand the remedies that can be taken if those rights are violated ... Read Answer >>
  3. How are capitalism and private property related?

    Capitalism is built on the free exchange of goods and services between different parties; private property is a crucial part ... Read Answer >>
  4. What are average operating expenses for the oil and gas sector?

    Learn about the average operating expenses and average operating expenses margin for the oil and gas sector and how they ... Read Answer >>
  5. How long do oil and gas producers need to go from drilling to production?

    Discover the process of oil well production and learn how long it typically takes an oil producer to move from drilling to ... Read Answer >>
Trading Center