What Are Mineral Rights?
Mineral rights are the ownership rights relating to underground resources such as oil, silver, or natural gas. In the United States, there is a legal distinction between mineral rights and surface rights.
Whereas surface rights grant the owner the right to dig between the surface of the land for purposes such as constructing buildings and laying infrastructure, mineral rights entitle the owner to own and exploit any natural resources found beneath the land.
- Mineral rights are ownership claims against the natural resources located beneath a plot of land.
- In the United States, mineral rights are separate from surface rights, although this is not true in most countries.
- Today, large institutional investors are prominent buyers of mineral rights, particularly when oil prices are high enough to justify unconventional oil investments.
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. By contrast, 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 the nation’s government. For example, in the United Kingdom, all mineral rights found beneath public or private properties are technically owned and controlled by the Crown.
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.
Mineral rights are an important consideration when purchasing real estate. In some states, developers are not required to inform home buyers of whether their purchase includes the mineral rights to the underlying land. 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 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 purchase 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 and New York-based Blackstone Group, which Bloomberg reported have been investing heavily in mineral rights within the shale oil fields of the Permian, Bakken, and Marcellus regions.