Oil, Gas & Mineral Rights: Overview & Effects

Instructor: Shawn Grimsley
Sometimes what lies beneath is more valuable than what lies on. In this lesson, you'll learn about mineral rights and their effect on surface owners. A short quiz follows the lesson.

Surface & Subsurface Rights

Some of the most valuable real estate in the world looks pretty horrid on the surface of it. You wouldn't think that a large expanse of desert situated in unbearable heat with little water, vegetation or animal life would be worth much, but that's because you are not looking in the right place. In fact, some of the richest oil reserves, and therefore some of the most valuable real property on the planet, are underneath such a place. And here's the kicker - you don't have to own the surface to own the stuff underneath it.

You can think of a parcel of real estate as commencing at the center of the earth and going through the subsurface continuing onto the surface to the airspace above the surface. The law recognizes that different people can buy and sell different legal rights concerning the airspace above the property, the surface of the property and the subsurface. People that own the surface of a tract of property are sometimes said to hold a surface estate in the property. Likewise, different rights exist concerning the subsurface. One of most important, and valuable, is mineral rights.

Mineral Rights Defined

The legal term mineral rights is actually much broader than you may think. Mineral rights usually refer to an extensive category of resources that can be extracted from the subsurface of land including but not necessarily limited to oil, gas, ore, and metals. Importantly, mineral rights do not govern the ownership and use of water. People that hold mineral rights are sometimes said to hold a mineral estate in the property. You should refer to the state law where you property is located for a precise definition of mineral rights as the definition may vary a bit from state to state.

If you own the mineral rights to a parcel of property, you can:

  • Sell the rights to someone else
  • Sell your surface rights but retain the mineral rights
  • Lease the mineral rights and share in the profits from the minerals extracted, called royalties
  • Do nothing

Mineral Rights are Dominant

It's important to note that usually the mineral estate (i.e., mineral rights) is dominant over the surface estate. This pretty much means that owners of mineral rights also have an easement over the surface to make reasonable use of the surface to exercise their right to explore, develop and extract the minerals. For example, the owner of mineral rights may have the right to build a road on the surface, place drilling rigs or other extraction equipment on the surface, drill holes, dig shafts and place temporary storage facilities on the surface.

Limitations

The use of the surface must be reasonable and justifiable, which pretty much means the use of the surface is limited to that which is reasonable and justifiable for the exploration, development and extraction of the minerals. For example, it's reasonable for an oil company to build a road into and out of the site, but it's unreasonable for it to pave the entire property.

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