Transcript Mineral Rights For Landowners

Mineral Rights For Landowners
Presented by Terrel Shields
© 2006
www.roxnoil.com
This presentation may be copied or shown if credit is given
the author and the presentation is not resold or otherwise
profitably used by those copying it.
Do You Own Your Mineral Rights?
• Many homeowners do not realize that they
do not own their own mineral rights
• Too often they learn this fact only when
they are approached by an oil company
and are informed the company intends to
come on their land and drill or explore
• Conflicts have resulted in fights and even
murder
Mineral Rights
•
Mineral Rights are Real Property Rights. Air Rights,
Surface Rights, Mineral Rights, all other unencumbered
rights to real estate comprise the fee simple estate.
Mineral Rights are the dominant estate in most states.
Each right contains the “bundle of rights”.
•
The Surface owner cannot keep the mineral owner
from “enjoying” his mineral (bundle) rights. Few
Homeowners realize they cannot keep a company from
drilling on their property. Compensation may be
unsatisfactory to many homeowners which may result in
conflicts with the oil companies.
The Bundle of Rights
• You can
•
•
•
•
•
•
Sell
Lease
Use
Give away
Enter (egress and ingress), or
Refuse to do any of the above
•
The fee simple includes the bundle of rights for both
surface and minerals as well as any other unencumbered
right.
What is “Fee Simple”
•
Fee Simple title to property includes all the
rights, air, surface and minerals.
•
The fee simple can be sold as a unit or can
be divided and a “severed” interest sold. The
mineral rights may be retained or deeded away
by the owner of the fee simple.
Air Rights
• Where is Air (Space) Rights an issue?
• Condos. A condo unit in a multi-story
building is not attached to the land, but is
located above the land with other units
between it and the surface.
Common Misconceptions
FEE SIMPLE applies only to surface land. Not so.
MINERAL RIGHTS are personal property. No. Mineral rights are treated as
Real Property in all states, with Louisiana having a slightly different “spin” on
things.
OIL AND GAS on the other hand, produced, is considered to be personal
property. The “right” to drill and or exploit oil and gas is the real property
interest.
MINERAL RIGHTS are intangible and need to be considered as trademarks,
patents, etc. WRONG again, but until recently Appraisal Regulations place
mineral rights within their definition of “intangible” value. It was changed
several years ago when they realized most state recognize mineral rights are
“real” property.
Mineral Rights are the Dominant Estate
•
For the mineral owner to egress and ingress
the mineral the surface is usually required for a
site to drill, explore, or exploit the mineral right.
• Conflicts originate in the simple observation that
many people with the surface rights have taken
little thought in consideration of the purchase of
the surface rights without control of the mineral
right and those who might access them.
Land without Minerals
• If the mineral owner decides to exploit the
mineral estate will the lack of control affect
the surface owner’s property value? It can.
• If a well is drilled, crops can be damaged.
Fields may be bisected by a road.
• Irrigation systems may be affected.
• Noise & traffic may be a problem .
NOT A PRETTY SIGHT TO GREET YOU FROM YOUR DRIVEWAY IS IT?
Accommodating the Site
• This Pump jack lies
within a circle
irrigation system and
was specially
designed in low
profile so the irrigation
system can traverse
over the pumpjack
without hitting it
The Surface Owner is Compensated, Right?
• Few states law require the surface owner be
compensated for a reasonable use of the land to
exploit the oil or gas
• As a courtesy, many drilling companies do give
the landowner some compensation
• In any case, the landowner cannot nix drilling
nor control where the roads go unless the
mineral owner provides them that right.
How Can I Tell?
• Your title opinion and deed should
explicitly refer to any reserved right
• “Fee Simple” is not always so simple
• Easements and other restrictions are on
the deed
• Mineral reservations can be complex
How Did I Lose My Minerals?
• Minerals must be explicitly conveyed or
reserved.
• A separate mineral deed will convey that
right to a new owner.
• A deed reservation will simply “reserve”
the mineral right to the current owner.
How Do I Know I Have
Minerals?
• Mineral rights are often held by reservations in a
deed. They commonly read like this:
•
The NW¼ of the NE¼ of Sec. 13 Twp. 23 N - Rge 8 E, Indian Meridian, less and
except all rights to the oil, gas, or coal herein.
Or,
•
The NW¼ of the NE¼ of Sec. 13 Twp. 23 N - Rge 8 E, Indian Meridian, subject to
any reservation of record.
Warranty Deed
…..convey unto Grantees’ heirs and assigns forever, the
following real property lying in Woodruff County,
Arkansas:
AN UNDIVIDED ONE-HALF (½) INTEREST IN ALL THE
MINERALS, INCLUDING, BUT NOT LIMITED TO, OIL,
GAS, AND OTHER HYDROCARBONS LOCATED IN,
UPON, OR UNDER THE FOLLOWING REAL
PROPERTY”
The East one-half of the West one-half of the East onehalf of Section 7, Township 5 north……etc.
• Notice – that the deed explicitly refers to the
property as “real” property.
• Mineral Rights are Real Property Rights
• Mineral Rights have value and thus are
protected as property under property law.
• They do not revert to the landowner in any
state except Louisiana which is governed by
French Law instead of English Common
Law.
Special Circumstances
• Particularly in the West, mineral rights
were never granted by the government
• “Homestead” land may have mineral rights
or may have only part of the mineral rights
• The most recent homestead patents gave
the surface owner no mineral rights
• Many homes in the Rockies were never
granted mineral rights
What Are Mineral Rights?
• Mineral Rights are not a Subservient Right
• The Surface owner cannot keep the mineral owner from
“enjoying” his mineral rights
• Many property owners never paid attention to the actual
reservations in their deeds and may not realize they do
not own the mineral right.
• Since access is required, the mineral estate
dominates the surface estate
Leasing Oil & Gas Rights
• Most companies drill on leases
• Leases have several major components
– The Primary Term (often 5 years) is stated
– The bonus amount is tendered
– Delay Rentals are annual payments
– The Royalty amount (1/8th, 3/16th, 15%)
– Held By Production (HBP)
• If production is established the lease remains in
effect
Interest Allocation
Dissecting the players
MINERAL OWNER
100%
LESSOR 12½%
PAYS NO COSTS
LESSEE 87½%
PAYS ALL COSTS
Or FARMS OUT
What Can I Do?
• If purchasing, find out if you control the mineral
right. Never buy land and let the seller keep the
mineral rights without getting a large concession
for doing so.
• Recognize that you are at the mercy of parties
unknown for future drilling or exploring if you
don’t control your mineral
• Even if you have partial interest in the minerals,
someone can exploit the mineral against your
wishes.
The Traffic or Well Annoys Me. I think my
property has lost value. Can I Sue?
• Yes. You can sue anybody for anything
• Can you win? That’s the question.
• Most times you cannot win and the cost of
losing likely will far exceed the harm done
to property values.
• In most cases, the drilling companies are
shielded by law from torts arise from
mineral rights being developed.
But it Does Hurt Property Values Doesn’t it?
• Complaining that your property is
damaged can be a self-fulfilling prophecy
• “Market Value” or “Fair Market Value” are
the only test of damage in court
• If the Market Value is unchanged, the
damage is zero regardless the noise or
lose of peace and quiet that occurs
How Is Market Value Determined?
• Appraisers use paired sales to determine
detrimental influences to a property. If similarly
situated properties are selling for less than
properties unaffected by development, then a
damage can be demonstrated
• Frequently, the appraiser is unable to find such
evidence with market data simply for lack of
evidence or lack of comparable sales
• The issue then revolves around the appraisers’
unsupported opinion, pro and con, to the
“damages”. Such claims frequently fail in court
Will All Appraisers Know How to Handle This?
• Most Real Estate Appraisers are ill qualified to determine
an impact for mineral rights loss. The smart ones know
their limitations. The others will try to pacify the client by
reporting what they think the surface owner wants to
hear.
• That is a recipe for disaster and could end with the
appraiser having a complaint filed against them to the
regulating state agency.
• Pressuring an appraiser to bring in a pre-determined
result (e. g. – that the property is devalued) is fraud and
subjects an appraiser to up to two years in jail and may
subject the client to court costs or worse.
I Inherited Mineral Rights, Now What?
• Minerals can be sold or deeded back to the
surface owner, investor, or oil company.
• You can advertise your mineral rights for sale via
websites or trade papers.
• You can lease to companies who may exploit the
mineral right.
• Be a good neighbor and write in protections for
the landowner in such a lease.
A good Clause to Have
• ( c ) Lessee agrees to make a one-time damage
payment to Lessor for each drill site on the land,
payable in advance of commencing preparation.
THIS LEASE DOES NOT AFFECT THE
SPECIFIC TERMS OF ANY SURFACE
DAMAGE SETTELMENT. IT IS UNDERSTOOD
THAT ANY SURFACE DAMAGE
SETTLEMENT(S) PERTAINING TO THESE
LANDS WILL BE NEGOTIATED SEPARATELY.
Manage Your Minerals
• Mineral rights have value and should be
managed like any other property asset.
• Property without intact mineral rights can
be affected by adverse development and
because the mineral rights owner has a
right to “enjoy” those minerals, surface
owners usually have little recourse in
preventing drilling or exploration for oil.
Do Your Due Diligence
• Ask your Realtor to find out if the mineral
rights are “intact” with the property you are
contemplating to buy
• Be aware that you can have problems if
you don’t control the mineral rights.
• Even if you don’t lease, a well may drill
nearby and you may be “force pooled” into
a drilling unit