CALIFORNIA homeowner with questions on mineral rights

California Mineral Rights
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Hi,

I am a first time homebuyer trying to buy a brand new construction from DR Horton in the Sacramento area. It’s a brand new subdivision and only 16 homes have been built for. The house we’re interested in is a small ranch home on a 7000 sq.ft lot. Upon reviewing preliminary title report, I learned that the heirs of the original owners of the land (acreage that has sub-divided) AND DR Horton retain the mineral rights and are selling me the home without rights.

Frankly, as someone who is new, I am more concerned about the ability to sell or eventually refinance the home more than whether DR Horton or it’s energy sub-division will show up to set up an oil rig in my backyard. Should I be concerned about buying this home? This is not my ‘forever home’ - I hope to sell it eventually and I definitely hope to refinance it as soon as interest rates come down.

The interesting thing is that California recently passed SB 1137 which supposedly prevents building new oil rigs within 3200 ft of residences. I was given the following as “facts”:

  1. There is no oil in this town (although this area was - until recently - unincorporated county that was “annexed” by the City).

  2. Senate Bill 1137 prohibits the issuance of well permits and the construction and operation of new oil facilities within a health protection zone (or HPZ) of 3,200 feet from a sensitive receptor: (a residence is considered a “sensitive receptor”). Senate Bill 1137

  1. There is no gold in this county - no active or abandoned mines.

  2. There are no gas storage wells in this area.

IF SB 1137 prevents construction of new oil rigs within 3200 ft of a residence then why is DR Horton retaining mineral rights? And, can buying this home without mineral rights affect either the ability to resell this home or refinance it?

Please help!

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Hi @RPBuyer, your situation is fairly typical. Subdivsion developers often retain the mineral rights as a standard practice, even though the chances of the minerals actually being found or developed seem remote.

The area west of Sacramento towards Davis, CA had a good number of gas wells in the past. You can verify whether your property was included on the California Oil & Gas map https://maps.conservation.ca.gov/doggr/wellfinder/ In many parts of the country it is more of a norm than the exception to buy surface land without mineral rights. Check out any real estate listings for ranchland in Oklahoma or Texas and usually the mineral rights are not included, or can be purchased only as an extra.
The mineral rights in your area could still have value even with the setback rules recently passed. With horizontal drilling, wells could pass underneath your property without having a well head or other other oil facility within 2 or 3 miles. Also, the setback doesn’t seem to include mining operations, so if for example lithium, is found in your area, the mineral rights would still be valuable. (Most likely there are, or could be, separate rules passed for mining) Some note has been made that mineral rights owners still retain rights of entry to surface property where they own mineral rights to explore for hydrocarbons or minerals. This usually isn’t a problem since this entry right is for legitimate exploration only and not to play softball or lazer tag.
Hope that these answers are somewhat helpful and reduce your concerns.

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Hi, thank you so much! The property I’m interested in is in Roseville. It used to be unincorporated Placer county but was recently annexed by the City of Roseville. I don’t see any wells in Roseville but then again I also didn’t think of Lithium which - IMO - is more precious than gold these days!

Would you recommend I buy this property ? As a first time buyer, my fear is that I may have trouble selling or refinancing this home eventually. I do intend to live there at least 10 years but then life might happen.

TIA for any advice/insight you can give me. Much appreciated!

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It is not uncommon for the mineral rights to be severed from surface rights. In fact, your seller might not have the mineral rights if a predecessor in title reserved them. I highly doubt that the absence of mineral rights will affect the ability to resell or refinance. My thoughts, no guarantees.

California does have some oil unfriendly regulations. But with new technology rigs can be up to three miles away. So, it is possible that an oil rig you cannot see, hear or smell can extract oil and gas from beneath the property you are purchasing.

This post is not legal, tax or investment advice. Reading or responding to this post does not create an attorney/client relationship.

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Hello,

Thank you so much for responding. I truly appreciate your feedback. The problem is the preliminary title report that I - as a non-legal person - am having a hard time interpreting. I understand that you are not my lawyer and that you certainly are not giving me legal advice. However, I would truly appreciate it if you could help me by translating the following paragraphs into plain English. What rights does DRH Energy and the Butler family have on this property?

***EXCEPTING THEREFROM, an undivided 1/4 interest in and to all oils, mineral and other hydro-carbon substances lying in or under said land, as reserved by Leslie Albert Butler and Minnie Frances Butler, husband and wife, in Grant Deed recorded on February 2, 1953, in Book XXX, Page XXX, Official Records; *

EXCEPTING THEREFROM, any and all (i) oil rights, (ii) mineral rights, (iii) natural gas rights, (iv) rights to all other hydrocarbons by whatsoever name known, (v) geothermal heat rights or geothermal substances that may be produced from the property described above, (vi) water rights and claims or rights to water and (vii) all products derived from any of the foregoing (collectively, “Subsurface Resources”), and the perpetual right to drill, mine, explore and operate for and produce, store and remove any of the Subsurface Resources on or from the property, including the right to whipstock or directionally drill and mine, from lands other than the property, wells, tunnels and shafts into, through or across the subsurface of the property, and to bottom such whipstocked or directionally drilled wells, tunnels and shafts within or beyond the exterior limits of the property, and to redrill, retunnel, equip, maintain, repair, deepen and operate any such wells or mines, but without the right to drill, mine, explore, operate, produce, store or remove any of the Subsurface Resources through or in the surface of the property or the upper five hundred (500) feet of the subsurface of the property, as granted to DRH Energy, Inc., a Colorado corporation, in deed recorded in the Office of the County Recorder of Placer County;**

Thank you so much for the plain English translation. Can the family and DRH Energy one day decide they would want to mine / drill on this lot? I’m just overwhelmed at this point so your help is much and very gratefully appreciated!

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Also, this one: Thanks so much!

Rights incidental to the ownership for the use and development of the mineral rights reserved in Deed executed by Leslie Butler and Minnie Frances Butler, recorded February 2, 1953, Book 622, Page 390 of Official Records.

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@RPbuyer, the short answer is “yes” it is theoretically possible that the mineral owners could explore and tunnel under your land to extract oil, gas or other minerals. For this to happen, however, profitable amounts of minerals would have to be found in your location, a permit would have to be obtained, and the mineral operator would have to have sufficient funds to construct and operate. I don’t think anyone can guarantee what will or won’t happen in this regard.

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