A call or letter out of the blue from a land man. An old mineral deed nestled in the bottom of a safe deposit box. Royalty check stubs in grandma’s papers. A casual mention by a cousin at a family reunion.
Many who have found this web site have encountered these situations, and countless others, and want to know what to do next after learning you may own mineral rights.
If you do not know what to do next, this article is for you. Although written for a Texas mineral owner, the guidelines in this article would be applicable in most states.
Also, this article does not go into depth on all of the possible scenarios that exist. This is a general, self-help guide, not a legal treatise.
As a potential mineral owner, there are really eight questions you need answers to:
- Do the minerals still exist and how did I get them?
- Where are the mineral rights located?
- Are these minerals leased and producing?
- What are they worth?
- What kind of mineral rights do I own?
- Am I owed any money?
- How do I get the minerals titled in my name?
- If these minerals are not leased, how do I get them leased?
Gather your paperwork - Step 1
The first step is to gather as much information as you can.
In a previous article for this site, I discussed the importance of gathering information before deciding to spend money with attorneys, title companies, or land professionals. The article, Does a Mineral Owner need a Lawyer?, outlines the types of paperwork or online searches you should do before you see an attorney. They apply in this instance as well.
As for online resources, my previous blog article on Internet Resources for Mineral Owners, lists online resources in many states that are available to help you gather this information. After you have gathered as much information as you can, you are ready to go to step 2.
Figure out if your minerals still exist and how you got them - Step 2
Just because you found an old deed in Dad’s safe does not mean the minerals are still owned. Minerals get sold, foreclosed upon, lost to adverse possession, and some mineral interests expire. To figure out if the minerals still exist, you will need to:
- Read the instrument(s) you have showing the creation of the mineral interest carefully to ensure it is a permanent mineral interest, and not a “term” mineral interest. A term mineral interest expires after a set number of years or certain events, such as the deed where Grandpa sold the farm but reserved his minerals “for 15 years and so long thereafter as oil and gas is produced from said lands.” If the 15 years has expired, and there are no existing wells on the property to extend the 15 years, then Grandpa’s minerals have been sold.
- Were the minerals attached to surface land that has since been sold? If so, you need to look at the deed selling the property to see if the minerals were reserved. If not, they likely went with the surface, unless the minerals were severed out before the sale.
- Do a title search to see if the minerals have subsequently been sold or foreclosed on. Some counties have records online. Contact a local title company to see how much they would charge to do a title run. You do not need a full abstract on the minerals, just a title run. Ask for copies of any instruments they find. This should give you an idea whether the minerals were subsequently sold, foreclosed on, or otherwise disposed of.
- Beware of states, not Texas, that allow minerals to become “abandoned.”
- Look out for adverse possession issues. In Texas, minerals generally cannot be adversely possessed once the minerals have been separated from the surface, i.e., one person owns the surface and someone else owns the minerals. However, there are abandoned farms and ranchettes all over Texas where heirs are still the record owners of title. The surrounding rancher may have fenced in the property and been using it for decades. If the person using your surface has claimed it long enough, and if the minerals were not severed before the adverse possession started, there may be a problem with you losing the minerals by adverse possession to the person that currently has possession of the surface.
- Check with the local appraisal district to see if there is still a tax account and if the taxes are paid to date.
Once you feel comfortable the minerals have not been lost or sold, make sure that you have actually received them from grandma or grandpa. This may require finding old, probated wills to ensure the minerals were not left to someone else. If there are no wills, or if someone died that had a will that was not probated, make sure that you are an heir under the intestacy laws of the state where the minerals are located. In short, understanding how you came to own the minerals is equally important to making sure you still own them.
Find out where the minerals are and if they are producing - Step 3
My article on Internet Resources for Mineral Owners contains a number of links with maps to help you find out where your minerals are. To start, you will need a legal description of some kind. Legal descriptions, at least to some extent, can usually be found in: 1) deeds; 2) property tax statements; 3) oil and gas leases; 4) royalty check stubs; 5) estate inventories.
However, you may not need a full legal description. For example, on the Texas Railroad Commission’s website, if you know the county and the block and section number, but do not know the survey name, the instructional videoon the Home page of the website will show you how to locate the property and check for producing wells.
It is important to try to get a rough idea of what the minerals are worth, because you want to know how much of your time to invest in this search, after all.
First, understand that even small mineral interests can have the potential for great value. Value is ordinarily determined by figuring out what your “Net Mineral Acres” are. The Net Mineral Acres are the percentage of minerals you own out of a larger tract. In other words, if you own 25% of the minerals in a 400-acre tract, you own 100 Net Mineral Acres.
The reason even small Net Mineral Acre ownership can have substantial value, is because of the economics of many of the shale plays developing around the country. Estimated recoveries for a single, 160-acre horizontal well can be up to 500,000 barrels of oil. At a 25% royalty rate and $100/barrel for oil, this means $12.5 million in royalties paid over the life of a single well. Even if you only owned 16 Net Mineral Acres in that well, this would equal $1.25 million in royalties.
To get a rough idea of value, you should look at: 1) present production; 2) leasing and drilling activity in the area; and, 3) potential production from undrilled formations. The other blog posts show you how to get production records to calculate existing production. The forums on this website are a good place to get information on drilling and leasing activity, as well as the potential for other producing formations existing on the minerals you own. The best guide to value is how active the area is for leasing, drilling, and production. Never lease or sell minerals without getting a good idea of what they are worth.
Find out if the minerals are leased - Step 4
If you learn that the minerals you inherited have producing wells on them, they are likely leased. The question is whether your ancestors signed a lease. To get a copy of the lease, you can: 1) contact the producer and ask for a copy of the lease; or, 2) get a copy of the lease from the deed records if it was recorded. Many producers do not record a full copy of the lease, but instead, record only a memorandum of the lease which does not contain all of its terms. In that case, you are stuck with contacting the producer to get a copy of the lease. The producer will probably require you to provide some proof that you own the minerals, in which case your search for information in step one will come in handy. If one of your ancestors did not sign a lease, the producer will probably not give you copies of the leases they have with other mineral owners.
Once you get a copy of the lease, you should examine it carefully to ensure the producer has not overstayed its welcome on your minerals. Whether a lease is terminated is a complex question, beyond the scope of this article.
However, it is not uncommon for mineral owners to be overlooked or skipped in the original leasing of the property. In this case, you may own not just a royalty interest under an oil and gas lease, but a percentage of the well. In Texas, a mineral owner who fails to sign a lease is treated as a carried interest. After the operator recoups its cost of drilling a well, the unleased mineral owner can share in the proceeds in the net profits from the well.
If you were an unleased mineral owner, the oil company may try to rush you into signing a lease or “ratification” of the existing lease. Do not do so without seeking professional help. Consider hiring an attorney to help you decide whether to sign a lease or be paid your net profit interest from the well.
Figure out what kind of mineral rights you own - Step 5
In Texas, there is a bundle of five “rights” that a mineral owner has: 1) the right to lease; 2) the right to receive bonuses; 3) the right to receive royalties; 4) the right to develop (land access issues); and, 5) the right to receive delay rentals. It is very important to know what kind of mineral rights you own, and whether you own the entire bundle of rights.
The type of mineral rights you own is determined by the chain of title that created your mineral interest. When getting a title run, you should also get the title run back up the chain of title history to determine who else owns mineral rights, if any, and if the minerals have been split into the separate type of rights discussed above. For example, if you only own the right to receive a royalty, but do not have the right to sign leases or receive a bonus, then you will not be involved in negotiating the oil and gas lease, as the party that holds these rights will be asked to do that. You may be asked to sign a ratification of the lease that was negotiated on your behalf, but you may also be stuck with the bad deal that the person with the rights negotiated.
In short, to know the value of your mineral rights, it is important to know what type of mineral rights you own.
Find out if you are owed any money - Step 6
There may be a pool of money waiting for you. These pools of money are usually: 1) royalties, delay rentals, shut-in royalties, or other bonuses that the operator is holding for your interest or has been paid to someone; or 2) monies which have been forfeited to the state and have to be claimed through the unclaimed property fund in that state.
When you contact the operator, be sure to ask if you are owed any money or if any royalty payments have been forfeited to the state. Request a new Division Order in your name. Check the wording on the Division Order and the royalty interest to make sure it is correct. The operator is going to want proof you now own the minerals, so have your paperwork together from the steps listed above.
Get the minerals titled in your name - Step 7
Mineral rights are a type of real property right, and are recorded in the deed records in the county in most states. If these minerals are still showing in some ancestor’s name, it is important to get them titled in your name because 1) it shows the local taxing authorities where to send tax statements so you do not lose mineral rights due to nonpayment of taxes; 2) it helps landmen who are looking to lease your minerals find you; and, 3) it puts others on notice you are claiming these minerals.
The mechanism for getting minerals titled in your name varies from state to state. In Texas, minerals can be passed many ways, but the main ones are by 1) deeds; 2) filing exemplified copies of probate proceedings to show who the heirs of mineral rights were; 3) Affidavits of Heirship stating to whom minerals passed in cases where people did not have wills that were probated; 4) for active estates, getting a deed or decree of distribution from the executor to record in the deed records; 5) filing a Notice of Ownership and Address in the deed records may help people find you, but may not be sufficient to pass legal title to you; and, 6) court orders or probate judgments that ruled who owned the minerals. There are other mechanisms as well.
Get your minerals leased - Step 8
Now that you know where your minerals are, what kind of rights you have, have determined they are not leased, and gotten the minerals titled in your name, you are ready to try to get your minerals leased. There are several ways to market your minerals: 1) use the free Listings section on the Home page of this website; 2) post your minerals for lease on other websites which specialize in marketing minerals; 3) research to see what operators have leased land surrounding your minerals and contact their land department to see if they are interested; and, 4) talk to local people in the area to see who is leasing minerals in that county and contact them.
So you think you own minerals? The fun has just begun.
G. Wade Caldwell is the managing member of Barton, East & Caldwell, P.L.L.C., a San Antonio-based firm which represents mineral owners and provides a wide variety of legal services.