What are Mineral Rights?
When you own a piece of land, the surface is obviously your property and you have the liberty to use it any way you like but what about everything that’s underneath it? In some parts of the world, including Texas, when the government initially started selling land to the general public, as an initiative to encourage settlement down South, the piece of land came with the ownership of all minerals underneath it as well.
Simply put, a person holding mineral rights has the authority to extract minerals from a piece of land. In this context, minerals refer to the naturally occurring, valuable material underground such as oil, gas, gold, iron ore, etc. It is important to note that subsurface minerals such as limestone, sand, and gravel can’t be extracted by a mineral rights owner. The reason for this is that these minerals are typically extracted through the surface of the land and not underground.
In contrast to mineral rights, we have surface rights. These rights allow a person to use the surface of the land at his disposal. After companies started to discover areas rich in minerals and wanted to extract them, people were often unwilling to give up their whole land; however, they realized that extraction was not a process they could carry out individually. Thus, they started to separate the surface rights from the mineral rights as it had been, in the past since, governments were always in control of minerals and precious metals. The mineral rights owners are entitled to extracting the minerals by having access to a reasonable portion of the surface of the land and are required to pay compensation for it. Oftentimes, the company may not access the exterior as municipal authorities prohibit extraction in most neighborhoods so horizontal mining is adopted.
Pros and Cons of Selling Mineral Rights
An obvious advantage to selling your mineral rights to another party is, of course, the cash return received. An extra income from something which is essentially of no use to you since extraction requires millions of dollars to even research and settle on the most suitable area for setting up a rig, well, or mining. Since we are primarily discussing Texas, oil and gas are the dominant extracted minerals. These markets are obviously always growing as the world is incredibly dependent on oil and gas. The mineral rights for sale in Texas, therefore, can guarantee high returns.
Despite the ever-increasing demand for oil and gas, it can still be a risky business to invest in them considering current economic conditions. During the Covid’19 period, oil prices dropped to a negative as storing oil became a burden and the entire planet suffered a depression. In those trying times, you certainly would have wished you would have taken the opportunity to sell this asset which seemed like a burden suddenly. To steer clear from the volatile nature of this industry, selling your mineral rights when you find a suitable buyer and a decent offer is a smart way to go. Lastly, keeping up with mineral rights is a hassle, it requires a lot of paperwork, especially if you have ever tried to purchase a property along with the mineral rights to it, you would know that you have to track the owners up because if even one of them decided to severe the property rights from the mineral rights, it would stay that way forever despite any false claims on the paperwork.
Selling these rights, however, means that an entity has access to a portion of your land. The mineral rights owner is always the dominant party and has access to both underground and a portion of the exterior. Although some compensation is made and this could be an income stream, the pollution caused by modern extraction techniques such as hydraulic fracturing will leave your land essentially useless to you. Secondly, despite having ingress and egress rights, you cannot completely stop the work being done or take on a multimillion-dollar company alone so, it might be in your best interest to just steer clear from such complex issues
What Other Options Do You Have?
If you wish not to be deprived of your mineral rights ownership but would still like to benefit from the booming oil and gas industry, you can look into leasing mineral rights. Principally, through brokers, similar to stock trading, people can buy and sell leases of mineral rights. Oil and gas extraction companies lease these rights and use the land for a certain period, up to what is stated in the lease and you get a return on the production. This might be a suitable option since the benefits stretch further into the future, taking into account future inflation and cash discounting, a steady income stream is better than immediate cash for stability. If and when in need of immediate cash, you can sell a portion of your lease to obtain it as well. The downside to this is the volatility of the industry, you only get returns on the sale of production so, when the market doesn’t demand these products, you do not benefit.
The question of whether you should or should not sell your mineral rights depends on you and your motivation. If you plan on using that land for building a home or a farmhouse you shouldn’t give an entity the authority to demand access to it any time in the future. For an income stream, leasing might work better or if you’re looking for immediate cash, go for selling them; however, such financial decisions require a lot of discussion and input from experts in the field.
