What You Need to Know About Mineral Estates and Mineral Leases
Mineral rights and Natural Resource Leases should be a topic of discussion in all purchase transactions.
For agents and brokers, understanding the prominence of Mineral rights falls under the duty of geographic competence and one’s duty to a client to exercise integrity. Failure to advise a client of considerations of mineral rights can be a serious omission subjecting an agent and broker to a liability. It’s easy to overlook the need for the seller to reserve mineral rights and after closing the seller discovers he has lost those rights because the agent did not inform him to retain them.
History of the Addendum
The promulgated form, “Addendum for Reservation of Oil, Gas, and Other Minerals”, was established in 2014 to use in the event a seller is reserving all or a portion of his owned mineral rights. It is a good idea to add form TXR-2509 INFORMATION ABOUT MINERAL CLAUSES IN CONTRACT FORMS to your listing packet and have it signed, to avoid an omission.
In the last few decades, horizontal oil and gas drilling widely expanded the value of oil and gas minerals in many Texas land areas. As implied in the word “horizontal”, an oil and gas company can take the minerals from underneath a property without drilling on the property. In 2011 in Texas, horizontal drilling became the most prominent method of extraction and has entitled many commercial and residential property owners to royalties when minerals are extracted from underneath their properties. In Northeast Texas, mainly counties west of Dallas, Ellis, and Collin, fall within the Barnet Shale Oil and Gas formation that is spurring valuable mineral rights.
This raises the question, “Are there any mineral rights on my property?” If so, “What are they worth and what do they cover?” A minerals search is required to identify mineral interests held by the seller and other parties. To perform a mineral rights title search, one must go back to 1845. Why 1845? When Texas joined the union, all prior mineral claims were declared null and void. A minerals search is extensive, can be $1,000 or more, take months, and should be performed by an expert, called a Landman.
What is “Mineral Estate”?
The Addendum for Reservation of Oil, Gas, and Other Minerals defines “Mineral Estate” as the catch all for all types of mineral rights that can be held and reserved by a seller. Next, this is the most important concept: Understand that if mineral rights are not reserved; any rights known or unknown automatically pass to the buyer. The Mineral Estate does not address rights of a particular mineral. Should the parties need a specific definition of what is conveyed or not conveyed, an attorney should be retained to handle these complexities. The Mineral Estate does not include water, rocks, sand, etc…, but does include surface rights of access to the minerals. Although exceptions exist, a single family home in Fort Worth may have a Mineral Estate with value from horizontal drilling. The addendum works well for this situation.
It is important to know that Title Insurance excludes mineral rights, and the Title Company does not have a duty to identify or insure mineral rights. Looking at a recent Title Commitment in Schedule B, EXCEPTIONS FROM COVERAGE, it says, “There may be leases, grants, exceptions or reservations of mineral interest that are not listed.” Often, a property owner only knows of his mineral rights because they have leased or sold their mineral rights or have been approached by a buyer or neighbors have told them so.
In the addendum, there is a clause regarding reserving surface rights. Meaning, giving, or retaining rights of access to the property to exploit the owned minerals. Again, surface rights not retained pass to the buyer. If a seller is retaining surface rights, it is prudent to fully understand the need and circumstances.
Mineral Rights are not the same as Mineral Leases. Mineral leases held by a seller should be listed in LEASES paragraph 4.C. of the One to Four Family Contract or equivalent property contract. One should not assume this paragraph is all inclusive. Mineral rights may exist that are not listed.
Mineral rights and Mineral Estates can easily become complicated and exceed a real estate professionals’ scope of training. If you find yourself in a circumstance where a buyer or seller wishes specific information regarding mineral rights, see IMPORTANT NOTICES in paragraph 4. As said, advise your client to consult an attorney.
Where to Go for Help
If you’re uncertain if something can or should be addressed, your first line of defense as an agent is to contact your broker with questions. But regardless of whether you’re an agent or broker, as a REALTOR® benefit, the Texas REALTORS® Legal Hotline has staff attorneys dedicated to answering members’ legal questions. Though the attorneys cannot give legal advice regarding specific transactions or factual situations, members can receive information from a general perspective on regulations, contracts, agency, brokerage, closings, and more. Call 800-873-9155.