Oil, Gas, and Mineral Rights in Real Estate Transactions

Protecting Your Rights to Natural Resources on Your Property

Whether you’re buying or selling real property, you have an interest in any natural resources under the ground or elsewhere on the land. By law, in the United States, the rights to exploit and extract natural resources, such as precious minerals, oil, and natural gas, can be owned and transferred independent of the conveyance of the land. Accordingly, you can sell real property but retain ownership of all natural resources. If you are interested in purchasing property that may contain oil, gas, or other mineral reserves, you need to know who owns those natural resources so you can take the necessary steps to secure them for your use.

What Are Mineral Rights? (See below for Oil and Gas Rights)

Mineral rights are legal rights to control the use, ownership, and access to certain natural resources. They generally refer to any organic or inorganic matter contained in or as a part of the soil on land. There are, however, a few notable exceptions—mineral rights typically do not cover the control of groundwater, subsurface water, sand, limestone, or gravel.

What Types of Mineral Rights Can a Person Own?

Depending on the terms of their contract or deed, an owner of mineral rights may be able to do some or all of the following:

• Legally convey those rights to another person
• Collect royalties for the extraction of those minerals from the land
• Use all necessary land surface to reasonably extract those minerals, even if the property has transferred to another person
• Receive compensation from any party to prevent or delay the extraction of minerals

How Are Mineral Rights Protected?

As a general rule, mineral rights attach to land and are transferred automatically with the conveyance of property, unless the property deed excludes them or indicates otherwise. When mineral rights pass separately from property rights, the mineral rights are typically governed by contract or separate deed.

An Overview of Oil and Gas Law in the United States

In the United States, the exploitation of oil and gas reserves is governed by both statutes and case law, mostly at the state level. The general provisions include:

• Ownership—Oil and gas rights are owned by the surface landowner, which may be a private individual, company, municipal entity, or Native American tribe. All rights extend vertically downward within the boundaries of the property line. Because of the fluid nature of gas and oil, a well under one property may extract resources originating under other real estate. The various states have generally adopted two different approaches to the ownership of resources so extracted:
  • The “rule of capture”—This approach makes it permissible for an exploiter to extract resources (oil or gas) that originate beneath other property, provided the extractor does not design or construct the well specifically to accomplish that goal. For example, a person may not angle a well to intentionally go beneath adjoining property and extract resources, but they may capture any resources that naturally flow beneath their own property. Once they do so, they have no duty to share the proceeds with the adjoining landowners.
  • The “correlative rights” doctrine—This legal principle holds that landowners with a common source of groundwater have a right to a reasonable share of that water, regardless of who first extracted it. The concept has been applied to oil and gas extraction in some states. Jurisdictions that recognize the correlative rights doctrine seek to equally protect the rights of all mineral rights owners.

Challenges of Exploiting Your Mineral Rights

In many situations, it is cost prohibitive to get minerals out of the ground; moreover, if you have the resources to do so, you must do so without damaging or interfering with the use of any homes or property around you. State or local laws may also regulate the extent to which a mineral extraction operation can affect the environment.

Leasing of Oil, Gas, and Mineral Rights

When a party seeking to exploit the mineral rights in property does not own the land, a common approach is to lease only the mineral rights from the property owner. Such leases include a description of the real property, the length of time the lease will be in effect, and the compensation the extractor must pay to the owner of the property for the right to exploit the natural resources.

Even when an oil and gas lease identifies a specific term, a standard lease will automatically extend if commercial production is established on the property. Unless the lease specifically states otherwise, the establishment of a single producing well will extend the entire lease, provided that any of the wells on the property continue to produce oil or gas.

Summary

In the United States, the rights to exploit or extract natural resources, such as minerals, oil, and gas, may be owned or transferred separately from the land. A property owner may convey the physical property but retain the rights to control all natural resources. In addition, a party with mineral rights may use the land above the minerals in any way reasonably necessary to extract them.