How Do Mineral Rights Work?

In the United States, the ownership mineral resources were originally granted to private citizens or organizations that owned the surface, unlike in most countries where the government owns it. These property owners have both “mineral rights” and “surface rights,” which equates to the right to use the surface of the land, as well as to access and mine the minerals in that area.

For privately-owned minerals, mining rights can be acquired by complying with the contract and property law, just like in any other private property right. Mineral rights are quite complex, but understanding the basics will help you a lot in taking a step forward to becoming a mineral rights expert.

If you need an expert opinion, Pheasant Energy can answer all of your questions related to mineral rights, oil and gas royalties interests, and others.

Various Types of Mineral Rights

Mineral Interest (MI)

Mineral interest refers to the sale of non-producing mineral lands. It basically involves a tract of land that is not producing royalties or not producing well at the moment.

Royalty Interest (RI)

Royalty interest entitles the mineral rights owner to receive a portion of the revenue of the minerals produced or the mineral itself. When the lease ends, the buyer can release the mineral rights.

Mineral Interest or Royalty Interest (MI/RI)

The combination of the two interests indicates that the seller is willing to lease both the mineral and royalty interest of the property. When the agreed lease ends, the buyer is still the owner of the property.

Overriding Royalty Interest (ORRI)

Similar to the royalty interest, the overriding royalty interest ends when the agreed lease ends. The buyer will only be granted interest within the agreed duration of the lease.

Wellbore Only Interest

This type of interest is similar to the royal interest. What differentiates this is the fact that you are only granted to receive royalties from the production sale of specific wellbores.

Mineral Rights Brokers, Listing, and Auctions

Mineral transactions are often done privately. Another option is to purchase mineral properties from brokers, sealed bids, auctions, negotiated sales, tax sales, or even direct from the mineral owners themselves. Prior to purchasing, it is important to thoroughly do your research before you enter into an agreement.

Often, auctions are opened to all investors whether they are accredited or not. These auctions would include oil and gas mineral properties, farmlands, or surface and minerals. Some auctions undergo a repetitive cycle, with quarterly or weekly events, held via live stream, online bidding, or in-person.

On the other hand, mineral brokers act as a middle-man that connects the buyer to the seller.

How to Buy Mineral Rights

#1 Create a Plan

Develop a concrete plan with your preferred location. Some buyers look for a certain type of interest or a specific area. So it is important to carefully assess your acquisition plan.

#2 Look for Good Deals

Look through sealed bids, sale listings, negotiated sales, and auctions on the internet. See if anything fits into your area of interest.

#3 Due Diligence

Check the oil and gas regulatory commission website of the state where the property is located. Carefully assess the lease terms, drilling activity, mineral location, verify ownership, and other factors.

#4 Place a Bid

Once you’ve chosen a mineral property, you can now place your bid or submit an amount that you want to offer.

#5 Wire Funds

When your bid won or the amount you offer was accepted, you can now proceed with wiring your payment for the minerals.

#6 Ownership Transfer

The seller may either send the deed, conveyance document, or even the original document.

#7 Manage Your Mineral Property

Organize original documents as well as digital copies and files.