Everything You Need to Know About Mineral Rights in Texas
The Lone Star State harbors abundant mineral deposits. Although there are a number of non-petroleum minerals present in Texas, like granite, sand, limestone and salt, the mineral rights that most people are interested in are oil, natural gas and related liquids.
Property investors buying large or even small tracts of land are almost always concerned as to who owns mineral rights in Texas. Luckily, Texas law makes a clear distinction between surface and mineral rights. But what are mineral rights in Texas?
Surface Rights vs. Mineral rights
Investors seeking land in Texas have to be aware of the rights conveyed in a land sale. There are two types of rights:
⚫ Surface rights ⚫ Mineral rights
What are Surface Rights?
Surface rights cover visible things on the surface of a property. Such rights give you ownership to all the physical structures and plants on a particular piece of land. You’re also entitled to subsurface resources like water, gravel, sand, and limestone.
What are Mineral Rights in Texas?
Texas Mineral rights are the rights to minerals and resources that exist beneath pieces of land in Texas.
How Mineral Rights Work in Texas
Texas adopted English common law on property rights in 1840. This law granted landowners ownership of mineral deposits. Since the adoption of this law, different types of investments have arisen. Nowadays, investors can:
- Buy mineral rights
- Sell mineral rights
- Profit from royalty interests
If you sell a unified estate, you have to transfer your Texas mineral rights to the buyer. Only a few landowners opt for this option. Most landowners split their property into mineral and surface estates. This option allows you to gain future mineral royalties as part of land transfer by deed.
What Are Royalty Interests?
As a mineral rights owner, you can lease your mineral estate and receive royalty interests. This means you will receive a portion of the profits from the production of the mineral.
Most royalty payments in Texas come from oil and gas leases. According to the US Energy Information Administration, Texas generated 43% of the nation’s crude oil in 2020. This translates to considerable payouts to royalty holders.
Leases partially transfer mineral rights to a second party. When the lease expires, the mineral rights revert to the lessor.
Mineral Rights Value in Texas
Before selling your mineral rights, you have to estimate the value. Unfortunately, determining the ideal value isn’t straightforward.
The status of your mineral estate will likely influence its value.
Producing Mineral Rights Value
Investors who receive royalty incomes hold producing mineral rights in Texas. A great way of determining value is by examining your royalty income.
You can get the value of your mineral rights by multiplying your average royalty income by the number of production years. This value is only an estimate. You’ll receive higher offers if the buyer drills more wells on your property.
Non-Producing Mineral Rights Value
Non-producing mineral rights have low value. In some cases, the value of these rights may be zero. The low value is due to high investment risks. A mineral rights buyer is unlikely to purchase mineral rights that offer no return on investment. As a result, you could hold these mineral rights for years without receiving an offer.
There have been plenty of examples, however, of parcels of land whose mineral rights went from virtually nothing to thousands or even millions of dollars. This happened when a new shale was discovered or became commercial viable due to new drilling techniques (e.g. hydraulic fracking). The most notable recent examples include the Barnett Shale around Fort Worth and the Cline Shale in West Texas.
Finding the Exact Mineral Rights Value
Investors often wonder how much are mineral rights worth in Texas. You could use the above estimates, but many factors affect mineral rights value.
Investors can get fair deals by putting their properties on the market.
When selling mineral rights in Texas, it’s vital to get offers from several buyers. If you stick to one or two buyers, you’re likely to receive under-valued bids.
You get maximum value for your mineral rights by initiating competition among buyers. Higher competition ensures you get top market value for your mineral estate.
How to Sell Your Mineral Rights Texas
There are several ways to sell your mineral rights. These options include:
Auctions
You can get great deals by selling your Texas mineral rights through an auction. There are many auctions where you list your mineral property and pick the best bid. Besides, you get advance auction information from the prospectus.
Online Mineral Exchange Marketplaces
Another way of selling your Texas mineral property is via peer-to-peer marketplaces. Online marketplaces allow you to sell your mineral estates from the comfort of your home.
You have to be cautious when listing your mineral property. Only go for reputable marketplaces that have many buyers. An example of such a platform is the US Mineral Exchange.
Mineral Rights Brokers
Mineral rights brokers appraise your mineral estate then use their vast networks to find ideal buyers.
Individual Landmen
Landmen are employed by oil companies to find and obtain mineral rights from landowners. Contacting one or more reputable landmen would be like contacting a couple of very productive buyer’s agents in your area if you were trying to sell your home. Knowing they were competing with other landmen for your business, they are more likely to make a fair offer.
How to Buy Mineral Rights
Research is vital when searching for mineral rights for sale in Texas. You can start by identifying the mineral you want and its abundance in Texas (typically this is oil or natural gas but in some cases it’s some other subsurface mineral). You’ll then determine which part of Texas is worth investing in.
Investors can buy mineral rights in Texas through auctions or online market exchanges. However, a better option is seeking the services of homegrown mineral rights brokers.
These brokers are well-versed with the production basins and the current market value of mineral rights.
Once you claim mineral rights, you obtain the rights to exploit, excavate, and develop the mineral reserve. You can get the rights to one or all the minerals in a piece of property.
Mineral Rights Conflicts
Different parties can own surface and mineral rights. This situation sometimes leads to disputes as to who owns what. As a surface owner, you should be aware that the mineral owner can trespass on your property to extract his/her resources. Of course, the mineral owner has to respect existing structures.
Conflicts also arise when multiple investors share mineral rights. These investors must always agree before they lease or sell their properties.
It’s always advisable to work with a savvy lawyer when buying or selling mineral rights. A lawyer can foresee future property issues and will advise you accordingly.
Bottomline
Mineral rights in Texas give you access to resources like oil and gas and some other non-petroleum minerals. Before you buy or sell mineral rights, you need to have adequate information. Buyer and seller beware.
