What you need to know about mineral rights

Bitter disputes over valuable natural resources – such as those depicted in old Hollywood Westerns – are thought by many landowners to be an obsolete artifact of the past and a relic of the lawless frontier. But thanks to an increasingly sophisticated legal system, the potential for controversy regarding the interpretation of mineral rights is even greater now than it was in the American Wild West.

By: Tom Kerr

Knowing the ins and outs of mineral rights is crucial for any new landowner.
The key to a successful and lucrative transaction involving mineral assets is expert assistance from those who understand real estate, geology, market value, and the legal nuances that specifically apply to mineral rights agreements. Because minerals in the ground are not readily visible to the naked eye they may seem mysterious and intangible. But the process of protecting or transferring mineral rights is not necessarily exotic if one has experienced legal counsel. Minerals in the ground can be conveyed like any other type of property and bought, sold, leased, or optioned. Buying or selling a home or tract of land without problems typically requires help from professionals including Realtors, attorneys, inspectors, and appraisers. Likewise, those who take help from qualified experts in the area of mineral rights law can avoid all the pitfalls associated with mineral leases while reaping the full financial benefits.

For example, someone might own property that has natural gas, gold, or quartz in the ground. And while the landowner might not have the means to dig up and capitalize on those assets – or any interest in embarking on such an endeavor – an oil or mining company with the appropriate equipment and knowledge might be eager to do so. Similarly, miners might not want to pay full market price for expensive real estate that happens to lie above a geological cache of natural resources. But they might be willing to sign a 10-year lease that allows them to drill down and extract those resources from beneath the surface. Once they have tapped the mine they can pull up their stakes and move to another leased location, without having to worry about buying and selling the entire site.

In such situations the respective parties strike a deal that is carefully spelled out in a legal contract known as a mineral rights agreement. A mineral rights transaction can involve all of the various minerals beneath the property, or can be restricted to specific commodities. Sometimes investors or brokers will even acquire rights to minerals that they have no intention of extracting, as an investment they can sell or lease to someone else. The possibilities are limitless, as is the potential for problems for those who do not have clearly worded and intelligently structured mineral rights contracts.

For instance, a rancher and a miner might think that they have a solid agreement that is mutually beneficial. But when extraction begins the miner sets off dynamite. The rancher’s frightened cattle stampede, destroying crops and fences and injuring themselves. The upset rancher expects the miner to pay for damages, but the miner feels that it was his legal right to blast through rocks to extract his minerals. Before the end of the day the two adversaries are locked in an expensive old-fashioned feud. A good mineral rights agreement helps to avoid such scenarios by covering every possible contingency and clearly outlining the method and timeframe for extraction.

Keep in mind that those who purchase surface rights – or buy a tract of land with the intention of owning and enjoying it in its entirety – may be bound by previous mineral rights transfers or lease agreements. Even if rights to subsurface assets were sold or leased decades ago they may still be enforceable. For that reason it is important to research the chain of ownership and ensure that the transfer of property awards all of the precious mineral rights without any unexpected restrictions.

Today we have state-of-the-art mining technologies and an insatiable global demand for subsurface minerals. Perhaps more now than at any other time in history, comprehensive mineral rights agreements between landowners and miners are essential for the protection and preservation of investments both above and below the surface of the land.

If good fences make good neighbors, excellent mineral rights agreements make great landowner and mining enterprise partnerships.

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