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Columns: Real Estate Adviser
Steve McLinden   Expert: Steve McLinden
Real Estate Adviser
Natural gas discovery is 'found money' for landowners
Real Estate Adviser

Who owns mineral rights?
 

Dear Steve,
We live in the north Texas area and have been hearing from friends that there will eventually be "land men" in our area looking to buy mineral rights from individual home owners. What are those rights and how do we know if we own them? Do you know how this whole process works?
-- Loretta

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Dear Loretta,
This has become a hot issue in parts of the Southwest, particularly in the Fort Worth and Dallas areas, where a huge reservoir of natural gas was discovered in recent years.

Right now, most of the mineral-rights purchases and leases are being made in what's known as the Barnett Shale region, which underlies 5,000 square miles of north Texas, although it's quite likely that new exploration technologies will soon be uncovering mineral and gas deposits in other sections of the country.

It is also likely you already own those rights. In fact, experts on the subject estimate those chances are better than 95 percent. Title companies typically don't get involved in this determination, however.

The only way to know for sure is to retain an oil-and-gas attorney or land man who would have to research the property and geological surveys all the way back to the 1800s. I don't think it would be worth that expense for you. You'll see why in a minute.

These rights aren't necessarily chump change either. Gas companies in Barnett Shale have been paying anywhere from $12,000 per acre to $25,000 per acre. Most involve modest royalty payments as well.

Typically, a land man, mineral-leasing or gas company representative will post signs in neighborhoods and (or) notices in the paper, advertising community meetings on mineral rights. Those meetings will be open to every resident living in a set geographic boundary where gas or minerals have been discovered.

Interested parties will typically convene at a community center, church or other large meeting place to get a briefing, ask questions and to sign-up a memorandum of intent to continue the process.

Local residents will then comprise a committee and help negotiate, as a group, the rights to obtain set per-acre fees and royalties for all sellers in that group. Some gas companies may also try to cut individual deals with homeowners. Sometimes, this precipitates a bidding war. The whole process generally takes about a year, sometimes less. In Texas and other states, one party can own the mineral rights on a property in what's known as a "mineral estate," while a separate party can own the surface property and everything on it.

While a few developers and former land owners retain those mineral rights when certain subdivisions are built, few had the foresight to do this until recently in most affected cities. Though gas and mineral companies are careful to tell homeowners they can't assume that they own these rights, they also will privately tell you that if there was no deed or contractual stipulation attached to the previous sale of your property addressing the mineral issue, you are likely in the clear.

In some areas, mineral rights have become part of buying-and-selling negotiations for homes. If your property is sizable and you intend to sell it in the near future, make sure to specifically reserve those rights in the transaction or they will automatically pass to the new owner. Or, you may want to use those rights as a value-add incentive for a buyer. The downside of all this is that a handful of natural gas wells will have to sprout up somewhere near you -- hopefully not behind your backyard fence!

But for the most part, mineral rights are "found money." Here's wishing you luck in the gas business -- or "bidness" -- as they say in Texas.

Bankrate.com's corrections policy -- Posted: March 23, 2008
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