Mineral rights

Property rights to exploit an area for the minerals

Mineral rights are property rights to exploit an area for the minerals it harbors. Mineral rights can be separate from property ownership (see Split estate). Mineral rights can refer to sedentary minerals that do not move below the Earth's surface or fluid minerals such as oil or natural gas. There are three major types of mineral property: unified estate, severed or split estate, and fractional ownership of minerals.

Unified estates, sometimes referred to as "fee simple" or "unified tenure" mean that the surface and mineral rights are not severed.

To bring oil and gas reserves to market, minerals are conveyed for a specified time to oil companies through a legally binding contract known as a lease. This arrangement between individual mineral owners and oil companies began prior to 1900 and still thrives today. Before exploration can begin, the mineral owner (lessor) and the oil company (lessee) must agree to certain terms regarding the rights, privileges and obligations of the respective parties during the exploration and possible production stages. Although there are numerous other important details, the basic structure of the lease is straightforward: in exchange for an up front lease bonus payment, plus a royalty percentage of the value of any production, the mineral owner grants the oil company the right to drill for a period of time, known as the primary term. If the term of the oil or gas lease extends beyond the primary term, and a well was not drilled, then the Lessee is required to pay the lessor a delay rental. This delay rental could be $1 or more per acre. In some cases, no drilling occurs and the lease simply expires. The duration of the lease may be extended when drilling or production starts. This enters into the period of time known as the secondary term, which applies for as long as oil and gas is produced in paying quantities.

A division order is not a contract. It is a stipulation, derived from the lease agreement and other agreements, as to what the operator of a well or an oil and/or gas purchaser will disburse in terms of revenue to the mineral owner and others. The purpose of the division order is to show how the mineral revenues are divided up between the oil company, the owners of the mineral rights (royalty owners) and the overriding royalty interest owners. The division order needs a signature, a current address and social security number for individual royalty owners or tax identification number for companies.

A surface use agreement (SUA) is a contract between a property owner and a mineral rights holder that dictates how the mineral rights are to be developed. Meaning, when mineral rights are extracted by a company that does not own the property above where the minerals are located, the company has the legal right to extract those minerals regardless. However, companies will often enter into voluntary negotiations with the surface rights owner to ensure that the operations all go smoothly. In such cases, the company will offer a SUA, in which property owners may ask for financial compensation or other concessions regarding how the minerals are extracted. See sample.