Creating Surface Rights and Mineral Rights
Since the beginning of time, the owner of a piece of real property has owned all of that property, from the core of the earth beneath it all the way up to the heavens above that real property. Until recent years – that being defined as the 1800s when mineral production became a profitable use of land in addition to farming and ranching (e.g., the gold mining California rush beginning in 1849, and in Texas the discovery and production of oil in the early 1900s) – the landowner also owned the minerals beneath the land. But once minerals were recognized to have value, the concept of “severance” was born.
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In short, a legal severance occurs when the owner of the land and minerals under the land conveys either of those interests without the other to another person or entity. Most commonly in Texas, that would be a ranch owner selling only the right to use the above-ground portion to another that intends to use the surface for farming, ranching, hunting, or similar uses. In such a transaction, only the surface rights are conveyed, while the mineral rights are retained – or kept – by the seller. This has long been the practice in Texas, particularly in areas such as South Texas where minerals were known to exist.
This severance of surface and mineral interests benefitted both parties: the buy was able to pay less for the land that they wanted to use for their above-ground activities, and the seller was able to retain ownership over what may someday be an income-generating interest. Especially when the extraction and production of minerals seem unlikely to occur in the near future, this seemingly was a no-harm transaction for surface right purchasers. The very recent Eagle Ford Shale play is a good example: just 10 years ago, although hydrocarbons were known to exist in the shale formations, it was not technologically or economically feasible to produce those minerals.
Consequently, surface right purchasers cared little about not obtaining the right to those minerals because their production was seemingly unlikely to occur, in the near future anyway. It was not until the very recent advent of hydraulic fracking that made the production of hydrocarbons suspended in shale formations possible. Severed interests, and the conflicts between the owners of each, are therefore very relevant and significant today.
Definition of Surface Rights
A “Surface Right” is essentially ownership of the land that one can see. It includes the normal use and enjoyment of the land and all that comes with it: land, roads, rivers and streams, lakes, and the right to all native and livestock animals on the land.
Definition of Mineral Rights
A “Mineral Right,” on the other hand, refers to ownership of what is beneath the land. This includes the right to produce and receive payments for oil, natural gas, uranium, and any other similar minerals that may be produced under the land. Recently, the production of water has become a valuable right, both to feed the oil fracking industry and also for traditional uses given drought conditions throughout so much of the South.
Adding to the complexity, mineral interests can be further severed, in that only the rights to certain minerals – for example, water – and not the right to produce any other sub-surface minerals may be conveyed. This has become a popular practice lately, with water districts acquiring those rights to serve their customers while leaving valuable oil and other mineral rights for others to enjoy.
Mr. Allred routinely assists oil & gas mineral rights owners and companies in their disputes.
eallred@guerrallp.com
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