Real Estate Market Woes: Mineral Rights in Texas

As a first-time homebuyer in the Dallas/Fort Worth area, I thought I had very carefully prepared myself for all that the process would involve, including gathering income and financial documentation, qualifying for a mortgage, arranging for a thorough inspection, evaluating needs and desires from a home and finding a reputable agent to represent my interests. One area I never considered, however, was the issue of mineral rights. To be perfectly honest, although I’d heard the term, I’d never given consideration to what it actually meant. But that all changed in the middle of my home buying process – and I’d like to share with you the knowledge I’ve gained through extensive research I completed to protect my own rights and the rights I would possess as a soon-to-be homeowner.

According to property law, two different forms of rights exist in any real property: surface rights and mineral rights. Surface rights refer to any structure erected above the surface or sub-surface structures that do not exceed a certain depth, as well as rights to use all surface property surrounding structures in accordance with zoning ordinances. Mineral rights refer to mineral substances below a certain depth and the way in which they are preserved, explored or extracted. These mineral substances can include natural gas, oil, or any other substance in common use today that can be mined or otherwise extracted from below the surface. Local laws set the depth below which surface rights terminate and mineral rights exist. This issue is especially relevant to residents of the Dallas/Fort Worth area, as sections of the Barnett Shale running under Fort Worth have been found to hold large stores of precious minerals, and oil and gas companies are moving quickly to act on those stores.

But why are mineral rights so valuable – and thus so controversial? Because in this day and age when any available source of natural gas and oil are being exploited in order to fuel our fuel-based economy (pardon the pun), pockets of minerals in traditionally non-traditional drilling and extraction areas are being considered by oil and gas companies for production. While this can mean lucrative signing bonuses, lease and royalties to homeowners beneath whose property precious minerals exist, it can also mean huge headaches due to unsightly equipment, disrupted property due to exploration attempts, loud noise due to drilling efforts and diminished property resale values because of poorly handled extraction and exploration techniques and the blight they can potentially place on a community. Once the owner of mineral rights for a property signs a lease with an oil and gas company, it is the oil and gas company who, in effect, hold the mineral rights.

But not all exploration and extraction is bad! Oil and gas companies can employ techniques including horizontal drilling to extract without any disturbance to any homeowner or land. Horizontal drilling involves drilling straight down and then horizontally under a large plot of land from a distant location to extract minerals with reduced disturbances. Typically, homeowners will be approached by an oil and gas company and offered a signing bonus to sign a lease for the use of their mineral rights for a set period of time, and also offered periodic compensation based on a percentage of the minerals extracted. While this can be lucrative, it is also important to weigh possible financial gains against future (or present!) real estate woes.

First, and most disturbing, is the fact that the Texas Supreme Court has found that mineral rights are superior to surface rights. What this means is that although oil and gas companies will often promise to keep all disturbance removed from actual residential settings, if it is necessary to conduct further exploration that necessitates the use of your land, whomever owns mineral rights or possesses a lease to mineral rights can enter your land at any point in time with no notice, and you cannot receive compensation for any damage caused by their incursion on your property except if the damage is caused maliciously.

Second, and nearly as disturbing, is that homebuyers are often ignorant to the fact that sellers often do not convey mineral rights along with surface rights, choosing instead to retain rights and thus retain possibly lucrative royalties. The disturbing part is that once mineral rights are severed from surface rights, they remain as two different properties into infinity. Even if the same person should own both again in the future, they could never be rejoined as one property. This can make resale of a house where the seller does not possess mineral rights very tricky. The irony is that there is a direct correlation between the signing of oil and gas leases and the inflation in property value (as long as exploration and extraction is conducted discreetly) but many sellers expect to retain the very right that helped their home to sell at a higher price.

Finally, it is shocking to find that many homeowners themselves do not know if they possess the mineral rights to their own property. Due diligence is always necessary when making a home purchase, but if, as a homeowner, you find yourself several years into your ownership, you can always conduct more research by doing a title search and conveyance search to find out if you do, indeed, have full rights to your property. Do not allow manipulative realtors or lawyers to convince you that mineral rights are “no big deal” and do more research for yourself to see how others have been affected when they lack mineral rights to a property where they only possess surface rights.

In my homebuying experience, it all worked out for the best. By holding out and showing our stubborn side, my husband and I will soon be the proud new owners of a lovely property in Fort Worth – and thanks to our perseverance and research, we will take possession of both surface AND mineral rights.