Mineral acre refers to the concentration of subsurface minerals (in 1 acre of the land) and their economic interests.
When it comes to energy minerals like oil, gas, uranium, etc., we know they constitute a crucial part of a country’s economy and financial stabilization. In most countries, property owners require the government’s authorization to extract or sell the minerals, despite the land’s ownership (surface rights). However, in the USA, mineral rights and surface rights are exclusive, and people have absolute rights to private ownership of the land and its subsurface.
Since mineral rights are quantified in terms of net acres, understanding mineral acres is essential when buying, selling, or distributing property. This article explains mineral acres of oil and gas, their calculation, and their importance.
What are Mineral Acres?
Mineral acres refer to the subsurface area having oil and gas reserves. Since buying/selling of minerals is common in America, mineral acres are an important metric to calculate the mineral concentration for its distribution.
Before we proceed to its importance, you must understand some important related terms:
Net Mineral Acres
Net mineral acres is a total of natural gas or oil reserves (mineral acres) out of the gross acres of the given land tract. The gross area refers to the entire region, while the net mineral acres is a calculation of flat, usable mineral land owned by the mineral owner.
Net Mineral Acres = Gross Acres x Mineral Interest
Note that you can calculate net acres based on each project. In this case, gross acres will be multiplied by the percentage of ownership when calculating mineral acres for the petroleum company entitled to mineral interests.
Net Royalty Acres
Since American laws enable complete private ownership, i.e., fee simple estate, they allow the landowner to sell, lease or gift some or all of the mineral rights. Net royalty acres characterize the share of mineral interest a petroleum/natural gas company (royalty buyer) holds.
Net Royalty Acres = Net Mineral Acres x Percentage of Minerals on Lease
Buying or Selling and Distributing Mineral Acres in Texas
Although mineral acres come along with the land, the mineral and surface rights can be severed and separated. Buying mineral acres is a form of investment.
Following are some of the critical points you need to know when selling mineral rights on your property:
- Once mineral rights are sold, the contract and terms stand for all future property owners and mineral buyers.
- Unless adequately discussed in the contract, the property owner does not have a say about the mining or extraction of minerals (or the way it is done).
- Individual buyers often sell their mineral rights to petroleum and gas companies. The property owner does not hold a say in the further selling and distributing mineral acres.
- Sometimes, a company leases some or all mineral acres. The company pays property owners for partial or complete mineral rights for a specified time frame. The company may start mining and production during the period, but after the lease expires, the property owner gets the mineral rights again.
- The property owner can buy rights to a certain percentage of the production income.
- We know that oil and gas can creep through the cracks and rocks. This implies that mineral reserves from a particular land can also enter the adjacent properties. Therefore, when closing the deal, it is mandatory to decide on the royalty share of neighboring property owners. In addition, obtaining a permit for mineral extraction from the adjacent landowners is also a must for the company.
It is crucial to carefully navigate the process and decide the terms and conditions beforehand. To avoid future conflicts, we recommend involving an expert mediator, an expert in the subject, to prepare the contract in the best interests of both parties.
Know that as mineral owners, you reserve the right to add terms regarding exploration, extraction, and production of minerals and any restoration of the property after the completion of the process.
Following are some of the terms that are mandatory to be discussed in the contract as per the Texas government:
- Exploration Techniques: Oil companies typically employ a geophysical survey to explore underground minerals and locate areas where high levels of oil and gas are concentrated. Before sealing the deal, the oil company needs to negotiate exploration techniques with the property owner. In case of property damage during exploration, the contract must include restoration payment.
- Permission For Exploration: Oil companies are bound to take consent for property exploration. The company can ask for exclusive rights to explore and extract the mineral. They may also obtain a temporary permit for geophysical tests and later sign a lease for oil and gas.
- Trespass Liability: A liability in case of trespass by the surveyor should also be a part of the contract. It is essential to specify the liabilities separately for deliberate and good-faith trespass.
- Geophysical Exploration Under Lease: As per the law, oil and gas companies are not responsible for the surface damage during necessary geophysical tests conducted to pursue a lease. However, mineral owners may prohibit geophysical tests without prior consent in the contract.
- Lease Considerations: In the lease agreement, the party liable for property restoration should be specified by the mineral owner. The amount, as well as time and mode of payment, should also be ascertained by the owner of mineral acres. Additionally, the owner is also responsible for specifying the test site boundaries.
The contract should also establish the routes through which the company crew is to navigate during exploration, as well as the land cleaning prior to the geophysical tests.
It is important to mention that the contract will modify as need be, if/when mineral rights and property rights do not belong to one party.
Mineral owners take part in buying and selling mineral acres. Unfortunately, despite being a stable investment, selling mineral acres often gets tricky due to loopholes in the contract. Therefore, to prevent conflicts, you should ensure that the contract unambiguously discusses all the clauses specified by the government.