What is a Mineral Interest?

Mineral Interest

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Mineral Interest

A mineral interest refers to the ownership of the rights to extract minerals (like oil, gas, coal, metal ores, stones, etc.) from a particular piece of land. The holder of the mineral rights can sell, lease, gift or bequest these to others.

Mineral interests are a form of real property and are often sold or leased to companies or individuals who specialize in mineral extraction.

It’s important to note that ownership of the mineral rights can be separate from ownership of the surface rights to a piece of property. This is known as a “split estate.” When an estate is split, the owner of the surface rights does not have the right to extract minerals from the property. The mineral rights may have been sold or leased to another party, or they may never have been included when the surface rights were purchased.

In terms of revenue, the owner of mineral interests typically earns a specified amount of the minerals produced, or the revenue generated from those minerals, depending on the terms of any lease or sales agreement that’s in place. This is often referred to as a royalty.

Example of a Mineral Interest

Suppose you own a piece of land in Texas. You have both surface rights (the rights to the surface of the land and anything growing on or attached to it) and mineral rights (the rights to any minerals below the surface).

An oil company approaches you and offers to lease the mineral rights to your land because they believe there might be oil beneath it. They offer you a lease agreement that includes a bonus payment upfront, a rental rate per acre per year, and a 20% royalty on any oil they produce.

You agree to this and sign the lease, thereby giving the oil company the right to drill for and extract oil from your land. In return, you receive the upfront bonus, the annual rent, and 20% of the proceeds from any oil they produce. This 20% is not taken out of your pocket; instead, it is an extra payment you receive from the oil company in exchange for the use of your land.

In this case, your mineral interest has turned out to be quite valuable, earning you income without you having to do any of the work of drilling for or extracting the oil.

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