Mineral rights

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 estate

Owning mineral rights (often referred to as a "mineral interest" or a "mineral estate") gives the owner the right to exploit, mine, and/or produce any or all minerals they own. Minerals can refer to oil, gas, coal, metal ores, stones, sands, or salts. An owner of mineral rights may sell, lease, or donate those minerals to any person or company as they see fit. Mineral interests can be owned by private landowners, private companies, or federal, state or local governments.

Severability

Mineral estates can be severed, or separated, from surface estates. There are two main avenues to mineral rights severance: the surface property may be sold and the minerals retained, or the minerals may be sold and the surface property retained, though the former is more common [1]. When mineral rights have been severed from the surface rights (or property rights), it is referred to as a "split estate." In a split estate, the owner of the mineral rights has the right to develop those minerals, regardless of who owns the surface rights because in United States law, mineral rights trump surface rights (see Oil and gas law in the United States). This can create tension between mineral rights owners and surface rights owners if the surface rights owners do not want to allow the mineral rights owners to use their property to access their minerals. Often, companies will offer a surface rights owner a surface use agreement, which can provide financial compensation to the surface owner, or more commonly, offer some concessions on how the minerals are accessed. For example, some surface use agreements require the company to access the property from specific roads or points on the property.

Major elements

The five elements of a mineral right are:[2]

  1. The right to use as much of the surface as is reasonably necessary to access the minerals
  2. The right to further convey rights
  3. The right to receive bonus consideration[3]
  4. The right to receive delay rentals[4]
  5. The right to receive royalties

The owner of a mineral interest may separately convey any or all of the above-listed interests. Minerals may be possessed as a life estate, which does not permit a person to sell them, but merely that they own the minerals so long as they live. After this, the rights revert to a predesignated entity, such as a specific organization or person.

It is possible for a mineral right owner to sever and sell an oil and gas royalty interest, while keeping the other mineral rights. In such case, if the oil lease expires, the royalty interest is extinguished, its purchaser has nothing, and the mineral owner still owns the minerals.

Mineral rights leasing

An owner of mineral rights may choose to lease those mineral rights to a company for development at any point. Signing a lease signals that both parties agree to the terms laid out in the lease. Lease terms typically include a price to be paid to the mineral rights owner for the minerals to be extracted, and a set of circumstances under which those minerals are to be extracted. For instance, a mineral rights owner might request that the company minimize any noise and light pollution when extracting the minerals. Leases are usually term-limited, meaning the company has a limited amount of time to develop the resources; if they do not begin development within that time-frame they forfeit their right to extract those minerals.

The four components of mineral rights leasing are:

  1. Ownership
  2. Leasing
  3. The Division Order
  4. The Royalty Check

Ownership

There are three distinct but related aspects of ownership. They are:[5]

  • Legal description
  • Net mineral acres
  • Ownership type

Leasing

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.[6]

The division order

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.

Oil and gas lease

An oil and gas lease is a contract because it contains consideration, consent, legal tangible items and competency.

  • The term of the lease. Usually there is a primary term and a secondary term. Each term has conditions set up either by the lessor or lessee to fulfill.
  • The royalty rate. This is how the rates are divided and how it is calculated from the revenues produced from the mineral rights.
  • If the lessor receives a bonus
  • If there is a delay rental agreement—any delay in production by the lessee for a negotiated period, the lessee can pay the lessor a negotiated amount of money per year to keep the contract active
  • If there is a "shut-in royalty" agreement—royalties are paid at a negotiated rate per acre, only while the well is not producing oil or gas

Many other line items can be negotiated by the time the contract is complete. The rights of all parties are defined in agreements; and, when mineral production begins, the division order states how much revenue goes to each party involved.[7][8]

Royalty check

Mineral owners may receive a monthly royalty check if oil, gas, or any other substances of value are extracted from below the surface and either sold or used by an oil and gas operating company. The royalty paid is a function of the net value of the proceeds from the sale of the oil, gas, or other substance, multiplied by the owner's revenue interest decimal, less any amounts deducted for taxes or other deductions.

The revenue decimal used to calculate the amount of an owner's royalty check is calculated with the following equation:[9]

  • A = Net Mineral Acres owned
  • U = Number of Mineral Acres in the oil and gas drilling unit or pool
  • R = The Royalty assigned to the mineral right owner by the oil and gas lease covering his or her minerals
  • P = Participation Factor assigned to the tracts owned by the mineral owner as described in a unit agreement
  • Y = Additional Ownership Factor assigned to the owner's mineral rights by any other arrangement or agreement
  • D = Deductions

Revenue interest decimal

It is common for royalty checks to fluctuate between pay periods due to monthly changes in oil or gas prices, or changes in the volumes produced by the associated oil or gas wells. Additionally, royalties may cease altogether if the associated wells quit producing marketable quantities of oil or gas, if the operating company has changed hands and the new operator has not yet established a new payment account for the owner, or if the operating company or product purchaser is missing appropriate paperwork or proper documentation of changes in ownership or contact information.[10]

Surface Use Agreement

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 [11]. 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 [12].

See also

Poem

"Some say they're stuck in purgatory but more likely hell. Because they don't know enough facts to decide if Jones has a valid well."

References

  1. ^ Fambrough, J., 2009. Minerals, surface rights and royalty payments. Real Estate Center, Texas A&M University, Technical Report 840
  2. ^ "Mineral Rights 101 - Infinity Resources". www.infinityresourcesco.com.
  3. ^ "Oil and Gas Lease Bonus". marcellusmineralowners.com. 17 July 2014.
  4. ^ "delay rental - Schlumberger Oilfield Glossary". www.glossary.oilfield.slb.com.
  5. ^ Stafford, Jim (1981). Look Before You Lease. Roar Press. p. 31.
  6. ^ Wagner, Bret. "Introduction to Mineral Rights Leasing". Mineral Rights Coach. Bret Wagner. Retrieved 30 December 2012.
  7. ^ "Lease & Division Orders - San Saba". sansabaroyalty.com.
  8. ^ "Division Order – Understanding Oil and Gas Division Orders". www.mineralweb.com.
  9. ^ "Understanding Operator Royalty Checks". Caddo Minerals. Retrieved 6 May 2016.
  10. ^ "Oil and Gas Royalty Calculators". Royal Mesa Minerals. Retrieved 22 Mar 2017.
  11. ^ "Surface Use Agreements: What They Are and How To Get One - Texas Agriculture Law". agrilife.org. 20 January 2015.
  12. ^ "Texas Sample Oil & Gas Lease and Surface Use Agreement - Earthworks". earthworksaction.org.

External links

Baron Clitheroe

Baron Clitheroe of Downham in the County of Lancaster is a title in the Peerage of the United Kingdom. It was created in the 1955 Birthday Honours for the Conservative politician Ralph Assheton, who had previously served as Financial Secretary to the Treasury. He was the son of Ralph Cockayne Assheton, for many years a member of the Lancashire County Council, who had been created baronet of Downham in the County of Lancaster, on 4 September 1945. Three months after being raised to the peerage, Lord Clitheroe succeeded his father in the baronetcy. As of 2017, the titles are held by the first Baron's son, the second Baron, who succeeded in 1984.In the immediate aftermath of World War II, Ralph Assheton also acquired title to the manorial and mineral rights as well as land holdings within the former Honor of Clitheroe. These were purchased out of the Clitheroe Estate Company following its administration in 1945. They included the Lordship of the Forest of Pendle. The Clitheroes' land agent, Michael Parkinson of Ingham & Yorke, continues to style himself "Steward of the Honor of Clitheroe". Parkinson is also "Chief Steward of the Forest of Bowland".

The Assheton family, also spelled Ashton, descends from Ashton-under-Lyne and can be traced to the 10th century. The military commander Sir John de Assheton (or de Ashton) was among their ancestors.

Bergregal

The Bergregal (German: [ˈbɛʁk.ʁeˌɡaːl]) was the historic right of ownership of untapped mineral resources in parts of German-speaking Europe; ownership of the Bergregal meant entitlement to the rights and royalties from mining. Historically, it was one of those privileges that constituted the original sovereign rights of the king.In addition to the Bergregal, another important sovereign privilege was the Münzregal or "minting rights", which was a consequence of the Bergregal since coins were minted near the mines from which their metal was obtained.

British South Africa Company

The British South Africa Company (BSAC or BSACo) was established following the amalgamation of Cecil Rhodes' Central Search Association and the London-based Exploring Company Ltd which had originally competed to exploit the expected mineral wealth of Mashonaland but united because of common economic interests and to secure British government backing. The company received a Royal Charter in 1889 modelled on that of the British East India Company. Its first directors included the Duke of Abercorn, Rhodes himself and the South African financier Alfred Beit. Rhodes hoped BSAC would promote colonisation and economic exploitation across much of south-central Africa, as part of the "Scramble for Africa". However, his main focus was south of the Zambezi, in Mashonaland and the coastal areas to its east, from which he believed the Portuguese could be removed by payment or force, and in the Transvaal, which he hoped would return to British control.It has been suggested that Rhodes' ambition was to create a zone of British commercial and political influence from "Cape to Cairo", but this was far beyond the resources of any commercial company to achieve and would not have given investors the financial returns they expected. The BSAC was created in the expectation that the gold fields of Mashonaland would provide funds for the development of other areas of Central Africa, including the mineral wealth of Katanga. When the expected wealth of Mashonaland did not materialise and Katanga was acquired by the Congo Free State, the company had little money left for significant development after building railways, particularly in areas north of the Zambezi. BSAC regarded its lands north of the Zambezi as territory to be held as cheaply as possible for future, rather than immediate, exploitation.As part of administering Southern Rhodesia until 1923 and Northern Rhodesia until 1924, the BSAC formed what were originally paramilitary forces, but which later included more normal police functions. In addition to the administration of Southern and Northern Rhodesia, the BSAC claimed extensive landholdings and mineral rights in both the Rhodesias and, although its land claims in Southern Rhodesia were nullified in 1918, its land rights in Northern Rhodesia and its mineral rights in Southern Rhodesia had to be bought out in 1924 and 1933 respectively, and its mineral rights in Northern Rhodesia lasted until 1964. The BSAC also created the Rhodesian railway system and owned the railways there until 1947.

Centralia, Pennsylvania

Centralia is a borough and near-ghost town in Columbia County, Pennsylvania, United States. Its population has dwindled from more than 1,000 residents in 1980 to 63 by 1990, to only seven in 2013—a result of the coal mine fire which has been burning beneath the borough since 1962. Centralia, which is part of the Bloomsburg–Berwick metropolitan area, is the least-populated municipality in Pennsylvania. It is completely surrounded by Conyngham Township.

All real estate in the borough was claimed under eminent domain in 1992 and therein condemned by the Commonwealth of Pennsylvania. Centralia's ZIP code was discontinued by the Postal Service in 2002. State and local officials reached an agreement with the seven remaining residents on October 29, 2013, allowing them to live out their lives there, after which the rights to their houses will be taken through eminent domain.

Former Indian reservations in Oklahoma

Most former Indian reservations in Oklahoma were dissolved in preparation for Oklahoma's admission as a state in the early twentieth century. Prior to this, both Oklahoma Territory and Indian Territory contained suzerain Indian nations that had legally established boundaries. The US Federal government broke up collective tribal landholdings through the allotment process before the establishment of Oklahoma as a state in 1907. Tribal jurisdictional areas replaced the tribal governments, with the exception of the Osage Nation. As confirmed by the Osage Nation Reaffirmation Act of 2004, the Osage Nation retains mineral rights to their reservation, the so-called "Underground Reservation".

The United States Census has collected data on the former reservations since 1990. These Oklahoma Tribal Statistical Areas are based on pre-statehood boundaries and may extend beyond the state border.

In 2017, the United States Court of Appeals for the Tenth Circuit ruled that the Muscogee (Creek) Nation reservation was never abolished by federal law.

Law of the sea

Law of the Sea is a body of international law that concerns the principles and rules by which public entities, especially states, interact in maritime matters, including navigational rights, sea mineral rights, and coastal waters jurisdiction. It is the public law counterpart to admiralty law, which concerns private maritime intercourse. The United Nations Convention on the Law of the Sea (UNCLOS), concluded in 1982 and coming into force in 1994, is generally accepted as a codification of customary international law of the sea.

Disputes are resolved at the International Tribunal for the Law of the Sea (ITLOS), a court in Hamburg. In 2017, ITLOS celebrated 20 years of existence, during which time it had settled some 25 cases. The Tribunal has jurisdiction over all disputes concerning the interpretation or application of the Convention, subject to the provisions of article 297 and to the declarations made in accordance with article 298 of the Convention. The judge are derived from a wide variety of nations.With many people worldwide now turning their eyes to an ocean in peril, the Law of the Sea convention turned into a global diplomatic effort to create a basis of laws and principles for all nations to follow concerning the sea and everything it held. The result: A 1982 oceanic constitution, called the United Nations Convention on the Law of the Sea. Between New York, USA and Geneva, Switzerland, ambassadors from 165+ countries sat down to trade and barter for their nations' rights.The conference created the standard for a 12-mile territorial sea around a land and allowed it to gain universal acceptance. Within these limits, states are free to enforce any of their own laws or regulations or use any resources. Furthermore, each signatory coastal state is granted an Exclusive Economic Zone (or "EEZ"), in which that state has exclusive rights to fisheries, mineral rights and sea-floor deposits. The Convention allows for "innocent passage" through both territorial waters and the EEZ, meaning ships do not have to avoid such waters, provided they do not do any harm to the country or break any of its laws. This includes military vessels, as long as they too adhere to the definition of innocent passage laid out in UNCLOS Article 19. Because the EEZ is so extensive, ITLOS may need to determine the ocean boundaries between states, as they did in 2012 between Bangladesh and Burma (Myanmar). As the Arctic Ocean becomes increasingly important for both navigation and resources, the USA may find it necessary to submit to UNCLOS to clarify the Alaska/Canada border.

Mineral industry of Somalia

The mineral industry of Somalia produces small quantities of gemstones and salt. The country also has deposits of feldspar, gypsum, iron ore, copper, gold, kaolin, limestone, natural gas, quartz, silica sand, tantalum, tin, and uranium. The mineral industry makes a small contribution to Somalia’s exports and economy in general.The collapse of the central Government in 1991 led to ambiguity over mineral rights. The governing authority of Somaliland (a region in northern Somalia) granted East African Mining Corp. Ltd. exclusive rights to explore all mineral deposits in Somaliland. The company planned to start producing gemstones and marble in the Berbera area in mid-2006.In June 2006, Range Resources Ltd. of Australia announced that its agreement with the governing authority of Puntland (which is located to the east of Somaliland) that gave the company a majority interest in the rights to all mineral and mineral fuel exploration in Puntland was supported by the TFG. The agreement was previously declared to be invalid on the grounds that only the national Government had the authority to negotiate mineral rights. Range planned to farm out or form joint-venture agreements for some propertie.As of 2006, mineral production and trade data continued to be unavailable because of the lack of a functioning central Government since 1991 and the conflict that pervaded most of the country. The war forced the closure of Somalia’s cement plant and oil refinery. The Indian Ocean tsunami of December 26, 2004, disrupted salt production in Hurdiye in late 2004 and early 2005; it is unclear to what extent output has recovered.Gemstone and salt producers appear to be artisanal and small-scale in nature. The cement plant and refinery were operated by parastatal companies prior to their closure.

Mining in Gabon

Gabon was the richest of the former French Equatorial African colonies in known mineral deposits. In addition to oil, which accounted for 80% of the country’s exports in 2004, Gabon is a world leader in manganese. Potash, uranium, niobium, iron ore, lead, zinc, diamonds, marble, and phosphate have also been discovered, and several deposits are being exploited commercially. Ownership of all mineral rights is vested in the government, which has increased its share of the profits accruing to foreign companies under development contracts.

Mining industry of Eswatini

The mining industry of Eswatini vests with the Ngwenyama (the king) who authorizes mineral rights after due consultation with the Minerals Committee, which he appoints. Fiscal contribution from mining operations to Eswatini’s GDP is 2% and also accounts for 2% of export earnings.

Petroleum fiscal regime

The petroleum fiscal regime of a country is a set of laws, regulations and agreements which governs the economical benefits derived from petroleum exploration and production. The regime regulates transactions between the political entity and the legal entities involved. A commercial or legal entity in this context is commonly an oil company, and two or more companies may establish partnerships to share economic risks and investment capital.

Although petroleum, oil and gas, and hydrocarbons are not technically mineral resources, the term mineral rights is used to denote rights to exploit oil and gas resources from the underground. Onshore, in United States, the landowner possesses exclusive rights for mineral rights, elsewhere generally the state does. For this reason, the fiscal regime of US is divergent from that of other countries.

The petroleum licensing system of a country may be considered interwoven with the fiscal regime, however, a licensing system has its distinct function: to grant rights for petroleum exploration and production to commercial entities.

Because each country has distinctive legislation, there are theoretically just as many different fiscal regimes as there are countries in the world with petroleum resources, but the regimes can still be categorized based on their common characteristics.

Texas General Land Office

The Texas General Land Office (GLO) is a state agency of the U.S. state of Texas, responsible for managing lands and mineral rights properties that are owned by the state. The GLO also manages and contributes to the state's Permanent School Fund. The agency has its headquarters in the Stephen F. Austin State Office Building in Downtown Austin.

United Kingdom Continental Shelf

The UK Continental Shelf (UKCS) is the region of waters surrounding the United Kingdom, in which the country has mineral rights. The UK continental shelf includes parts of the North Sea, the North Atlantic, the Irish Sea and the English Channel; the area includes large resources of oil and gas. The UK continental shelf is bordered by Norway, Denmark, Germany, the Netherlands, Belgium, France, and the Republic of Ireland. A median line, setting out the domains of each of these nations was established by mutual agreement between them, see the Continental Shelf Act 1964.

Responsibility for the mineral rights of the UKCS rests with the Oil and Gas Authority part of Department for Business, Energy and Industrial Strategy (BEIS), which awards licences to oil companies to produce hydrocarbons from specific areas and regulates how much they can produce over what period.

The UKCS is divided into numbered rectangular Quadrants, each one degree of latitude by one degree of longitude. Each Quadrant is further subdivided into 30 numbered Blocks (each 10 minutes latitude by 12 minutes longitude, thus each Quadrant has 5 blocks East-West by 6 blocks North-South). This numbering system then forms the identification for a particular oil or gas development. For example, the Harding oilfield, which is located in a fairly northern position, is in Quadrant 9, Block 23, denoted "9/23" (9/23b specifically to differentiate it from the Gryphon oilfield). The numbering of Quadrants follows several series: 1-58 (the original North Sea sequence); 71-75, 82-89, 91-113 (south-west of the UK and bordering France and the Republic of Ireland); 124-135, 137-144, 147-155, 157-166, 168-176 (the Atlantic west of Scotland); 204-225 (the North Sea north of Shetland and bordering Norway); 337-339, 341-349, 351-359 and 362-369 (the Atlantic west of the 124-176 sequence).

While the depth of the UK Continental Shelf varies significantly, the shallowness of the North Sea at an average depth of 95m has facilitated the development of offshore oil drilling and wind farms.

United States v. Ramsey (1926)

United States v. Ramsey, 271 U.S. 467 (1926), was a U.S. Supreme Court case in which the Court held that the government had the authority to prosecute crimes against Native Americans (Indians) on reservation land that was still designated Indian Country by federal law. The Osage Indian Tribe held mineral rights that were worth millions of dollars. A white rancher, William K. Hale, devised a plot to kill tribal members to allow his nephew, who was married to a tribal member, to inherit the mineral rights. The tribe requested the assistance of the federal government, which sent Bureau of Investigation agents to solve the murders. Hale and several others were arrested and tried for the murders, but they claimed that the federal government did not have jurisdiction. The district court quashed the indictments, but on appeal, the Supreme Court reversed, holding that the Osage lands were Indian Country and that the federal government therefore had jurisdiction. This put an end to the Osage Indian murders.

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