What Is a Mineral Interest?
In Texas, land ownership is divided into surface ownership and mineral ownership. A surface owner is the typical land owner you would think of – he has purchased the property with a lease or deed and now has the right to occupy the land. A mineral owner owns the minerals (oil, gas, metals, gems, etc.) that are found under the land. Sometimes, the surface owner is also the mineral owner. Other times, the surface owner has sold all or part of his mineral interest to someone else by signing a mineral deed. Mineral deeds typically expire after a certain number of years. A person or company who purchases a mineral interest may explore, drill, develop, and produce oil from the minerals (subject to the mineral deed).
Why Would I Want to Sell My Mineral Interests?
Making money is the main motivation for selling mineral interests. If an oil company is interested in drilling on a certain plot of land, the oil company will try to get the mineral owner to sign a mineral deed that conveys mineral rights to the oil company for a certain number of years. Mineral owners can negotiate with the oil company to get a bonus payment up front, along with royalty payments for the duration of the lease.
What Are Royalty Payments?
Royalty payments are made by the oil company to anyone who has a royalty interest in the minerals. A royalty interest essentially means that you are entitled to receive a percentage of the money made from production of the minerals. You and the oil company can negotiate the percentage of royalty interest you would like to have. For example, you (the mineral owner) sign an oil and gas lease with ABC Energy. Under that lease, you keep a 1/5 royalty interest. This means that each month you will receive 1/5 of the proceeds from production done by ABC Energy. The actual amount of money you receive may vary month to month, based on the amount of drilling and the amount of oil produced.
If I Hold the Right to Receive Royalty Payments, Can I Pass Those Rights at Death?
Yes, you can. You can pass on those rights through a living trust or a last will and testament. With a living trust, your royalty payments would go into the trust while you are still alive, and they would be distributed to the named beneficiaries upon your death. With a last will and testament, the named beneficiaries will begin receiving the royalty payments after probate.