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mineral rights, what a scam!

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beaufl

Freshman Member
Joined
Jun 12, 2007
Professional Status
Certified General Appraiser
State
Florida
these people come out of nowhere demanding payment for mineral rights (which are more often than not worthless) in order for a "clear" title. meanwhile the property owner has been paying all of the taxes on the property.

what's the deal here? can a property owner sue a mineral rights owner for their share of previously paid taxes?

mind you i'm not talking about a lease situation. i'm talking about a long ago recorded deed where the seller reserved the right for exploration (ingress/egress to the property) and exploitation of subsurface materials.

anyone w/ experience in these situations, i am eager to hear from you.

thanks !
 
I can only talk about Texas, but....

Normally, only producing minerals are assessed and are taxible. Non-producing minerals have no significant value and are not assessed. Further, there is no such thing as a "clear" title. Even though someone may own the mineral interests, if they are non-producing with no significant leasing taking place, the value is minimal, say $10-50 per acre (based on what I've seen in the Bartlett Shale). You can sell the property with the minerals reservation all day long. Most of Texas has had the properties sold this way since the 20's. So, if someone comes along and wants to effectively sell the mineral rights back to someone, that's fine, but it's not going to affect the marketability of a property one way or another. As to suing the owner of the property, good luck getting a court to take that one. It's different ownership interests.
 
the main issue is that the title insurance company will not issue insurance unless the mineral rights have been released.

imagine a single family lot in a residential subdivision. the owner goes to sell it. out pops mr mineral rights owner demanding a cut of the deal. title insurer won't insure unless the entire bundle of rights are included. where does that leave joe schmoe property owner? he can't sell until the issue is resolved

should he pay an extortion fee for rights that are worthless, just because there is a "cloud" on the title?

again i emphasize that the property owner has been paying the taxes, yet mr mineral rights insists compensation for his portion of the bundle of rights
 
the main issue is that the title insurance company will not issue insurance unless the mineral rights have been released.


I've never seen a totally "clear" title insurance policy. There are nearly always exclusions for taxes, unrecorded encumbrances, etc. The title insurance company should be able to issue a policy with the mineral rights as an exclusion; they do it around here all the time. Many properties have "blanket" easements dating from the early 1900's encumbering the entire parcel for installation of power lines, gas transmission lines, etc. The title company writes a policy acknowledging these easements and excludes them, the same way they exclude coverage for mineral rights. The title company should issue insurance just the same as if the buyer was assuming an existing mortgage.

Maybe your area is different but there should be no reason that the property can't be conveyed subject to the mineral rights, unless the buyer is insisting on their removal, which is another issue. If the buyer is insisting on their removal then someone will have to negotiate with the owner of the mineral rights. If I owned the rights, I require some sort of compensation; that's the way the system works.
 
Try a different title insurance company. We sell properties all the time without mineral and timber rights. Back when GA Power sold lots on some of our area lakes, that was a standard clause in every deed.
 
these people come out of nowhere demanding payment for mineral rights (which are more often than not worthless) in order for a "clear" title. meanwhile the property owner has been paying all of the taxes on the property.
....
mind you i'm not talking about a lease situation. i'm talking about a long ago recorded deed where the seller reserved the right for exploration (ingress/egress to the property) and exploitation of subsurface materials.

anyone w/ experience in these situations, i am eager to hear from you.
First off. I know of no state where "mineral rights" have to be "cleared". The land can be transferred as is. These technically are not "Fee Simple" properties. They are a divided estate. Perhaps the HO wants to put Humpty Dumpty back together, but that issue is moot if the mineral rights are not actively developed. Yes, the mineral owner has the DOMINATE estate, therefore has the right of ingress/egress and can explore. They are also responsible for paying damages if that "exploration" involves drilling, seismic, or other invasive exploration techniques.

Some one in the chain of title voluntarily took title without the mineral right and therefore the surface owner should have been awares of it...I don't know how they wouldn't be if they read the title opinion.

BTW, Title insurance may mention mineral rights but usually have a disclaimer as to title to minerals. Further, if the mineral right is near worthless, i.e.- $10 an acre or less, then the cost to bill property tax will far exceed the reasonable cost to appraise/assess same and bill the taxpayer.

what's the deal here? can a property owner sue a mineral rights owner for their share of previously paid taxes?
no...and you couldn't prove they had any "value" anyway so what do they contribute to the fee simple? not mucho.

Most mineral rights involve oil and gas rights but a lot of them also involve mining and metal claims. N. Georgia had a gold rush in the 1830s for instance. Coal is big in KY and the coal country of E. U. S. etc etc. There is a new lease play now that involves low grade uranium resources found in places like SE Missouri, Wyoming, and elsewhere.

If no one has leased mineral rights in your county in the past 10 years, then the value of the mineral right is likely very very small and I wouldn't even worry about adjusting for it or trying to put a mineral right back into the fee simple.

A few states have laws that require mineral rights to be actively managed or revert back to surface - generally after 20 - 25 years. These are legal quicksand as well.

Appraise the property sans mineral rights (Fee in Surface) and be done with it. Anyone paying over $50 an acre for mineral rights in remote areas is certainly being screwed and again, I doubt that it would be a condition of sale to require those rights be put back into the fee simple...That's just blackmail.

I think my website roxnoil.com has a link to Arkansas's O & G Commission which has a "Landowner's Leasing Manual" you can download from their site. Alabama and Mississippi also have information about mineral rights on their sites. I have never checked Florida especially since the Gov has pretty much said no to any drilling there...another factor in why those "mineral rights" likely are nearly worthless. Just buy/sell without them. There is no need to "clear" any title.
 
Beaufl,

Terrel and Mark K nicely wrote what I think I would've attempted to write.

In newer suburban communities in metro-Denver, the present value minus cost of extraction make the mineral rights mostly or (more likely) more than worthless, or negative NPV. Yet somebody was thinking ahead for the corporate or family heirs 50, 100 or 250 years when the severed or reserved mineral rights may have a higher H&BU than the dilapidated houses using the surface rights. Mine is a metropolitan/suburban situation, obviously each location varies.

Tim
 
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Minerals are the dominant estate -

Further, with today's horizontal drilling techniques, gas can be extracted from wells that lay on the surface for ½ mile away from the location of the bottom of the hole. A gas well typically will drain 40 - 640 acres therefore all parties, including small lots, are required to either lease to the operator, participate in the well, or refuse to do either (the money gets put in escrow but it doesn't stop the drilling). Mineral rights do not have a "negative" value. However, properties and communities can be negatively impacted by mineral development. It is happening in the Ft. Worth area where a spiderweb of gasline easements is making development of subdivisions difficult or impossible. The land thus remains available for pasture or farming, but not for developers. There are some small lot owners in the Shreveport area and in the Ft. Worth area that have been paid $10,000 - $30,000 for the rights to lease their property.
 
Terrel,

Good point about the horizontal drilling techniques; I wasn't thinking about that. Each neighborhood and region has its own unique mineral rights. How lenient or restrictive is Arkansas strip mining laws between the dominant estate and surface estate? The very large suburban subdivision I was picturing while writing my comment would have no oil or gas but perhaps might have gravel, clay materials, and coal.

In regards to NPV (net present value), the value wouldn't be negative, but it would be part of the "go" or "no go" question. If the present value of cash flows to a building (or mineral interests) were $100,000 but the cost of the construction (exploration and extraction) was $200,000, then the NPV would be negative. In other words, it is a "no go" decision. The building, existing or proposed, would still have a market value of $100,000. The rights in the mineral interests or the company shares holding those rights would trade near $0, as of today. Hence the 0% adjustment in many/most situations. I agree, they wouldn't be negative, you would just throw the deeds in the safety deposit box until the next energy/commodity boom. "Real-options Theory" might be able to provide an explanation on why they would trade at positive value. These things are based on entrepreneurial anticipation so somebody out there in this big world could place a value above zero, particularly if they anticipate the demand occuring sooner with greater commodity payoff and with technology bringing the costs down.
 
How lenient or restrictive is Arkansas strip mining laws between the dominant estate and surface estate?
I don't know about Arkansas but strip mining in most states require only that they compensate the surface owner and that is a private negotiation which does not allow the landowner to be unreasonable nor can they stop the process...similar to eminent domain in that respect. As for oil and gas, minerals have the power of ingress and egress and can go onto any property that they have under lease, with or without the property owner's permission. I have personally been escorted into a location by guards and a friend of mine had a pistol stuck in his chest by a woman who was not only just a renter, but was behind on her rents by 3 months.
http://www.aogc.state.ar.us/PDF/Leasing%20Manual%202008.pdf
http://www.aogc.state.ar.us/PDF/Royalty and Surface Owner Bulletin.pdf

In today’s environment, it is not uncommon for the mineral ownership to have been severed from
the surface ownership at the time of the land sale. When purchasing a piece of property, it is the
buyer’s responsibility to be aware of any mineral lease agreements associated with the property
and how those agreements may directly affect the property owners obligation to allow entry onto
the property.
It is important to realize that under the laws of conservation in the State of Arkansas the mineral
rights are dominant over the surface rights. Therefore, the surface owner is compelled to allow a
reasonable portion of their land to be used for the development and production of the minerals
unless the mineral owner added a “No Surface Operation Clause” to the lease agreement.
The Lessee holding the lease has a legal authority to enter the property for exploration and
production even if the non-mineral owning surface owner objects to the intrusion on the
property. That does not mean the surface owner will be without compensation. The amount and
type of compensation is strictly a matter of negotiation between the surface owner and the
company entering the property. If a mutual agreement cannot be reached, the surface owner
always has the right to seek the advice of an attorney and relief through the court system.

Further, some states have laws requiring subdivisions without mineral rights to reserve an open space sufficient to get a drilling rig in. In Long Beach and other communities, there are pump jacks and drill rigs you cannot even recognize as such. They produce oil or gas and the people living near them who don't have mineral rights, are not even awares of such.

I personally have worked on rigs that drilled in a drive in theatre. Another that occupied a lot on Cedar Creek Lake in E. Texas that was surrounded by houses.

Because some laws are old and on the books or the laws governing the controlling entity (the oil and gas commission, Corporation Commission, RR Commission, etc.) adjacent home owners may have less rights than they think. Until your legislature recently passed a bill requiring companies to consider off site properties, your state didn't even require landowners be notified when the drillers set up a location. Most did anyway and even offered some compensation in addition to damages, but they were not required to. Likewise, in many Western states, the old homestead laws allowed the government to keep the mineral rights. Under law, government mineral rights can be nominated for public leasing. An incident recently occurred in Utah where a man without the real means to make it happen, outbid the oil companies for a tract to keep oil companies from buying it. He is trying to raise the cash to pay for the lease in order to keep from being arrested for fraud. Obama is going to rescue him by taking back leases taken legally by individuals and oil companies. Despite the leases being for 5 years, they are now going to try and require that the companies drill the lease. Unfortunately, that isn't how oil companies work. They frequently have only modest information about these prospects when they lease. Further exploration (Seismic, geology, etc. - often called "G & G" - geological and geophysical) will allow the companies to rank all their acreage from lowest to highest risk. They obviously drill their best prospects first. When an acreage approaches the lease expiration, the company then has to make a decision whether it is worth drilling.

An example in Arkansas is that Chesapeake Energy leased by its own admission 1.1 million acres for the Fayetteville Shale play. It now believes that only 300,000 acres are potentially productive and they have about 15 drilling rigs working that area. Each rig can drill from 10 -15 annually and 'hold' 640 acres maximum. Since they own only a majority of acres (320 minimum), they are also drilling acres leased by others who join as minority partners. With most leases taken in 2005-2006, they are rapidly approaching the release date on a 5 year lease. They won't get it all drilled up in time.

Today, when oil reached $120 a bbl [the NYMEX price is not a "real" price in the field] a field with 100,000 of reserves has a gross capacity of $12,000,000. $2 mil goes to the lease holder, about 80% goes to the oil company on average. If a well can be drilled for $3,000,000, a few hundred thousand dollars worth of buildings or houses isn't going to be an issue. The company will pay for them in a heartbeat.

Folks ignored it for years outside the traditional oilfields. But the lack of mineral rights means you, the landowner, are not in complete control of your kingdom.
 
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