BIG Companies

According to United States Federal Law, land ownership is viewed as being three dimensional. A landowner, or a fee simple owner, is entitled to both the surface of the land and the minerals beneath it. The fee simple owner has the option to hold or sell both rights as one unit, or can choose to divide them to create two separate estates, after which each entity can change ownership independently of the other. If the mineral rights have been severed, the minerals underneath no longer belong to the landowner, but rather belong in full to the new mineral owner.

The other option, for non-industry professionals or for ones looking to help mitigate some of the risk involved with exploration, would be to either sell or lease the minerals to another party (usually an operator or industry professional). The mineral rights may be sold or leased wholly or partially, and with or without restrictions. If a third party evaluates the tract of land and is confident in the ability to drill and produce the minerals, and an agreement between the minerals owner can be reached, under a lease agreement the third party is granted the right to explore and produce the minerals for a predetermined period of time.

A lease agreement between a mineral owner and an operator creates two specific interests: royalty interest and working interest. In addition to the bonus that mineral owner receives in exchange for granting the lease, he/she may also retain a royalty interest, which is a right to a cost-free share of the gross income from any oil and gas produced on the tract of land. Royalty interests are generally expressed as a fractional part of a whole (e.g. 1/16).

The working interest portion of the minerals is the exclusive right to explore for, and produce, any oil and gas on the tract of land designated in the lease agreement. The working interest owner has the option to carve out a revenue interest and transfer to a third party. This is known as an overriding royalty interest (ORRI), which is similar to a standard royalty retained by the mineral owner in the sense that it grants the holder the right to a cost-free share of the proceeds from gross production. The primary difference between the two is that an overriding royalty is limited to the duration of the lease.

The owner of the minerals, regardless of whether he/she also owns the land, holds the exclusive right to explore for, and produce, whatever oil, gas, or other minerals may be beneath the surface.

In addition, although the mineral owner may not have any stake in the surface of the land, ownership to what is under the ground permits access to as much of the surface necessary to produce the minerals beneath. Mineral owners with proper funding and adequate industry experience may undertake exploration and production of these minerals on his/her own.