Is oil and gas real or personal property?
It’s a question with a complex answer. While in the ground, oil and gas are classified as real property, i.e., oil and gas are considered part of the land. However, once oil and gas are produced (i.e., removed from the ground), the classification changes from real to personal property.
What are the rights associated with mineral interest?
In Texas, an owner of a mineral interest has five rights:
(1) The right to execute a lease (also known as the executive right)
(2) The right to receive bonus payments upon execution of an oil and gas lease
(3) The right to receive delay rentals (a right that is virtually non-existent today with the prevalence of paid-up leases)
(4) The right of ingress and egress (also known as the development right or the right to authorize use of the surface for oil and gas exploration and production activities)
(5) The right to receive royalties
Each of these rights may be sold separately, in whole or in part, by the mineral interest owner. When mineral interests in a tract of land are sold, gifted, or otherwise conveyed to two or more entities or individuals, the interests are considered undivided. This means that each owner has the right to receive royalties from production anywhere on the property, in accordance with their ownership interest.
Because mineral interests are capable of being sold in different percentages to others, mineral owners typically sell or gift undivided fractional portions of their interest to their children, friends, or third parties.
Challenges occur because over time, this leads to numerous people owning undivided interests in a tract of land, which makes it difficult to determine each person’s fractional ownership.
For example, in Karnes County, the Eagle Ford Shale brought a lot of these issues to light when production of oil and gas began in 2011. While most title issues were resolved relatively quickly, some of the more complex issues are still being litigated today. A frequent subject of litigation involves the size and extent of royalty interests conveyed or reserved many years ago.
The information here just scratches the surface and describes the basics of oil and gas laws. As such, this article is not intended to address all aspects of these issues but rather help give an overview of the complexities of the rights and considerations. If you are faced with a mineral interest issue, you should consult a competent oil and gas attorney to obtain the needed comprehensive information.
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