Understanding Mineral and Leasehold Ownership
Mineral ownership can become complicated quickly because the person who owns the surface does not necessarily own all, or even any, of the minerals beneath it. Over time, mineral interests may be reserved, conveyed, divided among multiple owners, inherited through estates, burdened by leases, or affected by royalty and other interests.
By the time a current ownership question arises, the answer may depend on a chain of deeds, mineral conveyances, probate proceedings, leases, assignments, affidavits, and other recorded instruments extending back many decades.
That is why mineral ownership is rarely a matter of looking at one document and taking it at face value. The real question is what interest each party actually owned at the time of a particular conveyance and what, if anything, that instrument transferred.
Surface and Mineral Ownership
The surface estate and mineral estate can be owned separately.
A landowner may own both the surface and the minerals, but a prior owner may also have conveyed the surface while reserving all or part of the mineral estate. The minerals may have been severed years or even generations before the current surface owner acquired the property.
As a result, the current surface deed does not necessarily establish current mineral ownership.
A proper mineral title review generally requires examination of the earlier chain to determine whether there were prior reservations, exceptions, mineral conveyances, probate proceedings, or other instruments affecting the mineral estate.
Mineral Interests
A mineral interest is an ownership interest in the mineral estate.
That interest may include rights associated with leasing, bonuses, delay rentals, development, and production, depending on the applicable law and the language of the instruments involved.
Those rights can also be divided.
One party may own only a fractional mineral interest. Another may hold a royalty interest. The executive right may be held by a different party. Existing oil and gas leases may further affect how the underlying mineral interest is presently exercised.
For title purposes, those distinctions matter. Two interests may appear similar in a later deed or ownership schedule but have very different origins and characteristics when the underlying instruments are reviewed.
Royalty Interests
Royalty interests are often discussed together with mineral interests, but they are not necessarily the same thing.
An oil and gas royalty generally represents a share of production or production proceeds without bearing the costs of drilling and operating the well, subject to the terms of the instrument creating the interest.
Royalty may arise under an oil and gas lease, or it may exist separately from a lease.
A nonparticipating royalty interest, commonly referred to as an NPRI, is one example. Depending on the language of the creating instrument, an NPRI may entitle the owner to a specified share of production while leaving leasing rights and other mineral rights with someone else.
The language of the deed, reservation, lease, or other instrument controls the analysis. A later shorthand description of an interest should not be assumed to tell the entire story.
Oil and Gas Leases and Leasehold Interests
An oil and gas lease adds another layer to the ownership analysis.
When a mineral owner executes a lease, the lessee acquires the rights granted under that lease. Those rights may later be assigned, divided, amended, pooled, extended, released, or otherwise affected by later instruments.
This creates a leasehold chain that may need to be examined separately from the underlying mineral chain.
Depending on the project, leasehold review may involve:
the original oil and gas lease
amendments and extensions
assignments
partial assignments
reservations
pooling instruments
ratifications
releases
depth limitations
acreage limitations
consent provisions
retained interests
A party may own the minerals but no current leasehold interest. Another party may own the working interest under the lease. Another may hold an overriding royalty. Those interests should not be treated as interchangeable.
Reservations and Exceptions
Mineral reservations and exceptions are often where the real title analysis begins.
A deed that appears to convey an entire tract may reserve all or part of the minerals, royalty, or another interest to the grantor. A later deed may refer back to that reservation without restating it in detail. The reserved interest may then pass through a completely separate chain of conveyances and estates.
Older instruments can also contain language that is difficult to evaluate without considering the instrument as a whole and the surrounding title history.
For that reason, the current ownership credited to a party may depend on language in a deed recorded many decades earlier.
The fact that a later instrument describes someone as owning a particular interest does not necessarily establish that ownership if the earlier chain does not support it.
Probate and Heirship
Mineral interests frequently pass through estates, and probate issues are a common part of title work.
When a mineral owner dies, determining what happened to the interest may require review of wills, probate proceedings, orders of distribution, trusts, affidavits of heirship, death records, marriage records, or other evidence of succession.
Problems often arise when probate proceedings were never recorded in the county where the minerals are located, when the owner died intestate, when the family history is incomplete, or when the available probate record does not establish everything needed to determine succession.
In other cases, the probate is complete but the interest at issue is not specifically identified in the estate proceedings. The analysis then turns to the language of the will, residuary provisions, distribution orders, and the underlying title record.
These issues cannot always be resolved from deeds alone.
Why a Single Deed Is Often Not Enough
One of the easiest mistakes in mineral title is to rely too heavily on the current deed.
A current deed may convey the tract subject to prior reservations without restating them. It may except an interest by reference to an older instrument. The minerals may have been severed long before the current owner acquired the surface. A prior owner may have conveyed only part of the mineral estate. The remaining interest may later have passed through probate.
The current deed tells you what the parties attempted to convey. It does not necessarily tell you what the grantor actually owned.
The better question is:
What interest did the grantor own at the time, and what did the instrument actually convey?
Answering that question often requires following the chain backward before moving forward again.
Fractional Ownership
Mineral ownership also tends to become more fractional over time.
An owner may convey one half of the minerals and retain the other half. The retained interest may later pass equally to several heirs. Those heirs may then make additional conveyances or reservations.
After several generations, what began as a single mineral estate may be divided among numerous owners holding relatively small fractional interests.
That is why the arithmetic matters, but the chain matters first.
If the ownership credited at an earlier point in the chain is wrong, every later calculation based on that ownership may also be wrong. A perfectly calculated fraction does not cure a faulty premise.
Determining Ownership From the Record
A mineral title review generally involves examining the relevant public record in chronological order and determining the effect of each instrument.
Depending on the property and the scope of the project, the review may include:
deeds
mineral deeds
royalty deeds
oil and gas leases
assignments
probate proceedings
affidavits
judgments
liens and releases
trusts
pooling instruments
correction instruments
ratifications
other recorded agreements
The objective is to determine how the interest moved from one owner to the next and identify any reservations, gaps, inconsistencies, or other issues that affect the ownership under review.
The process is not simply a matter of collecting documents. Each instrument has to be considered in relation to the ownership that existed immediately before it.
When the Record Does Not Line Up
Mineral title does not always fit together neatly.
Names may appear differently from one instrument to another. Legal descriptions may be inconsistent. A recording reference may be wrong. Probate may be incomplete. An assignment may omit a lease. A reservation may be unclear. Later ownership schedules may not agree with the underlying chain.
When that happens, the first step should be to determine exactly what the available record does and does not establish.
Only then does it make sense to decide what curative, if any, is needed.
Depending on the issue, that may involve additional record research, probate documentation, an affidavit, correction instrument, ratification, quitclaim, release, or other supporting evidence.
Not every discrepancy requires the same response, and not every irregularity materially affects the ownership being examined.
Mineral and Leasehold Ownership Should Be Kept Separate
Another common source of confusion is mixing mineral ownership with leasehold ownership.
The mineral owner and the leasehold owner may be completely different parties. The mineral chain may be correct while the leasehold chain contains an assignment gap.
Conversely, a leasehold chain may be well documented even though the underlying mineral ownership has an unresolved probate issue.
The same is true of royalty and overriding royalty interests.
Keeping those interests separate during the analysis makes it much easier to identify what the actual problem is and what kind of curative is appropriate.
The Record Should Drive the Conclusion
Mineral ownership should ultimately be based on what the relevant instruments support.
That sounds simple, but it is an important discipline in title work.
Later deeds, tax records, ownership schedules, leases, or other documents may contain useful information, but they should not automatically override the underlying chain. Likewise, a party's understanding of what was intended is not always the same as what the recorded instruments actually accomplished.
When the evidence is incomplete, the better approach is to identify the gap rather than force the chain to reach a conclusion the record does not support.
That is often where title curative begins.
Mineral Ownership Is a Chain, Not a Snapshot
The most practical way to look at mineral ownership is as a chain.
The current ownership is the result of every relevant conveyance, reservation, estate, lease, assignment, and other transaction that came before it. Understanding that history is what allows a landman to determine what the record supports, identify where the chain breaks down, and develop a practical way to address the problem.
That analysis is often the foundation for everything that follows, including leasing, division of interest, acquisitions, curative, and development.
Good mineral and leasehold title work is ultimately about following the record carefully, distinguishing between the different interests involved, and not assuming more than the instruments actually establish.
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