by Adam FerrariCEO of Phoenix Energy
In many real estate transactions, the focus is solely on square footage value, with real estate investors focusing on location, zoning and development potential. But just beneath the surface lies an often-overlooked asset class that can impact a property’s value: mineral rights. Mineral rights are a part of the transaction that many buyers simply ignore when looking at a property.
Mining rights are “the property rights to underground resources such as fossil fuels (oil, natural gas, coal, etc.), metals and ores, and exploitable rocks such as limestone and salt. Mineral rights are separate from surface land use, and it is important to note that mineral rights can be sold or leased independently of surface rights to the land above them. Indeed, the same plot of land can be monetized twice: once for surface rights and once for the right to extract the resources underneath.
Most real estate agents’ expertise lies in zoning or location, and they don’t know what’s going on underground. Mineral rights can complicate matters, but they can also create revenue opportunities if managed correctly.
The hidden value of mining property
Mineral rights can discretely, and in some cases significantly, influence the value of a property. When a landowner retains these rights, they can earn income in the form of royalties or leases if oil, gas, or other minerals are extracted beneath their land. In energy-producing regions like the Williston Basin of North Dakota, this potential can, in certain circumstances, allow for higher prices than for comparable surface-only parcels.
On the other hand, if these subsurface rights have already been sold, buyers can discount ownership since the surface owner cannot control future drilling or infrastructure projects. And even when mining ownership and surface ownership remain together, any exploration activity can restrict how the surface is used, whether for agricultural, construction or development purposes.
In short, mineral rights can add remarkable value or real complications depending on who owns them and how they are managed.
Buying mining rights: what you need to know first
For buyers of mineral rights, due diligence is crucial. Below are three guidelines every buyer should know:
1. Verify ownership.
Mineral rights can be taken away and sold decades earlier, often leaving owners uncertain of their status. Buyers should order a thorough title examination, ideally conducted by a landowner or attorney with experience in mineral rights in the applicable jurisdiction where the land is located.
2. Understand the legal landscape.
Each region handles mineral rights a little differently, which can change the value of a property more than most buyers expect. Local rules, old leases or royalty agreements can all affect what a new owner actually controls. Sometimes an easement for a buried road or pipeline has been in place for decades, quietly limiting how the surface can be used. This is the kind of detail that’s easy to miss but can cause problems later if no one checks before closing.
3. Assess future potential.
The location of a property is important, especially when it comes to mineral rights. Is it an active or emerging basin where energy companies are investing and producing oil and gas?
For example, in the Williston Basinmineral rights have proven in many cases to be particularly valuable. Buyers in these areas should evaluate the current condition of the property as well as the likelihood of future rental opportunities for both operators and non-operators.
How to maximize your mining rights holdings
For those who already own mineral rights, seek education and develop a strategy.
Understand what you own.
Many mineral rights have been passed down from generation to generation through families. Although selling can be an emotional decision, it is essential to understand the market value of your land. Owners should seek reviews from credible operators or consult specialists before making decisions.
Investors and landowners should note that owning the surface does not automatically mean you own the minerals underneath. Protecting your interests requires knowledge and preparation.
Weigh renting versus selling.
Is it better to lease mining rights or sell them? Retaining mineral interests through a lease can offer royalty income, but the owner is exposed to price fluctuations and development uncertainty. But if a third party purchases the mineral rights directly, the seller receives an upfront value and may feel less exposed to the ups and downs of future development and commodity prices.
Negotiate advantageous rental conditions.
When leasing mineral rights, mineral owners should strive to obtain favorable lease terms. Be sure to include strong royalty provisions and an appropriate lease term. It is also important to have clear protections on how the surface of the property can be used. Hiring a landowner or attorney (both in the jurisdiction where the rights are located) can help protect financial and superficial interests.
Mineral rights: a value factor that real estate agents cannot ignore
Real estate professionals who overlook mineral rights may miss critical factors that can influence a property’s value. Some properties that appear attractive may be subject to existing mining agreements that affect their use or value.
In the United States, companies and mineral rights investors routinely acquire mineral interests in multiple states and deploy capital in both. acquisitions of mining rights and drilling operations. This trend demonstrates a truth for real estate professionals: underground assets can affect the long-term value of a property.
Mineral ownership, regulatory frameworks and market conditions can vary significantly by state and ownership. Anyone evaluating these issues should take the time to consult qualified legal and professional advisors and make decisions based on their own circumstances. As with any specialized area of real estate or energy, this discussion is intended to provide a general perspective and not legal advice. Markets change, assumptions evolve and outcomes are never guaranteed, but informed decision-making begins with understanding the entire asset, from the surface down.
Adam Ferrari is CEO of Phoenix Energy. He has nearly 20 years of experience in the oil and gas industry, having earned his bachelor’s degree in chemical engineering, magna cum laude, from the University of Illinois at Urbana-Champaign. He began his career at BP America in the Gulf of Mexico, then worked in investment banking at Macquarie Capital, before returning to the operational side at Halcón Resources Corporation, then a start-up. Following his tenure at Halcón, Adam pursued entrepreneurial opportunities in the mineral acquisitions space of the oil and gas industry, which ultimately led him to Phoenix Energy.
