What's the Difference Between Mineral Deeds and Royalty Deeds?

Posted by CourthouseDirect.com Team - 26 June, 2013

header-picture

Mineral rightsIn the energy-rich regions of the United States, regular landowners have a lucrative interest in the legal framework of mineral and royalty rights. This is especially true for landowners who haven't sold or waived the rights to exploit, extract and sell the mineral resources beneath their land. 

Of course, most landowners lack the financial and technical resources to exploit this mineral wealth on their own. Mineral and royalty deeds enable regular individuals to secure at least some profit from the extraction of their land's bounty without making unrealistic capital investments. Since these two types of deeds aren't identical and may vary on a state-by-state basis, it's crucial to understand their attributes, common differences and important implications. 

Basic Attributes of a Mineral Deed

Also known as "mineral interests", mineral deeds provide their holders with several important rights. These include:

  • "Reasonable" provision to enter, use and improve the parcel in the course of extracting its minerals
  • Full license to extract and sell the land's minerals
  • Powers to make and execute additional leases to third-party extraction companies or other entities
  • Full authority to earn and keep the income associated with these leases
  • "Reversion of ownership" authority upon the expiration of any third-party leases

Collectively, these rights provide mineral deed holders with considerable control over the means by which mineral resources are extracted and transferred for sale. Generally speaking, mineral deeds are more expansive and less restrictive than royalty deeds.

Basic Attributes of a Royalty Deed

Also known as "non-participating production interests," royalty deeds are far more restrictive than mineral deeds. Their attributes usually include:

  • Full restrictions on holders' rights to exploit and market the minerals contained within the land
  • No rights of ingress or improvement
  • No responsibility for production and improvement costs
  • No third-party lease-granting rights
  • No rights to any income or bonuses associated with third-party leases or mineral sales

Key Distinctions

One of the most important distinctions between mineral deeds and royalty deeds concerns their respective financial benefits. Although holders of mineral deeds are generally responsible for production and extraction costs that don't apply to holders of royalty deeds, they also generally enjoy the lion's share of the associated profits. It's standard practice for royalty deed holders to receive payments of between 12.5 and 25 percent of the parcel's total production profits.

In a more general sense, royalty deeds confer a "passive" interest in the exploitation and sale of mineral resources. While their holders are insulated from many of the risks associated with mineral extraction, they don't enjoy the potentially lucrative rewards that follow from well-placed leases.

Areas of Uncertainty

Unfortunately, the differences between royalty leases and mineral leases are not cut-and-dried. Individual deeds that suffer from imprecise wording may be subject to differing interpretations. In extreme cases, these disagreements can produce legal actions that require arbitration. To make matters worse, the legal framework that underlies the granting and execution of mineral and royalty deeds often varies on a state-by-state basis. Landowners who own multiple parcels in different jurisdictions must pay special attention to the wordings of their respective deeds. 

Certain wordings are especially noted for sowing confusion. These include:

  • "In" and "under". In the absence of explicit instructions, deeds that include these words generally confer full mineral rights.
  • "Produced" and "saved". When used in combination, these words are assumed to confer royalty interests.
  • "Profit share" or "share of profits". These constructions generally confer full mineral rights.
  • "Non-participating". This phrasing almost always describes a royalty interest.

Landowners, legal professionals and land-use specialists must carefully parse the deeds that they encounter in the course of their business. Since a few turns of phrase can substantially change a deed's meaning, this due diligence is crucial for preserving the rights of those who stand to benefit from mineral resource extraction.

* Image courtesy of FreeDigitalPhotos.net

mineral rights guide

Topics: Oil and Gas, Legal


Recent Posts

How to Become a Landman in the Oil and Gas Industry

read more

How Much Does Title Insurance Cost?

read more

7 Important Things You Should Know About Land Titles

read more