The term “minerals” includes all inorganic substances, as well as hydrocarbons, such as oil and natural gas, and carbon deposits, such as coal. Minerals in the ground are treated as real property, but, after removed from the land, they become personal property. The owner of land may convey title to minerals separately from the title to the surface. The conveyance is governed by the same law as sales of land. In jurisdictions in which an oil and gas lease is construed to be a conveyance of an interest in real property, the lease must satisfy the formal requirements that are essential to a conveyance of land.
A landowner who believes his or her property may contain deposits of valuable minerals may enter into an exploration agreement with a person or organization interested in prospecting the land. The agreement may contain a covenant to test and explore the land, or it may be a mere license granting the right to enter and explore for minerals.
The owner of land may “sever” his/her interest in the oil, gas, and other mineral resources of the land and sell the mineral estate separately from the surface estate, or the owner may reserve the mineral estate and convey the surface estate to another.
A mineral lease from the owner of the minerals to a person grants that person the exclusive right to drill for the minerals for a specific length of time. After a landowner has leased property for gas and oil purposes, there remain three separate and distinct interests: (1) the estate in the surface, (2) the reserved royalty interest, and (3) the right to extract the minerals. These interests are regarded as interests in real property. A lessor may transfer by a single instrument all three of these interests or may convey them separately.
Royalties are the funds received from the production of oil or gas, free of costs, except taxes. In a jurisdiction in which a royalty interest is considered to be realty or an interest in realty, the transfer of such an interest should be in writing. A lessor of land subject to a gas and oil lease may convey the royalty under the specific lease in whole or in part, or may convey the royalty interest in perpetuity. A conveyance in perpetuity includes both royalties arising under the existing lease and those arising under any lease that may be made in the future. The conveyance of a royalty interest therefore should clearly specify whether the right being conveyed is perpetual or limited to the duration of a particular lease.
A deed conveying minerals is broader in its effect than a deed conveying a royalty interest, since a mineral deed generally includes the right of ingress and egress, the right to develop the land for gas and oil, and the right to lease the land.
