But What About Mineral Rights?

But What About Mineral Rights?

Jason Cochard for Land Academy

Buyers ask me about water rights about 90% of the time. And it seems to go hand in hand with questions about mineral rights. I’ve noticed that among a certain subset of buyers (hint: they are tire kickers) there is a fear that somehow if you don’t own mineral rights, then the big bad wolf will inevitably come and blow your house down, immediately build an oil derrick on your property, and probably torch your house like a barbarian horde.

While I did read an article describing how, in Texas specifically, mineral rights are superior to surface rights and this could possibly actually happen (at least the oil rig part), what we sometimes forget are the economic and technological advances that slice both ways, conspiring to decrease the chances of any conflict down to about 0%.

First, in a world now ruled by social media where everyone has a voice — and corporate faux-pas easier to shine a light on — it would be such bad PR for any oil company that actually exercised their precious “superior” mineral rights, that they would most likely not actually do it. Exxon Mobil has shifted its public image from that of an “oil” company to that of an “energy” company, with their public communications detailing their desire to put the planet and people first. They would quickly shatter that investment in their PR image the moment they begin to ignore a surface owner’s objection, regardless of whatever historically established right they lawfully exercise. Just ask United Airlines, BP, or Wells Fargo about how to lose face in the 21st century.

Secondly, technology has advanced since the laws were written and mineral rights split from surface rights. Now that horizontal drilling is possible, an oil company is able to explore the subsurface independent of surface owners, and without disturbing as many pieces of ground as would be necessary with strictly vertical drilling. From a site miles away, the company could be exploiting the minerals under your cabin parcel without you ever knowing. If you don’t know, then you don’t care, right? Thus, it doesn’t really matter that in Texas the mineral rights are superior to the surface rights — those rights will never be exercised anyway. I’m of course assuming we’re talking about parcels that have potential for their highest and best use as a residential or recreational use.

If your buyer is still scared of the big bad wolf, they have to understand that the big bad wolf has operating costs and pensions to pay out, so over the years he has needed to get smart about how often and how much he shells out to blow someone’s house down. Exxon-Mobil used to own their gas stations, but now, stations with an Exxon and/or Mobil logo have all been sold to individual businesses and have zero connection to ExxonMobil except for the branding and logo, which they license to the proprietor. With the future in mind, they’re out of the gas station game entirely, except for brand recognition & licensing.

Why run a business unit yourself (potential losses!) when you can sell that segment of the business (income!) and collect money by franchising your longstanding mature brand recognition (more income!)? It’s a no brainer to divest distribution and all consumer facing business units. That leaves production and exploration, and we don’t care about production because we’re not buying industrial land. So with exploration, that’s your big bad wolf coming to your cabin lot to drink your milkshake. But, if they’re smart enough to divest distribution and sales, do you think an oil company wants to pay 10 different exploration royalties when horizontal drilling would enable them to quietly pay only one? Or zero? Their profit motive would reasonably allow me to conclude that I’ll never have to worry about a There Will Be Blood scenario ever playing out in the 21st century. Economics and technology prevent it from happening.

And it should be said that just because mineral rights may be held by some oil company, it doesn’t mean oil is present. It may be tapped out, it may never have existed, and the company is just holding the rights because it’s cheap to do so, and too expensive to transfer them back to a surface owner. If you understand the motivations of the big bad wolf, maybe there’s a business idea in that somewhere about re-acquiring mineral rights from behemoth oil companies. Or, just pass the idea along to your tire kicker.