# Texas Mineral and Royalty Interest Analysis

## Table of Contents
1. [Overview](#overview)
2. [Types of Mineral Interests](#types-of-mineral-interests)
3. [Severed Mineral Estates](#severed-mineral-estates)
4. [Analyzing Mineral Reservations](#analyzing-mineral-reservations)
5. [Oil and Gas Leases](#oil-and-gas-leases)
6. [Surface Use and Accommodation](#surface-use-and-accommodation)
7. [Title Commitment Mineral Exceptions](#title-commitment-mineral-exceptions)
8. [Due Diligence Checklist](#due-diligence-checklist)

## Overview

Texas follows the "ownership in place" theory—minerals are real property owned in fee simple until extracted. The mineral estate can be severed from the surface estate, creating separate ownership.

**Key Texas Principle**: The mineral estate is the dominant estate. Surface owners must accommodate reasonable mineral development absent specific surface use agreements.

## Types of Mineral Interests

### Mineral Interest (MI)
Full ownership of minerals in place, including:
- Right to develop (executive right)
- Right to lease
- Right to receive bonus payments
- Right to receive delay rentals
- Right to receive royalties

### Royalty Interest (RI)
Right to receive a share of production (or proceeds) without bearing development costs. No right to lease or develop.

**Types of royalty interests**:
- **Landowner's royalty**: Retained by lessor in oil/gas lease (typically 1/8 to 1/4)
- **Overriding royalty (ORRI)**: Carved out of working interest, terminates with lease
- **Non-participating royalty interest (NPRI)**: Permanent interest in production, no lease participation rights

### Working Interest (WI)
Right to develop minerals, bearing proportionate costs. Created by oil/gas lease from mineral owner to operator.

### Non-Participating Mineral Interest (NPMI)
Ownership of minerals without executive rights. Owner receives share of bonus, rentals, and royalties but cannot lease.

### Executive Right
Right to lease the mineral estate. Can be severed from other mineral rights.

## Severed Mineral Estates

### Identifying Severance
Review recorded instruments for:
- Mineral reservations in deeds ("Grantor reserves unto himself all oil, gas, and other minerals...")
- Mineral deeds conveying mineral rights separately
- Royalty deeds or assignments
- Oil and gas leases (creates working interest in lessee)

### Common Reservation Language

**Full reservation**:
> "Grantor excepts and reserves all oil, gas, and other minerals in, on, and under the above-described land, together with the right of ingress and egress for the purpose of exploring, developing, and producing same."

**Partial reservation (fractional)**:
> "Grantor reserves an undivided one-half (1/2) interest in all oil, gas, and other minerals..."

**NPRI language**:
> "Grantor reserves a non-participating royalty interest equal to 1/16 of all oil, gas, and other minerals produced and saved from said land."

### Analyzing Fractional Interests

**The "two-grant" problem**: When minerals are partially severed, subsequent conveyances may be ambiguous.

Example:
1. 1950: A owns 100% surface + minerals
2. 1950: A conveys to B, reserving 1/2 minerals
3. 1970: B conveys to C "all minerals owned by Grantor"

Question: Did B convey 1/2 or 100% of what B owned?

**Texas rule**: Absent clear intent, a grant of "all minerals" conveys grantor's entire interest, not 100% of the minerals.

### Depth Severances

Minerals can be severed horizontally by depth:
> "Grantor reserves all oil, gas, and minerals below 5,000 feet from the surface."

Common in areas with multiple producing formations.

## Analyzing Mineral Reservations

### Step-by-Step Analysis

1. **Identify all reservations** in the chain of title
2. **Determine what was reserved**: Full minerals, NPRI, specific depths, specific substances
3. **Calculate fractions**: Track fractional interests through all conveyances
4. **Identify current owners**: Who holds what interests today
5. **Check for lease coverage**: Are minerals currently leased?
6. **Assess surface impact**: What surface use rights exist?

### Minerals Included

**"Oil, gas, and other minerals"** typically includes:
- Oil and gas (always)
- Coal, lignite
- Uranium
- Sulfur
- Salt
- Geothermal resources (may vary)

**Does NOT include** (absent specific language):
- Sand, gravel, caliche (generally surface estate)
- Groundwater (separate property right in Texas)
- Building stone (may be surface estate)

**The Moser v. U.S. Steel test**: A substance is a "mineral" if:
1. It was known or foreseeable at severance, AND
2. Extraction would consume or deplete the surface

## Oil and Gas Leases

### Lease Status Analysis

**Check for**:
- Recorded lease memorandum or full lease
- Lease term (primary term and habitual clause)
- Production status (held by production?)
- Pooling/unitization agreements
- Assignments of working interest

### Key Lease Provisions Affecting Title

**Habendum clause**: "This lease shall remain in force for a primary term of ___ years and as long thereafter as oil, gas, or other minerals are produced..."

**Pooling clause**: Allows lessee to combine leased premises with other lands for drilling unit.

**Surface use provisions**: May limit or expand lessee's surface rights.

### Lease Termination Issues

Watch for:
- Cessation of production
- Failure to pay delay rentals (during primary term)
- Expiration of extended term
- Abandonment

## Surface Use and Accommodation

### Dominant Estate Doctrine

Mineral owner has implied right to use as much surface as reasonably necessary to explore, develop, and produce minerals. This includes:
- Access roads
- Drilling sites
- Pipelines
- Storage facilities
- Water sourcing

### Accommodation Doctrine (Getty Oil v. Jones)

When surface owner has an existing use that would be precluded by mineral operations, mineral owner must accommodate IF:
1. Surface owner has an existing use
2. Mineral operations would substantially impair that use
3. Alternative methods exist for mineral development that would not substantially impair surface use
4. Alternatives are reasonable under the circumstances

### Surface Damage Acts

**Texas Natural Resources Code Chapter 53**: Requires operators to compensate surface owners for damages from operations (does not require agreement before entry).

**Practical implications**:
- Surface owner cannot prevent drilling
- Surface owner entitled to compensation for damages
- Negotiated surface use agreements preferred

## Title Commitment Mineral Exceptions

### Common Mineral Exceptions

**Type 1: General mineral reservation**
> "Minerals reserved in Deed dated ___, recorded in Vol. ___, Page ___, [County] Real Property Records, from [Grantor] to [Grantee]."

**Analysis**: Review the deed. Determine: What was reserved? What fraction? Surface use rights?

**Type 2: Oil and gas lease**
> "Oil, Gas and Mineral Lease dated ___, from [Lessor] to [Lessee], recorded in Vol. ___, Page ___."

**Analysis**: Is lease still in effect? Check for production, assignments, releases.

**Type 3: Pipeline easement**
> "Pipeline easement granted to [Company] in instrument recorded in Vol. ___, Page ___."

**Analysis**: Location, width, type of pipeline, exclusive vs. non-exclusive.

### Requesting Mineral Coverage

For owner's policy, consider requesting deletion of mineral exceptions if:
- Seller owns 100% of minerals (no severance)
- Property in area with no mineral activity
- Client has no concern about mineral development

For lender's policy:
- Most lenders require mineral exception remain
- Some accept endorsement limiting exception
- T-19.1 endorsement addresses surface damage from mineral operations

## Due Diligence Checklist

### For Every Transaction

☐ **Chain of title review**: Trace mineral ownership from patent/sovereign
☐ **Identify all reservations**: List every mineral reservation with recording info
☐ **Calculate current ownership**: Fractional interest breakdown (surface vs. minerals)
☐ **Lease status**: Current leases, production status, lease expiration
☐ **Pipeline/easement review**: Impact on surface use
☐ **Railroad Commission records**: Permit status, well locations, production history

### For Commercial/Development Transactions

☐ **Surface use agreement**: Negotiate if minerals severed
☐ **Mineral title report**: From landman or mineral title company
☐ **Shut-in wells**: Location and status
☐ **Pooling/unitization**: Affects mineral ownership allocation
☐ **Seismic permits**: Active exploration in area

### For Transactions in Active Producing Areas

☐ **Production data**: Railroad Commission production reports
☐ **Operator contact**: Current operations plans
☐ **Existing facilities**: Well pads, tank batteries, pipelines
☐ **Royalty payment verification**: If NPRI included
☐ **Division order analysis**: Confirm decimal interest

## Red Flags

1. **Fractional reservations over multiple conveyances**: Complex ownership calculations
2. **Old unreleased leases**: May still be effective if production exists
3. **Missing mineral deeds in chain**: Possible unrecorded interests
4. **Depth severances**: Especially in multi-formation areas
5. **NPRIs of uncertain origin**: May burden current production
6. **Surface use agreements**: May limit development options
7. **Railroad Commission violations**: Environmental liability