Congratulations! You inherited a part of your grandparents' ranch in Texas. As part of your inheritance, you received a part of the mineral production and are being paid royalties for the production. But do you really know how to manage your minerals that you inherited?
Many of you know that I spent some time working in the oil and gas industry as a Landman, or a person responsible for researching mineral ownership, leasing those minerals, and managing the contracts for those minerals. Owning minerals in Texas is unlike any other asset, and from an estate planner perspective, they are one of the most difficult assets to manage and pass to your heirs. There are multiple issues with minerals. You might have inherited these minerals or you might have bought the ownership interest recently. Without proper understanding of those minerals and the rights owned by those minerals, it makes it difficult to sell or manage those minerals in the future.
First and most importantly, what do you own? i.e. Do you have a mineral interest or a royalty interest?
Second, do you know where you own it? i.e. Do you have a property description of the asset?
Lastly, do you know how much you own, i.e. do you have a 1/4 mineral interest?
What you own might be easy. Mineral interests are an interest in the actual minerals in the ground. Royalty interests are an interest in the eventual money that is produced from the sale of minerals. Mineral interests vs. Royalty interests are usually found in the granting document, typically a deed. It saves a lot of work if you have the original granting document. The challenge is if the interests are inherited and the will or trust just says "all my interest" because typically the language in a will or a trust will usually not say if it is a mineral or royalty interests. That's where you will have to hire a Landman to do research on the interests to identify what kind of interests you might have.
Where you own the minerals is a different question. The best indication of where you own something is if you have a property description of the assets, especially from a deed that's been filed in the county where the minerals are located. Unfortunately, a lot of things might LOOK like property descriptions, but they might be incomplete for purposes of passing ownership or really understanding what is owned. For example, you might have an existing division order from a production company that might have something that looks like a property description on it. However, that property description is sufficient to identify a project internally for an oil company, but it is typically incomplete for transferring ownership of minerals. The biggest issue is if you own mineral interests in several different counties or states. They’re not all organized in one place. You’re basically doing searches in lots of local counties and a lot of the work can be manual and must be done in person in certain places.
The last issue once you have a property description is how MUCH you own. For example, you and your sister inherited minerals from your Mom. Mom’s estate deeds each ½ of what she has to her children (you and your sister). However, mom could have owned the whole mineral estate, she could have only owned 1/8 if she inherited it from her parents and they split it up among their 4 children. This is where the extremely tedious part of the research starts. Its relatively easy to find the property description as long as you know where the minerals came from and who the original owners are. However, it takes a lot of historical research if you need to know exactly what quantity of minerals is owned because you have to do a title search all the way back to the initial land grant back in the 1800’s or earlier.
A lot of my clients when they’re transferring mineral rights will do the first step to research and identify a mineral interest and property description, but not the second step of doing the historical research to figure out exactly what the mineral interest percentage is because the first step might cost a few hundred dollars to have a landman do the research and find a good relatively recent lease and/or property description that you can use to draft a deed. The second step could take weeks of research and thousands of dollars to do, PER TRACT. So even if your client has three tracts in Houston County, Texas, you can’t really do one set of research and be done. You basically have to research each tract individually and pay for all the tracts to be researched.
You need the first two steps to convey “all their interest” to a trust or individual by deed, which is legally sufficient at least in Texas to convey title. The third step you could leave to an oil and gas company to do the research and figure it out when they lease the property. However, you won’t be able to verify independently what they do so their calculations might be off. For example, the deed will probably show you own something that’s a fraction, like 1/16th of the mineral estate in 160 acres. However, your sign a production agreement, your interest will not be reflected in a fraction, but will be a very long decimal (.00829321) that is a small part of a much larger unit (1000+ mineral acres) and there’s no way to double check the math on that unless you know how many mineral acres you own that’s a part of that lease.
This is one of the reasons why it is extremely important to work with an attorney that is familiar with with oil and gas and mineral ownership when researching attorneys who do estate planning. It is usually not enough to just do a will or a trust and hope that everything works itself out. Oil and gas minerals are very unique assets to own, manage and transfer. If you own oil and gas minerals and are interested in setting up an estate plan, reach out to Chiang Law Firm for a consultation today!