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Signing Away Mineral Rights Forever |
News Release No. 50, June 2005
By Ellissa Brewster
COLLEGE STATION, Texas Recently, mineral owners, especially those with producing oil and gas wells, have been receiving offers through the mail to purchase their mineral or royalty interests.
However, such offers can trap the unwary into transferring more rights than they realize. Judon Fambrough, attorney with the Real Estate Center at Texas A&M University, warns mineral owners not to sign papers like these unless they read the deed and are certain they understand what they are signing.
Offers contain a cover letter, a deed and a sight draft, which looks like a check but is not funded until title is verified. To accept an offer, the owner signs the deed before a notary, endorses the sight draft and mails both documents to the purchaser.
Fambrough says, Astute mineral and royalty owners must look beyond the amount of money being offered and the wording in the cover letter and focus on the deed.
The cover letter may be misleading and may actually contradict the deed. Regardless of what the cover letter implies, the deed is the legal instrument that spells out the interest transferred.
Most people read the cover letter because it is written in everyday terms and addresses how to obtain the money. But it is more important that they read and understand the deed or have an oil and gas attorney read it.
Typically, the cover letter states that the purchaser wants to buy the owners future income from the current oil and gas lease on the described property. However, Fambrough says mineral owners should be aware that three possible royalty or mineral interests may be conveyed by deed.
Royalty deeds take two forms. One is an assignment of the right to receive future income (or royalty) from the present lease. The second type of royalty deed conveys a permanent royalty, which extends beyond the present oil and gas lease. The seller (or royalty owner) forever conveys the right to receive all or a part of his or her royalty from the present and all future leases.
Most deeds attached to mailed offers are mineral deeds, not royalty deeds. Although the cover letter describes purchasing some sort of royalty of income interest, the deed may be for a mineral interest.
A mineral deed has language to the effect that, The grantor hereby grants, sells and conveys to the grantee (purchaser) all rights, title and interest to the oil, gas and other minerals in and under and that may be produced from the following described property (legal description).
By signing this type of deed, the owner conveys all the mineral rights owned beneath the described property. This includes the right to receive a royalty or a share of the production as well as four other rights that make up the mineral estate. These are the right to negotiate and sign a lease (executive rights), the right to receive a bonus, the right to receive delay rentals and the right to enter the property to explore for and produce the minerals.
If a mineral deed is signed, these interests will never revert to the present owner.
Oil and gas law is complex. Fambrough recommends that mineral owners consult with an attorney familiar with mineral law if they have any questions about offers they receive in the mail.
The Real Estate Center (http://recenter.tamu.edu) has been providing solutions through research for nearly 35 years. Funded primarily by Texas real estate licensee fees, the Center was created by the state legislature to meet the needs of many audiences, including the real estate industry, instructors, researchers and the general public.
Published by Texas Real Estate Center
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