Mineral Reservations and Related Issues by Jeffrey W. Harrison

As anyone who has recently purchased real property in the Dallas/Fort Worth area likely knows, it is not uncommon for a seller to insist on reserving the seller's mineral rights from the conveyance of the real property.  Mineral reservations have recently become much more commonplace in the DFW area due to the successful drilling operations of gas companies in the Barnett Shale formation.  It is important to remember that a deed without an express reservation of the minerals will convey whatever rights the grantor may have to the minerals under the property.  For this reason, when selling property you should always consider expressly reserving rights to the minerals.

A typical reservation in a deed may contain language reserving to the grantor "all oil, gas and other minerals."   Texas law provides that this language will reserve to the grantor rights to all substances considered to be "a mineral within the ordinary and natural meaning of the term." Substances found to be a part of the reserved minerals are: oil, gas, uranium, sulphur, deep iron ore and salt, gold, silver, and deep coal and lignite.  Some substances found to be a part of the surface estate (and not a part of the minerals reserved) are: fresh water, limestone and building stone, caliche and surface shale, gravel and sand, and near surface lignite, iron and coal.

A fundamental part of Texas law provides that the owner of the mineral interest has the right to use of the surface as is reasonably necessary to obtain the minerals.  Unless there is a specific agreement to the contrary, the mineral interest owner has no duty to restore the surface in the absence of negligence or unreasonable use of the surface.  For this reason, any specific agreement for the mineral interest owner to restore the surface after drilling operations have occurred should be included in the reservation. 

In a reservation of mineral rights provision, the surface owner should consider prohibiting or restricting the mineral interest owner's right to use the surface to obtain the minerals.   A complete waiver of the surface rights of the mineral interest owner is certainly the best way to protect against use of the surface.  As there may have been previous mineral reservations or conveyances, it is important to confirm that the party waiving the right to use the surface has sufficient ownership to validly waive such surface rights.  When a complete surface waiver is obtained, the mineral interest owner must attempt to develop the minerals by directional drilling or by drilling on adjacent pooled property.  Another way to protect the surface is to provide that the reservation of the minerals does not include any minerals within a specified distance below the surface of the property (often 200 feet below the surface) or minerals which must be quarried, strip-mined, mined by means of open pit, or the removal of which will otherwise result in substantial destruction or depletion of the surface.

Some cities and towns may also have drilling ordinances prohibiting or restricting drilling for oil, gas and other minerals within the boundaries of the municipality.   A typical drilling ordinance may prohibit drilling within a specified number of feet from a residential or commercial building.  While these ordinances may provide some comfort to the surface owner, it is important to remember that such ordinances may be modified by the municipality without the consent of the surface owner that is relying on the ordinance.

Another important issue to consider concerning mineral reservations is how they are addressed in a property owner's title insurance policy.  Due to the recent increase of drilling in the DFW area, title companies have encountered increased claims relating to minerals rights.  As a consequence, many title companies started including broad exclusions or exceptions for mineral rights in title policies. Real estate owners and attorneys were initially successful in having such exclusions or exceptions limited to a reasonable degree based upon a State of Texas title insurance rule that provides that title companies may not include broad general exceptions in a title policy.  The Texas State Board of Insurance previously disallowed such broad exceptions on the basis of this rule.  Various title companies have since challenged this ruling and hearings have since been conducted on the matter in Austin at the State Board of Insurance.  An updated ruling should be forthcoming from the State Board in the near future.   

The language of mineral reservations in deeds should be carefully considered and negotiated as such provisions may dramatically affect the value of the real property and the rights of the surface owner to develop the property. Please feel free to contact us regarding negotiating and drafting mineral reservations, oil and gas leases, as well as analyzing title commitments and policies, drilling ordinances and other oil and gas related documents, as we are capable of advising clients with respect to these important provisions and documents.