By: Adam Ferrari, CEO – Phoenix Energy

In many real estate transactions, the focus typically remains on surface value — location, structures, zoning, and future development potential. Yet, beneath the surface lies an often-overlooked asset class that could potentially influence a property’s worth: mineral rights.

Mineral rights are the rights to the subterranean resources beneath the surface of a plot of land, which can be sold or leased independently from the land above it. Essentially, a single parcel can be monetized twice — once for the real estate on the surface and again for the right to extract the minerals below.

While mineral rights are sometimes overlooked in transactions, buyers, sellers, and investors alike should consider the implications of these potentially valuable assets before entering into deals. Although mineral rights can add complexity to real estate transactions, this complexity can also present unique opportunities.

How Do Mineral Rights Affect Property Values?

Mineral rights can influence property value in several ways, including potential future income, the marketability of the property, and how surface use is impacted.

Future development plans consider whether the owner might benefit from leasing opportunities or royalties if resources such as oil, gas, or minerals are extracted. This potential income stream could enhance the overall land value.

Moreover, properties with intact mineral rights in areas known for energy production and resource exploration might have a higher sales price, depending on the current value of the natural resource. Conversely, if mineral rights have been severed in a high-value area, the property’s value could be lower due to the lack of control over the subsurface resources.

Lastly, surface use impact must be factored in when mineral rights are sold or leased separately. Future drilling or mining activities could disrupt land use or reduce property value, depending on the nature of the development.

Advice for Prospective Buyers

As a basic rule, prospective buyers should always verify ownership of mineral rights. In some cases, the mineral rights might have been severed from the surface estate, but this can be confirmed through a title review with a landman or attorney.

In addition to confirming ownership, it is essential to understand the potential legal and regulatory implications of the purchase. Buyers should research existing leases, royalties, or drilling agreements tied to the property, as well as local permitting considerations, such as access roads, pipelines, etc., which may be necessary to fully maximize the property’s value.

Lastly, evaluating future leasing opportunities with exploration companies is important. This can vary widely based on geography and resource potential, so prospective buyers should consider whether the property is in an area with active resource development, such as an oil and gas basin with known reserves.

Advice for Mineral Rights Owners

All mineral rights owners are encouraged to educate themselves on the potential value of their assets. Many rights have been passed down through generations, and selling can sometimes be an emotional decision.

Deciding whether to retain ownership of minerals should take into account several factors, including the possible increase in value, managing risk, avoiding the uncertainty of fluctuating market conditions, and the reputation of potential buyers. Most owners lack control over how their assets are worked or managed due to the high costs involved in extracting natural resources, so selling to a reputable partner may help maximize their value.

Similarly, when leasing mineral rights, it is crucial to negotiate favorable terms. Ensure that you and your family have reviewed royalty rates, lease duration, and protections for surface use. Consulting with a qualified landman or attorney can be beneficial to ensure terms are clearly understood and fair.

Owning land doesn’t automatically mean owning the minerals beneath it. It is important to protect yourself and your family by considering these factors when selling, buying, or leasing land with potential mineral value.

— Adam Ferrari is CEO at Phoenix Energy. He has nearly 20 years of experience in the oil and gas industry after earning his Chemical Engineering degree from the University of Illinois at Urbana-Champaign. He honed his engineering skills with BP in the Gulf of Mexico before moving through various leadership roles and a stint in investment banking at Macquarie Capital.

Disclaimer: This article is for informational purposes only and is not intended to provide investment advice. It does not recommend or endorse any financial investments, opportunities, or strategies. The content discusses the role of mineral rights in real estate transactions and their potential impact on property values. Readers should consult with qualified financial advisors, legal professionals, and land experts before making any investment or business decisions.