In most countries of the world all mineral resources belong to the government. This includes all valuable rocks, minerals, oil or gas found on or within the Earth. In the United States ownership of mineral resources was originally granted to the individuals or organizations that owned the surface.

These property owners had both “surface rights” and “mineral rights”, the complete ownership which is known as a “fee simple estate”. The landowner holds title to the surface of the land, the space above it, and the subsoil below it (all the way down, in a narrowing pie-shaped wedge, to the center of the earth).

He also owns any minerals contained in the land. To him alone belong the rights to explore, dig, drill, produce, and benefit from minerals on his estate. Mineral rights also include the rights to any oil and natural gas that exist beneath a property. The rights to these commodities can be sold or leased to others. In most cases, oil and gas rights are leased.

The owner of a fee simple estate may sell his entire interest (all of his legal rights) in the land, sell only the surface and retain the minerals for himself, or sell only the minerals and keep the surface (in which case he becomes owner of the “fee in surface”).

If he does sever or separate his interests, he creates a surface estate and a mineral estate. These are then considered to be separate estates, legally speaking. They may be sold to separate owners, leased to separate companies or individuals, and divided again and again as they are conveyed (transferred) for various purposes.

Most states have laws that govern the transfer of mineral rights from one owner to another. They also have laws that govern mining and drilling activity. These laws vary from one state to another.

Dr. Mohamed Soliman, a Professor of Petroleum at Texas Tech University, says the concerns over hydraulic fracturing, or fracking, are unfounded. “Hydraulic fracturing is not a new thing. It has been around since the late 1940’s,” Soliman said.

The process of fracking is used to extract oil or natural gas deep below the Earth’s surface in oil and gas development. Blasts of water, chemicals and sands are pumped into the ground and used to fracture shale, which then releases natural gas or oil. Because it takes place thousands of feet below the ground, many believe it poses a threat to the environment.

However, Dr. Soliman says that is not the case. He says companies that conduct the fracking do not use dangerous chemicals. Instead, they opt for organic chemicals made from plants. Dr. Soliman says that water contamination is not an issue, because oil or natural gas never makes it to underground water on its own.

“This fluid has been sitting there for several million years and it has not come up to the surface. Why would it come to the surface now? It doesn’t make sense,” Soliman said. He says the benefits of hydraulic fracturing far outweigh any dangers that some believe it to pose. As with anything, he says caution should be exercised and it’s up to the company conducting the fracking to do so safely. “If it is done right, there is no danger,” Dr. Soliman said.

The predominant source of lease income for mineral owners comes from oil and gas royalties, not bonus payment, so the purpose of the continuous development clause is to incentivize the lessee to continue drilling more wells over time in order to hold all the acreage in the lease, especially after the primary term has expired. The idea behind this clause is that the lessee should have a reasonable time to fully develop the leased premises, after which the lessee should release the portion of the leased premise not necessary for the production of the wells it has drilled.

Designated intervals (of 180 days, for example) between completion and new drilling require the operator to develop leased land up to its allowable density. The goal is to maximize the amount of production (and royalties) for the mineral owner which can be generated by their leased acreage.

Many details of a continuous development clause are subject to negotiation, including the size of production units, the depth held by production from each well, and the time between wells and how it is calculated. In his presentation at the NARO Texas Convention, David Wallace of Wallace Law Offices in Sonora, TX offered valuable advice on negotiating these terms.

Mr. Wallace recommends making the provisions as well defined as possible. The number of days between wells commonly used are 180, 150, or 120. The beginning date needs to be as specific as possible, for example “total depth on a vertical well or total measured depth on a horizontal well”, “with no cessation or interruption of more than ____ consecutive days between the date total measure depth is reached…”.

Next, the obligation date (for drilling a new well) should be defined by tying the it to spud by a rig capable of reaching total depth. A good way to express it is, “the date the next well is spudded, with a rig capable of reaching total measured depth in an effort to recover commercial hydrocarbons”.

It is best for a lessor to have all possible locations drilled by the end of the continuous development term. One way to achieve this is to define the acreage retained by each production unit. Mr. Wallace suggests, “a minimum size proration unit approved the by the Railroad Commission of Texas (or its successor) for production from each well from which oil and/or gas is being produced”.

It is a good idea to require that the lessee release depths below the depth at which its wells are producing on the lease premises. The clause should carefully define the depth below which the lease will be released. The depth most favorable to the lessor will be based on the deepest perforation in the well from which it is then producing. The lessor can specify that the depths held are limited to the “producing formation” or “to 100’ below the producing formation” in each proration unit.

R.King & Co. is continuously studying recommendations by industry experts to advance the interests of lessors. There is no better way to protect and enhance mineral interests than to negotiate the most favorable oil and gas lease for the lessor. R.King & co. is uniquely qualified to accomplish this goal.

An overriding royalty interest is the right to receive revenue from the production of oil and gas from a well. The overriding royalty is carved out of the lessee’s (operator’s) working interest and entitles its owner to a fraction of production. It is limited in duration to the terms of an existing lease, but is not subject to any of the expenses of development, operation or maintenance.

Overriding royalty interests are not connected to an ownership of minerals under the ground, but derive from the ownership of a portion of generated revenues. It is a fractional, undivided interest in the proceeds from the sale of oil and gas produced from a specific tract or tracts. An overriding royalty interest expires once the lease has expired and production has stopped, whereas minerals and royalties owners maintain their ownership after production stops.