What is the Difference between Mineral Rights and Royalties

In recent years, a growing number of venture capitalists, private citizens, and institutional and passive investors have started searching for comparatively safe places to invest their money. That means those entities are looking for investment vehicles that have a minimal amount of risk while offering the opportunity to earn a bankable return.

With an increasing number of investors shifting their investment strategy, many have questions about formerly foreign topics like royalty rights in Texas and other mineral-rich states and regions. Too often, people use the terms “royalty rights” and “mineral rights” interchangeably, but they are far from synonymous.

A Look at Mineral Rights

An oil and gas rights expert operating in North Dakota, Pennsylvania, Texas, and other states, Enfield Minerals is intimately familiar with the differences between mineral rights and royalties. Mineral rights involve the ground located below a parcel’s surface whereas royalties are attached to the minerals excavated from that dirt.

When you buy a piece of land, you’ll own the surface of the property, but you won’t necessarily own the rights to the natural minerals located below the ground you can stand or build on. Mineral dominant states like Texas allow for the severance of surface and mineral rights, meaning one party can own the surface of a property and another can own or lease the ground underneath with the expectation that the latter entity will extract minerals from the underlying dirt and rock.

More than one party can own a parcel’s mineral rights just like multiple parties can own the property’s surface rights. States rich in minerals often favor mineral rights holders over entities holding surface rights. If they didn’t give mineral rights holders more leverage, the investment made by those entities could be rendered worthless.

Royalties Explained

If you contact our mineral extraction company to inquire about royalties, we’ll explain that they’re basically compensation that mineral rights owners receive from operators charged with extracting minerals. Royalties typically range between 12.5 – 25 percent of an operator’s production.

The team at Enfield Minerals advises you to remember that royalties depend on the drilling activity of the company contracted to extract minerals from a given parcel. When that activity ceases altogether, you’ll no longer receive royalties because those payments are directly related to the volume of minerals taken from the land. Once your contract with the initial operator expires, you can find another operator and renegotiate the royalties you’ll receive from that company’s operation.

To learn more about the difference between mineral rights and royalties, contact Enfield Minerals today.