Oil, Gas and Mineral Rights: Back to the Basics

Oil, gas and mineral rights, or OGM as some people call them, are a unique category in real estate world that are completely relevant and applicable to some parts of the state, while other parts of the state will never touch them. PAR has forms in the library that cover these rights, but we also wanted to get back to the basics for those of you who do not deal with them frequently.

Background

Pennsylvania allows property owners to separate the surface rights and the subsurface rights, which are oil, gas or mineral rights. When nothing is done, the property owner owns everything, surface and subsurface rights. The property owner may choose to sell or lease these subsurface rights.

There can be a lot of benefits to the property owner when they choose to separate the subsurface rights. Some may collect royalties from what is accumulated, some may receive payment on a lease, some may have completely sold the rights for a flat fee. Some of these agreements run with the land, while some agreements stay between the original parties. These agreements may also include rights for the owner/lessee of the subsurface rights to gain possession to parts of the surface of the property in order to access the subsurface rights.

It is also important to note that a lot of times these agreements happened several decades ago, so it can take a lot to trace the information back and can at times require getting an attorney involved to really understand who owns what.

How does it affect licensees?

For a lot of licensees, in most transactions, it will not. OGM rights are typically a regional issue since some areas have accessible and profitable resources and some do not. If a seller owns the surface and subsurface rights and they execute an Agreement of Sale without doing anything else, the seller will transfer the surface and subsurface rights as a package deal. However, licensees do need to stay prepared.

For listing agents, this means at least having a discussion with your client to confirm what they own. The Seller’s Property Disclosure includes language regarding whether the seller is aware of the transfer, sale and/or lease of certain property rights. The listing agreements have a place to check off whether the seller will be giving full rights of ownership to the buyer.

For buyer agents, this means taking a look at the seller’s disclosure, making sure to check whether something has been previously transferred. They have to be able to confirm that everything is transferring in its entirety, and if it is not, that the buyer is aware and has negotiated with that knowledge.

The biggest takeaway with oil gas and mineral rights is knowing when to say “I don’t know.” Trust me when I say that your client will be much better off if you know to ask questions than pretending like you know it when you do not. The people who work with oil, gas and mineral rights usually work with them a lot, so talking with your broker or another agent who is familiar with them can certainly help. And as always, if something does come up where the buyer is not getting all the rights, sending them to an attorney so they can fully understand the agreements is the best and safest route for all parties involved.