Oil/Gas/Questions about Buying a home without mineral rights
Hello. My husband and I are relocating to Colorado and recently made an offer on a home in Parker, Colorado. The house is on 1.63 acres in Elbert county in the Deer creek farms subdivision and was being sold without mineral rights. Originally we thought that no one had mineral rights in our subdivision, that it was common, so we were not concerned. Our realtor was unaware that the seller owned the mineral rights and we are not aware of any exploration activity in the area. However after getting the title report it turns out the current seller owns the mineral rights to the property and she has leased them to an exploration company, with one payment of $750 made to her at the initial time of the lease being written, and the lease is to expire in 2015 at which time the mineral rights revert back to her. My husband and I are feeling like she was not upfront with everyone when we signed the contract and are very concerned about her not being willing to include the mineral rights in the home sale. Our realtor says that the seller will not relinquish the mineral rights but that she might sell them to us if we asked. Our concerns are, is this normal practice for this area? Should we buy the house or not? do we have anything to worry about or be concerned about if we buy the home and do not have mineral rights? Can anyone drill, mine or otherwise enter or damage or property or home if she later sells or leases the mineral rights to someone else? We lived in Tucson and have seen farmers lose their land to mining and one whole town that is now gone from mining, because they just take away the land?? so we are worried if we buy the house and don't own the mineral rights that someone could come onto our property and ruin it or devalue it by mining, drilling or digging or similar. Does Colorado have laws to prevent this when a home is sold as a residential property of this size? would they have to compensate us if they did damage or do anything on the property? What are our rights? Can we refuse for people to come onto the property without our permission? And if we offered to buy her mineral rights, who handles the sale, what kind of documents are needed to do the transfer and what would be a reasonable price to pay for those mineral rights so we could buy them from the seller of the property?
We are gravely concerned and not sure what to do? We are not sure if we are worried over nothing or if this is something we should be deeply worried about. Thank you in advance for any assistance you can provide.
Thanks for directing your questions to me. I hope to be able to help you. I'll answer your questions in the order they are asked.
Is this a normal practice for this area (to sell surface land and keep the mineral rights)? Yes, it is common in every state that allows "severance" of mineral rights from surface rights.
Should we buy the house or not? The exploration and drilling for oil and gas cannot disturb your occupancy of the home, or any part of your surface land or water rights, without the oil company incurring tremendous financial liability. Oil companies take that liability very, very seriously. That said, the Seller might be more inclined to sell all or a part of her mineral rights to you if you indicate that it might be a "deal breaker" if you don't get at least part of her mineral rights.
Do we have anything to worry about or be concerned about if we buy the home and do not have mineral rights? No. Drilling technology today allows an oil company to drill a well from a surface location up to 3 (or more) miles away from your house and drill underneath you many thousands of feet without you ever knowing it or feeling it in any way.
Can anyone drill, mine or otherwise enter or damage our property or home if she (the Seller) later sells or leases the mineral rights to someone else? No one will be allowed to drill a well on your property, because you have a dwelling on it. This past February, Colorado passed a new law requiring surface operations for drilling to be a minimum of 1,000 feet from a dwelling AND the oil company must use devices to capture emissions and minimize noise. All of your property lines are less than 1,000 feet from the house, so it's impossible for a well to be drilled on your property because of this new law.
...Farmers lose their land to mining and one whole town that is now gone from mining, because they just take away the land?? Mining for coal and other hard minerals is totally different than drilling and production of oil and gas. Under no circumstances would the Seller's mineral rights allow her to "lease" to a company the right to come in and use or destroy any part of your property or house to do the kind of mining you're talking about: surface mining. The lawsuit you would automatically win would make you instant multi-millionaires.
Does Colorado have laws to prevent this when a home is sold as a residential property of this size? Yes--several, and the most recent one is the one passed back in February that I told you about above.
Would they have to compensate us if they did damage or do anything on the property? Yes, and the amount of compensation you could be awarded would be significant.
What are our rights? You have the right to permit or deny access to the surface of any part of your property for any drilling/producing activities, such as a right-of-way to drive across, or an easement to lay a pipeline. A ROW Agreement or an Easement Agreement each provide for periodic payments (amount negotiated by you) to you for your permission for these activities. You also have the right to grant or refuse the use of water from the land. Water rights belong to the surface owner, not the mineral rights owner. So the driller is not allowed to use any water without getting a Water Use Agreement from you. Also, they are not permitted to inject salt water produced along with the oil/gas back into the ground under your property without getting a Salt Water Injection Agreement from you. Both of these types of agreements contain financial obligations to pay you a negotiated amount of money for every gallon of water used or injected.
Can we refuse for people to come onto the property without our permission? Yes, absolutely. Colorado does not have laws making mineral rights superior to surface rights the way we do here in Texas. If they enter your property without permission they will be trespassing, and again, you have strong basis for a very successful lawsuit. So they must negotiate an agreement with you, and pay you a signing bonus for the agreement (and periodic rental payments, if you negotiate them).
And if we offered to buy her mineral rights, (1) who handles the sale, (2) what kind of documents are needed to do the transfer and (3) what would be a reasonable price to pay for those mineral rights...? (1) Your real estate agent can handle the sale, or you can hire an attorney. (2) A Mineral Deed or Warranty Deed with the correct language describing the mineral rights being transferred. (3) The price is fully negotiable, but you might consider going to the courthouse deed records, finding a sale of mineral rights 6 months to a year ago somewhere in your general area used as collateral in a loan, and looking at the loan amount. Divide the loan amount by the number of net acres mortgaged, and you will get a ballpark idea of the amount per acre being currently paid for mineral rights in your general area. If there is a lot of successful wells currently producing in your area, you can expect the mineral rights to be worth as much as thousands of dollars per net acre.
My advice would be to make an appointment with an attorney who has experience in oil and gas transactions (mineral rights transactions) and pay only for a consultation. Tell him/her your concerns and get some more detailed advice on your options in this transaction. Good luck!