In most countries, if you strike oil or minerals on land you own, you do not automatically own the oil or minerals. Most governments have decided that a citizen may own the title to a piece of land, but the government owns anything of value underneath it.
One of the great things about the United States is that the owner of a piece of land owns whatever is underneath it. Thus, if you strike oil in your backyard, it is yours to sell, lease, borrow, or develop. Conversely, if you sell the land, then the new owner has the rights to any minerals.
In fact, only in the United States do private investors own a patch of property all the way to the center of the earth and into the sky. In this sense, real estate truly is the basis of all wealth. It includes everything on the land (buildings and structures), over the land (air rights), and under the land (minerals, oil, gas, water, thermal energy, etc.).
In Texas and Oklahoma, things get even better. In these two states, the ownership of the land and the ownership of the minerals can be separated. In other words, you can buy a piece of land, split off the minerals, sell the land without the minerals, and then go about mining the minerals, even though you no longer own the land. And in Texas, mineral rights are perpetual. These rights are the icing on the cake.
Baen has shaped mineral rights into an art form, and the icing on the cake (the mineral potential) has become the cake. The cost of drilling an exploratory well to see if there is any oil or gas can be enormous—millions of dollars. However, oil companies are willing to do this free of charge to you and give you a small percentage (12 to 25 percent royalty) of the output of the well should it be productive, in return for you giving them the contract to drill on your mineral rights, even if it is no longer your land.
Baen sits on many oil and mineral rights all over Texas. Some still need to be drilled to see if the wells will be productive. Some have been drilled and turned out to be dry (although new technology introduced by oil companies in the past five years ensures that some 90 percent of wells drilled these days are productive).
And others are quietly producing oil or gas with no overheads to Baen—no leaking roofs, tenant complaints, or other challenges associated with conventional commercial real estate investment.
I, too, have become an oil man, and while my income from this operation may not be spectacular, I get a certain satisfaction knowing that my share of oil that is pumped out of the ground is far greater than the oil I consume in vehicles.