Oil and Gas Title Searches and Notice Under the Surface Development Notification Act

• Publication year: 2002
• Pages: 113

31 Colo.Law. 113 Colorado Lawyer 2002.

2002, October, Pg. 113. Oil and Gas Title Searches and Notice Under the Surface Development Notification Act

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113

Vol. 31, No. 10, Pg. 113

The Colorado Lawyer
October 2002
Vol. 31, No. 10 [Page 113]

Specialty Law Columns
Real Estate Law Newsletter
Oil and Gas Title Searches and Notice Under the Surface Development Notification Act
by Richard H. Bate

This month's column is co-sponsored by the CBA Real Estate Law Section and the CBA Environmental Law, Water Law and Mineral Law Sections

Column Editors

Natural Resource: Maki Iatridis of Vranesh and Raisch LLP, Boulder (Environmental) - (303) 443-6151; Michael F. Browning of Porzak, Browning & Bushong LLP, Boulder (Water) - (303) 443-6800; Gus Michaels, Boulder (Mineral) - (303) 442-3688

Real Estate: Thomas J. Todd and Jesse B. Heath of Holland & Hart LLP in Aspen - (970) 925-3476

About TheAuthor:

This month's article was written by Richard H. Bate, Denver, a former executive director and honorary trustee of the Rocky Mountain Mineral Law Foundation, who practices oil and gas law - (303) 620-9401, richardhbate@ msn.com.

This article analyzes the requirements and presumed purposes of the Surface Development Notification Act as they relate to specific types of oil and gas interests and suggests conclusions as to who should receive notice.

Editor's Note: Because the author's experience under the Act focuses on the Greater Wattenberg Area, this article often gives examples of oil and gas interests in that area. However, the Act applies statewide and affects other locations where surface development is moving into areas of oil and gas activity.

Surface development has been steadily encroaching on areas where oil and gas production has been well established for many years. As a result, conflicts have increased between surface development and drilling and production of oil and gas. Such issues have been particularly prevalent in locations such as La Plata County and the Greater Wattenberg Area ("GWA") in Adams and Weld Counties.1

Initially, land developers were somewhat slow to recognize the existence of severed mineral interests. Developers also were not always aware that although they might have acquired title to both surface and minerals, oil and gas leases still might be held long past the end of their primary term due to ongoing production.2 Thus, oil and gas lessees often were not receiving notice of applications for approval of subdivisions and other land use actions that could result in interference with existing or future oil and gas operations.3

H.B. 01-1088, effective July 1, 2001, enacted the Surface Development Notification Act ("Act").4 The Act was designed to provide an effective inducement to developers and local governments to give advance notice of land use actions to mineral owners and lessees by providing certain safe harbor protections to complying applicants. Specifically, the Act limits the ability of a mineral interest owner to obtain equitable relief and punitive damages by preventing collateral attack on land use orders.

This article reviews the notice requirements promulgated by the Act and gives practical advice on areas in which notice requirements are vague. This article should be useful to attorneys representing oil and gas interests, as well as real estate attorneys representing developers and real estate owners in mineral production areas.

Listings and the Act

As set forth in CRS § 24-65.5-104(2), the Act provides:

[I]n determining those mineral estate owners entitled to notice pursuant to [other sections of the Act], any surface owner required to provide such notice shall be entitled to rely on a listing of such parties prepared by an attorney licensed to practice law in the State of Colorado, a title insurance company licensed to do business in the State of Colorado, or a title insurance agent licensed in such capacity by the State of Colorado.5

Attorneys with experience as oil and gas title examiners have been providing these "listings" - actually limited mineral title opinions - to surface owners since the Act's effective date of July 1, 2001. During more than a year of experience with this process, some questions have arisen as to which oil and gas interest owners should be included in the listings. The Act provides some guidance in this regard.

The Act defines "mineral estate" as ". . . interest in real property that is less than the full fee title and that includes mineral rights as shown by the real estate records of the county in which the real property is situated."6 A "mineral estate owner" is "... the owner or lessee of a mineral estate underneath a surface estate that is subject to an application for development."7 Although these definitions are quite specific, some questions have arisen as to how literally they should be interpreted.

According to the legislative declaration, the Act's purpose is to entitle mineral estate owners to the notice specified in CRS §§ 31-23-215 or 34-50-106(14).8 Nevertheless, it is obvious that another purpose is to make sure that mineral estate owners are not deprived of property without procedural due process of law.9

Standards for Notice
Used in This Article

Although listing the name and address of every interest owner in the chain of title might at first seem reasonable, such a list easily may become long and unwieldy. Moreover, CRS § 31-23-215, as amended by the Act, requires a search for addresses "...in a telephone or other directory of general use in the area of the property or on the tax records of the municipality or county." In the GWA and other areas, a search for dozens of such addresses would be time consuming because at least three general use directories exist. Further, a search of the tax records of the Assessor, the Treasurer and, in some cases, the municipality, could be laborious.10

This article analyzes various types of interests that should be listed, as well as those interests that should not be listed, depending on the definitional criteria used. The three notice standards ("Standards") used in this article, in decreasing order of strictness, are:

Standard 1: Notice to all persons within the literal meaning of the Act.

Standard 2: Notice to all persons who have a right to drill.11

Standard 3: Notice to all persons whose economic interests would be affected by drilling restrictions.

Standards 2 and 3 are included because the owners of these interests may be entitled to procedural due process, as discussed below. Table 1, which summarizes the conclusions regarding notice, follows.

Severed Mineral Interests

Under all three Standards, owners of severed mineral interests would be entitled to notice. The owner of a severed mineral interest that is committed to an oil and gas lease granting the exclusive right to drill to the lessee should be entitled to notice under Standard 1. Although not currently entitled to notice under Standard 2, such an owner has a reversionary interest following the expiration of the lease pursuant to which it will be entitled to drill in the future.

Non-Executive Mineral Interests

The owner of a severed mineral interest, as to which the exclusive right to grant oil and gas leases is in the surface owner, technically would be entitled to notice under all three Standards. This is because the owner would have the right to drill when its interest is not committed to an oil and gas lease.

Life Tenancies

Where the severed mineral interest is held as a life estate and remainders, unless the open mine doctrine12 applies, or the life tenant specifically has been given or reserved the right to execute oil and gas leases, neither the life tenant nor the remaindermen may lease or drill without the participation of the other. Nonetheless, because they may do so collectively,13 both the life tenant and the remaindermen should receive notice. If the remainders are contingent and a trustee has been appointed to execute oil and gas leases,14 the trustee probably should receive notice, at least under Standard 2, because it has the authority to authorize drilling.

Successive Reservations of Fractional Mineral Interests

The Duhig Rule15 applies in Colorado. The Colorado version of the Duhig Rule holds that where there are fractional mineral reservations in successive warranty deeds, the second and successive deeds often do not reserve any additional interest. Unless such succeeding...