CHAPTER 14 EXAMINING TITLE TO COAL PROPERTY IN THE WEST
| Jurisdiction | United States |
(Sep 2007)
EXAMINING TITLE TO COAL PROPERTY IN THE WEST
Partner
Holland & Hart LLP 1
Denver, Colorado
Jean Feriancek is a partner in the Denver, Colorado office of Holland & Hart LLP, with the firm's Natural Resources Department and Minerals practice group. She has negotiated and documented numerous acquisitions, asset dispositions and financings of coal, gold, silver, uranium, trona, oil and gas and other mineral properties. Ms. Feriancek has substantial experience in examining title, and in conducting and managing title due diligence, in connection with mineral and oil and gas acquisitions and financings, as well as gas storage and pipeline projects. She also has prepared numerous oil and gas drilling and division order title opinions, including opinions relating to federal units. She counsels clients on mining, federal lease and land issues, and is experienced in negotiating, drafting and interpreting joint venture agreements, operating agreements and other contracts relating to the exploration and development of minerals and oil and gas. Ms. Feriancek frequently writes on topics relating to mining and oil and gas.
TABLE OF CONTENTS
A. Introduction
B. Determining the Land and Rights Covered by the Title Examination
C. Key Things a Title Examiner Should Know About Federal Coal Leases
1. Leasing Procedures
2. Terms and Provisions of Federal Coal Leases
3. Bonds
4. Diligent Development and Continued Operations
5. Logical Mining Units
6. Assignments
7. Liens and Security Interests
D. State Coal Mining Leases
E. Examining Title to Fee Land and Private Coal Leases
1. Ownership of Coal Estate
2. Does the Lessor Own the Surface Estate?
3. Fee Coal Leases
F. Other Significant Rights and Issues
1. Haulage Rights and Other Surface Uses
2. Cross-Mining Rights
G. SMCRA and Surface Owner Protection
1. Split Estates -- Surface Owner Consent for Lease Issuance
2. Permits to Mine and Related Surface Owner Protections
3. Effect on Rights Obtained
H. Coalbed Methane and Other Development Conflicts
I. Conclusion
Appendix 1 Comparison of Logical Mining Unit (Coal) and Unitization (Oil and Gas)
Appendix 2 Sample Analysis of Language of Grant or Reservation (Wyoming)
Appendix 3 SMCRA and Surface Owner Protection
A. Introduction
The process of reviewing title data and preparing a title opinion covering land associated with a coal mine or prospective coal mine is very similar to examining title to other leased mineral land. Rather than repeating the information contained in other papers, this paper will focus on issues relating to coal mining leases and coal mining operations that a title examiner should know about before preparing a title opinion on coal property. Since a large percentage of coal reserves in the Western states are located on federal public domain land or on land as to which the United States reserved the coal when the surface was patented, and because federal coal leases are subject to a complex regulatory scheme, this paper will focus heavily on federal coal leases. In the course of the paper, I also will provide some practical pointers for a title examiner who is preparing a title opinion on coal property.
As you probably know, there are two main types of coal mines in the Western states -- surface mines and underground mines. Most Western surface mines are large-scale operations that encompass thousands of acres and require capital costs of hundreds of millions of dollars to put into production. In surface mines such as those in the Powder River Basin in Wyoming, the overburden overlying the coal is removed with a dragline (among the largest of moveable machines built, and costing $50 million or more), the coal is mined, and then the land is reclaimed in one continuous operation. In connection with the mining operation, electric mining shovels are used to load the coal into large haul trucks to be hauled to a stockpile or crushing facility.
Underground mines also often encompass thousands of acres of land and have high capital costs, although there are some smaller operations. Many underground mines use the room and pillar method of mining, in which a network of "rooms" are excavated by continuous mining equipment, leaving unmined pillars of coal to support the mine roof. Retreat mining is a variation of the room and pillar method in which the coal pillars are removed and as much coal as possible is mined from them as the operation retreats, resulting in roof cave in. In other underground mines, a longwall mining system is used which supports the roof of the mine while a shearer mines the coal face. Longwall panels 400 to 800 feet wide and a couple of miles long, are mined in succession. After the coal is mined at an underground mine, it needs to be transported to the surface via a conveyor belt or some other method of transportation.
Most coal mined from both surface and underground Western mines is shipped by rail. Thus, the surface land controlled by the coal company typically includes land on which a rail spur and coal loadout facility are located.
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B. Determining the Land and Rights Covered by the Title Examination
One may be asked by a coal company to examine title to land to be leased for coal mining operations or in connection with expansion of a mine. In those cases, the coal company identifies the land to be included in the title examination.
Often, however, examination of title to coal property occurs in connection with acquisition or financing with respect to an existing mine. The reserves associated with a Western coal mine might encompass several federal coal leases covering thousands of acres in total, one or two state coal leases, and also fee coal leases. (There are exceptions, such as coal mines where all property rights are owned in fee.) In addition to coal mining leases, a coal company also may own fee title to surface lands or have significant agreements with the owners of the severed surface estate granting surface use rights needed for operation of the mine.
The title examiner needs to know at the outset whether the mine or proposed mine for which title is being examined is a surface mine or an underground mine. Also, very early in the process, the title examiner should seek to obtain copies of any maps available showing (1) the geographic scope of the coal estate leased or owned by the coal company, (2) surface ownership (particularly in the case of a surface mine), and (3) the planned mining progression for the next several years. It also is a good idea for the title examiner to ask which coal leases and surface tracts are considered important to operation of the mine. Surface tracts that are likely to be important include the surface overlying land to be strip mined in the next several years, the tract on which a portal for an underground mine is located, the land that is used for a coal loadout facility and rail spur, and the land on which a preparation plant and other facilities used in connection with operation of the mine are located. Review of maps and discussion of this information with the title examiner's client and other parties involved in the transaction can be useful in determining the scope of the title examination that will be undertaken.
In some cases, a coal mine title examination may cover all coal mining leases, lands owned in fee by the coal company and surface leased held by the coal company. In other cases, the parties may agree on a title examination more limited in scope. For example, a lender requiring a title examination might agree that title opinions are required only with respect to coal leases as to which mining is planned to occur within a specified number of years, or that coal leases as to which mining of the reserves has been completed may be excluded from the title examination.
There also are instances in which a title examiner may be asked to examine title to the coal company's water rights that are used in connection with the mining operation. That is, a purchaser or lender may want to obtain a level of comfort that the coal company's right to use water necessary for its operations is secure. Examination of title to water rights is beyond the scope of this paper.
C. Key Things a Title Examiner Should Know About Federal Coal Leases
Coal located on federal public domain lands or on private lands as to which the United States reserved the coal rights or all mineral rights is leased by the Bureau of Land Management
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("BLM") under the Mineral Leasing Act of 1920.2 The Federal Coal Leasing Amendments Act of 1976 ("FCLAA")3 substantially amended the coal leasing provisions in the Mineral Leasing Act, imposing a number of requirements that a title examiner should be familiar with. In preparing a title opinion on a federal coal lease, the title examiner needs to understand the statutory and regulatory scheme applicable to federal coal leasing, review the terms and provisions of the particular federal coal lease, and (1) either examine the BLM records or obtain a status report based on examination of such records, and (2) either examine the real property records of the county in which the property is located or obtain an abstract or land status report covering such records.
1. Leasing Procedures
FCLAA requires that all public lands available for coal leasing be leased competitively, with very limited exceptions.4 One exception allows the lessee of an existing federal coal lease to obtain a modification of that lease, with BLM approval, to add small tracts contiguous to the lease. Section 432 of the Energy Policy Act of 2005 increased the acreage limitation for a coal lease modification from 160 acres to 960 acres.5 BLM determines the fair market value of the estimated number of tons of mineable coal reserves contained in the tract to be added to the lease and requires the applicant to pay a bonus for those...
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