CHAPTER 14 MINERAL TITLE UNDER WATER BODIES, RAILROADS, STREETS, AND HIGHWAYS

• Jurisdiction: United States

Nuts & Bolts of Mineral Title Examination
(Apr 2015)
CHAPTER 14
MINERAL TITLE UNDER WATER BODIES, RAILROADS, STREETS, AND HIGHWAYS
Heidi Hande
Senior Attorney
QEP Resources Inc.
Denver, Colorado
Amy Mowry
Attorney
Shanor & Collins LLC
Denver, Colorado

[Page 14-1]

HEIDI HANDE is a Senior Attorney at QEP Resources, Inc. (NYSE: QEP and QEPM), headquartered in Denver, CO. QEP is a leading independent natural gas and crude oil exploration, production, and midstream company focused in the United States. While in private practice, Heidi was lucky enough to work with smart lawyers in offices including a solo practice, a 100+ attorney office, and a few boutiques, on many challenging projects for great clients. Heidi graduated from the University of Wyoming with degrees in Environment and Natural Resources/Psychology and Political Science. After working for a non-profit providing dispute resolution services, she returned to UW and received a juris doctorate in 2006. Heidi is licensed in Wyoming, Colorado, and her home state of North Dakota. She is a past President of the Denver Association of Oil and Gas Title Lawyers, participates in RMMLF Special Institutes, and is a member of the Editorial Board for the Rocky Mountain Mineral Law Foundation Journal.

AMY MOWRY practices in the area of natural resources and energy law, with an emphasis on oil and gas title examination and transactional matters. Amy has advised clients on a variety of surface and subsurface issues in developing and safeguarding their mineral rights. Amy is licensed in Colorado, Wyoming, North Dakota, and Montana, and has prepared all types of title opinions throughout the Rocky Mountain region. Prior to law school, Amy was a graduate instructor of English Language and Literature and also served as a volunteer University Teacher of English as a Foreign Language with the United States Peace Corps in El Jadida, Morocco.

[Page 14-2]

TABLE OF CONTENTS

I. Navigable Rivers

A. Federal Test for Navigability

B. The Missouri, Clark Fork and Madison Riverbeds in Montana

C. Navigable Rivers on Established Reservations

D. Whether the Missouri River in North Dakota is an Exception to the Equal Footing Doctrine

E. The Bathtub Ring

F. The Disputed Bathtub Ring

II. Non-Navigable Rivers

A. Movement by Accretion and Reliction or Avulsion

B. Effect of Movement by Accretion and Reliction or Avulsion on Severed Minerals

III. Lakes

IV. Islands

V. A Red Herring: The Right to Float Upon the Water Itself

VI. Railroads, Highways and Platted Townships

A. The Pacific Railroad Acts

B. Post-1871 Policy Shift

C. Patent Title Issue: Railroad Patents

D. Leasing Title Issue: A Senior Railroad Right-of-Way Leasable Under the 1930 Act

E. Fee Deeds to Railroads

F. Grants of Railroad Easements

G. Mineral Ownership Title Issue: Easement or Fee?

H. Deeds for Highway Purposes

I. Plats, Streets and Alleys

J. Federal Railroad Right-of-Way Grants: Recent Decisions

VI. Drilling Title Issue: Competing Claims and Protective Leases

A. Navigable Rivers

B. Non-Navigable Rivers

VII. Division Order Title Issue: A Moving River and Different Royalty Rates

VIII. Curative Requirements for Boundary Line Disputes

IX. Curative Requirements for Agreements Among Partners

X. Conclusion

[Page 14-3]

Mineral Title Under Water Bodies, Railroads, Streets and Highways

As mineral development in the Rocky Mountain region continues to expand, landmen and mineral title examiners increasingly encounter the challenges of examining title to lands under water bodies, railroads and platted townsites. This paper provides an overview of the legal framework relevant to these basic issues and suggests curative options for key leasing, drilling and division order issues in mineral title examination.¹

As discussed herein, county records, lease provisions and deed language, as well as prevailing cases and statutes can complicate ownership determinations. Avoiding the pitfalls set by peculiar surface features requires a title examiner's careful analysis of the particular issue and its legal framework. A wrongly leased, pooled or paid royalty owner could argue trespass or seek to be paid on a full lease basis, as opposed to being paid as diluted by their pro-rata share of the well, and bring an action under the state's royalty payment act for additional interest and attorneys' fees. A rich fabric of resources is available to landmen and mineral title examiners seeking to protect their company or client in resolving uncertain mineral ownership issues, many of which we have consulted for purposes of preparing this paper and in our practice.²

I. Navigable Rivers

A. Federal Test for Navigability

As explained by the United States Supreme Court in U.S. v. State of Oregon in 1935, "[s]ince the effect upon such lands is the result of a federal action in admitting a state to the Union, the question, whether the waters within the state under which the lands lie are navigable or non-navigable, is a federal, not a local, one."³ "If the waters were navigable in fact, title passed to the state upon her admission to the Union."⁴ The federal government holds title to navigable rivers in trust for the states so that they may enter the Union on equal footing.⁵ "But, if the waters [were] not navigable in fact, the title of the United States to land underlying them remains unaffected by the creation of the new state."⁶ The federal test for navigability, from which state case law on the subject tends to flow, was first stated by the United States Supreme Court in The Daniel Ball. The Court explained:

[t]hose Rivers must be regarded as public navigable rivers in law which are navigable in fact. And they are navigable in fact when they are used or are susceptible of being used in their ordinary condition, as highways for commerce, over which trade and travel are or may be conducted in the customary modes of trade and travel over water. ⁷

Navigability case law has changed since The Daniel Ball to find increasing less trade and travel activities necessary to fulfill the requirement. The Ninth Circuit, for example, has been so generous as to accommodate a finding of navigability based on the intermittent transportation of logs.⁸

[Page 14-4]

As discussed below in greater detail, with regard to leasing, unless thorough research reveals that the river under examination, at the point it traverses the lands under examination, has been judicially determined to be navigable or non-navigable, landmen and mineral title examiners should seek protective leases.

One additional note of caution: states can and do "flip-flop" on their positions of navigability.⁹ Reliance on an attorney general's opinion, IBLA decision, years of industry custom or dicta does not prohibit a state from later asserting title to riverbeds based on navigability claims.¹⁰ While at one time, commentators suggested for the most expedient result, landmen and mineral examiners should inquire of the state land board whether they claim the riverbed lands.¹¹ Conservative landmen or mineral title examiners should also consult with the company or client before deciding to make such contact as there may be a larger business strategy at play.

B. The Missouri, Clark Fork and Madison Riverbeds in Montana

One area of great debate is mineral title to the beds and banks below the Missouri River at various points in North Dakota, Montana and the Fort Berthold Indian Reservation. On February 22, 2012, the United States Supreme Court reversed and remanded the Montana Supreme Court in a 9-0 decision in the case of PPL Montana v. Montana,¹² rejecting a liberal construction of the navigability for title rule under the equal-footing doctrine permitting interruptions in navigability to allow portages and upholding a segment-by-segment approach. The Missouri River is the longest river in the United States and the Court explains it was "once described as one of the most 'variable beings in creation,' as 'inconstant [as] the action of the jury.'"¹³

PPL Montana operates 10 hydroelectric projects permitted by the Federal Energy Regulatory Commission on five waterfalls on 500 miles these rivers, some of which have been operating for over a century. In 2003, a Montana citizens group sought rents to these beds and banks as state school lands on behalf of Montana's schoolchildren.¹⁴ The State of Montana intervened and the federal suit was dismissed for lack of diversity jurisdiction. PPL Montana, among other power companies, sued in state court to bar the State of Montana from seeking rent. The trial court granted summary judgment to the State of Montana holding it had the superior claim. PPL Montana owed the state $42 million in back rent from 2000 to 2007, alone. Whether the Montana Board of Land Commissioners would lease the lands the PPL Montana, and others, and on what terms remained an open matter.¹⁵ The Montana Supreme Court affirmed.

Before the Court, both the State of Montana and PPL Montana based their arguments, in part, upon the 1805 journals of Meriwether Lewis and William Clark to support or refute navigability on the rivers. The Court painted a picture of the majestic journey including the "circuitous land route by means of portage" required to sidestep the five waterfalls constituting the Great Falls, the grandest of which was 87 feet tall. The Court began its legal analysis by clarifying the application of navigability for title under the equal-footing doctrine from other navigability cases. The relevant inquiry for navigability for title is into that particular segment's navigability, not its interstate commerce, in the water's "natural and ordinary condition," at the time of statehood.¹⁶ The segment-by-segment approach reduces potential public and private

[Page 14-5]

ownership conflict and is consistent with the manner in which non-navigable waters are allocated, or so the Court reasoned.

The shoring up of the...