CHAPTER 14 SURFING THE TITLE WAVE -- TRICKY TITLE ISSUES FOR NEW TITLE ATTORNEYS

• Jurisdiction: United States

Mineral Title Examination
(Feb 2012)
CHAPTER 14
SURFING THE TITLE WAVE -- TRICKY TITLE ISSUES FOR NEW TITLE ATTORNEYS
Gregory J. Nibert ^*
Hinkle, Hensley, Shanor & Martin L.L.P.
Roswell, New Mexico

GREGORY J. NIBERT is a resident partner in the Roswell, New Mexico, office of Hinkle, Hensley, Shanor & Martin, L.L.P., and is assigned to the firm's Oil and Gas Department. Mr. Nibert's practice is primarily limited to oil and gas law, including title examination, financing, contract preparation, acquisitions and divestitures, division orders, oil and gas administrative agency matters and all other aspects of oil and gas law. He is a New Mexico Board of Legal Specialization recognized specialist in oil and gas law. Mr. Nibert is the annual update author of Chapter 18, "Unitization and Communitization," of the Law of Federal Oil and Gas Leases and has presented papers and speeches to a number of organizations on oil and gas law topics, including the Rocky Mountain Mineral Law Foundation ("RMMLF"); American Association of Professional Landmen ("AAPL"); the State Bar of New Mexico Section of Natual Resources, Energy and Environmental Law; The University of Texas School of Law Oil, Gas & Mineral Law Institue; New Mexico Landmen's Association; Tulsa Landmen's Association; National Association of Division Order Analysts; Southwestern Association of Division Order Analysts; and the Houston Bar Association. Mr. Nibert, T. Calder Ezzell, and Mona Binion prepared a paper titled "We Know What It says But How Does It Work, Practical Solutions to Tough Operational Questions Under the Form 2 Unit Operating Agreement" for the 54th Annual RMMLF Institute held in July, 2008. He recently spoke at the Mineral Title Examination special institute of RMMLF and presented a paper titled "Title Curve Balls Thrown by Units." Mr. Nibert was the Co-Chair of the Federal Onshore Oil and Gas Pooling and Unitization 2006 RMMLF special institute and presented a paper "The Impact of Unit Events on a Federal Oil and Gas Lease" and is a speaker at the RMMLF's Federal Oil and Gas Leasing Short Course. An article jointly prepared by Mr. Nibert, George Snell, Tim Dowd, Tom Daily, John McDavid, and Richard Revels: "A Comparative Review of Oil and Gas Law in Texas, Oklahoma, Arkansas, New Mexico, Mississippi, and Louisiana" published in Landman, November/December 2002 by the AAPL, was selected as the Best AAPL Published Article at the AAPL annual meeting in June 2003. Other papers for RMMLF special institutes include: "Communitization of Federal Lands: An Overview," "Final Decisions and Appeal Procedures in Drainage Cases," and "Non-Record Title Considerations." His paper for the Center for American and International Law (formerly the Southwest Legal Foundation) Annual Institute on Oil and Gas Law in 2002 was "Federal Unitization: Onshore Oil and Gas Unit Agreements for Unproven Areas" 53 Inst. Oil & Gas L. 10 (2002). Mr. Nibert is active in the Independent Petroleum Association of New Mexico and serves on its Board of Directors and is a past Vice President, and the New Mexico Oil and Gas Association. He is a Trustee of the Rocky Mountain Mineral Law Foundation, and served as Chair of the Oil and Gas Section of the 46th Annual Rocky Mountain Mineral Law Institute for 1999-2000, and Chair of the Landman's Section of the 38th Annual Rocky Mountain Mineral Law Institute for the year 1991-92. He also serves as a Research Fellow of the Southwestern Legal Foundation. Mr Nibert served on the Board of Directors of the Section of Natual Resources, Energy and Environment Law of the State Bar of New Mexico from 1985 to 1992, and 1996 to 2004, and was Chair of the section for the year 1990-1991. He is a member of the State Bar of New Mexico, Chaves County Bar Association (current Treasurer), New Mexico Landman's Association, and American Association of Professional Landmen. Mr. Nibert is active in the community and serves as a Chaves County Commissioner, was President of the Roswell Chamber of Commerce for 2007-2008, currently serves on the Chaves County Economic Development Foundation Board of Directors and Executive Committee, and was Chairman of the Chaves County Republican Party for 2001-2003. He was also District Chairman of the Rio Hondo District, Conquistador Council, Boy Scouts of America from 1997 to 2004 and is an Assistant Scout Master for Troop 2 in Roswell. He is a past member of the Roswell Independent School District Board of Education. He is a member of the Roswell Kiwanis Club and is a past Lt. Governor and a Distinguished Past President. A Native of Roswell, Mr. Nibert received a Bachelor of Arts degree from the University of New Mexico in 1980 and a Juris Doctor Degree, cum laude, from Pepperdine University in 1983, where he was Editor in Chief of the Pepperdine Law Review for 1982-83. Mr. Nibert has been associated with the Hinkle Law Firm since 1983, and has been a partner in the firm since 1988.

This paper provides an overview of several complicated title issues that frequently arise and create traps for unsuspecting title examiners.¹ Specific state law must be reviewed as this paper does not provide a state by state analysis of how each state addresses the issues.

I. Fractional Interests and Mineral Acres

Conveyances of oil and gas interests often take the form of either a reference to mineral acreage or fractional interests. A mineral acre is the entire mineral interest underneath one acre of land.² Fractional interests are undivided interests in land or minerals that are conveyed in terms of fractions or percentages. For example, a deed could provide for one of the following:

an undivided 5 mineral acres in the NE¼ Section 1; or

an undivided 5/160 mineral interest in the NE¼ Section 1; or

an undivided 1/32 mineral interest in the NE¼ Section 1; or

an undivided 3.125% mineral interest in the NE¼ Section 1.

All four examples convey to the grantee the same undivided interest in the NE¼ Section 1, assuming Section 1 is a regular section containing 640 acres.

The transfer of an undivided interest by fraction or percentage conveys the undivided interest in the land described in the conveyance.³ Use of mineral acres can be helpful when there is uncertainty about the amount of land owned by the grantor or the amount of land in a

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tract. This protects the grantee if the tract is smaller and protects the grantor if the tract is larger than expected.⁴

A problem can be created if an instrument references both mineral acres and fractional interests in a grant or reservation. Using our above example, if grantor conveys the 5 mineral acres to the grantee and the NE¼ Section 1 is not a regular quarter section and actually contains 175 acres, then 5 acres is longer 5/160, 1/32, or 3.125% of the total acreage. Therefore, mixed use of these terms should be avoided as it may create an ambiguity. Courts treat this situation in a variety of ways. A court could declare the deed to be ambiguous and admit parol evidence of the parties' intent.⁵ A court could find either the mineral acreage or the fractional interest controls. It is best to be consistent by using either mineral acres or fractional interests, but not both, within a grant or reservation. An instrument that creates an ambiguity by utilizing both mineral acres and fractional interests, requires a title examiner to make a requirement in the opinion to secure a corrective instrument or a stipulation, with present words of grant, to clarify the parties' intentions as to the quantum of interest conveyed or reserved.

Additionally, a conveyance of a fractional interest can be a problem if the denominator is thought to be a true acreage of land, but is incorrect.⁶ Again, using our above example and knowing the grantor owned all of the minerals in the NE¼ Section 1, if the deed recited that it conveyed an undivided 5/160 mineral interest in the NE¼ Section 1 and the NE¼ actually contained 175 acres and not 160 acres, a question of intent arises. Did the grantor retain a 155/160 mineral interest, a 170/175 mineral interest, or a 31/32 mineral interest (175/175 - 5/160)? The general rule of construction that applies in the problematic situation is that the grantee acquires the stated fractional interest, so the grantee would gain when there is a surplus in acreage and lose when there is a shortage.⁷ Given this rule, when a deed conveys the whole of a tract and the description of the tract states the tract contains a number of acres "more or less," the grantor is deemed to have granted an interest in all of the land described, regardless of acreage.⁸

II. The Duhig Rule

It is not uncommon for a title examiner to face a situation where a grantor in a warranty deed owns the surface and an undivided mineral interest being less than the whole

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mineral estate. For example, grantor owns the surface and undivided 50% mineral interest in Section 1. Grantor then conveys to grantee by warranty deed Section 1, reserving unto grantor, his heirs, successors, and assigns, an undivided one-half interest in and to all oil, gas, coal, and other minerals in and under said land. Who owns the 50% mineral interest?

The Duhig Rule adds an element of certainty to mineral conveyances, because it protects the grantee when the conveyance is ambiguous.⁹ When faced with a situation of over-conveyance by warranty deed, courts generally apply the Duhig rule and deduct the over-conveyance from the grantor's interest.¹⁰ The Duhig Rule is made up of two sub-rules: (1) a warranty deed that does not specify the quantum of interest in the minerals being granted purports to grant 100 percent of the interest in the minerals; and (2) if the grantor of a warranty deed does not own enough interest to fill both the grant and the reservation, the grant must be filled first.¹¹

The effect of Duhig is that a grantor cannot grant and reserve the same mineral interest, and if a grantor does not own a...