CHAPTER 18 TITLE ISSUES PRESENTED BY SEVERED MINERALS
| Jurisdiction | United States |
(Sep 2007)
TITLE ISSUES PRESENTED BY SEVERED MINERALS
Attorney
Bjork Lindley Little P.C.
Denver, Colorado
Chris Hayes is Of Counsel with Bjork Lindley Little P.C. in Denver. His practice emphasizes natural resources land use and administrative issues, federal royalties, mining and oil and gas environmental law, mining and oil and gas transactions, and business advice to nonprofit professional organizations.
Chris has been a trustee of the Foundation since 2002, and he has authored or co-authored numerous articles for Annual and Special Institutes since 1994. He currently serves on the Special Institutes Committee, and chaired the Mining Section for the 47th Annual Institute in 2001.
Chris earned an honest living as an oil and gas exploration geologist before leaving that profession and attending law school, having earned a B.S. in Geology from the University of Wisconsin at Madison and an M.S. from Cornell University in Ithaca, New York. He received his J.D. from the University of Colorado School of Law.
I. Introduction
Severed Mineral interests, or "Split Estates," present a number of challenges to the title lawyer, abstractor, and landman. The first is the simple difficulty of tracing two (or more) chains of ownership (one in the surface estate, one in the minerals). The document creating the severance and all subsequent documents conveying either estate have to be reconciled to determine what rights lie where.
Beyond that, the relative rights of surface and mineral owners may be affected by development agreements, surface use agreements, damage settlements, and legislation. There may be subsequent severance of one type of mineral from another, with separate leases for, say, coal and oil and gas; or trona and oil and gas; or sand and gravel. All must be reconciled and the priority of interest worked out.
The issues of access and use of the surface estate to support production from the mineral estate are affected by the title documents. There are common law and statutory rules governing this, of course, but documents in the chain of title will likely affect the conclusion of any title review.
Lastly, the source of federal title to lands may have a profound effect on the relative rights of the owners of the severed estates.
The big issues of split estates, dominance, scope of the easement for use of the surface, access to lands to support production from the mineral estate, correlative rights in multiple minerals, obligation to pay surface damages, all may be addressed in record documents. Further, in the original deeds or leases, or in subsequent modifications, you will (or may) find agreements that will give answers, or point to arguments affecting the answer, to all those issues.
II. Dominance of the Mineral Estate
A. TRADITIONAL RULE -- THE MINERAL ESTATE IS DOMINANT OVER THE SURFACE ESTATE.
1. The mineral estate enjoys an implied easement to use of the surface, as is reasonably necessary, to facilitate access to and extraction of minerals. This is the basic common law in all states.
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2. The obligation to pay damages, under traditional jurisprudence, extends only to unreasonable use of the surface amounting to trespass or negligence, or when express lease language provides for such payment.
i. When examining leases, look for language, such as "damages for growing crops" or "damages to value of the surface" or similar language.
ii. These types of provisions create an obligation to make payments for categories of damages, and failure to pay may create a potential default condition.
iii. Canny landowners may try to void leases.
3. Mineral Estate dominance leads to a number of corollaries:
i. Mineral owners have a reasonable right of access to the surface;
ii. They must show "due regard" for the rights of the surface owner when exercising their own rights;
iii. The mineral interest owner's interest in the surface is an easement, which is a property right, but it is appurtenant to the mineral estate, not in gross, and it is limited like all easements by the actual requirements of use.
B. MODIFICATIONS TO THE TRADITIONAL RULE
1. Most mineral leases contain express grants of access to the surface, to explore for, develop, and produce minerals. In the absence, there is an implied right.
i. Leases often have no surface occupancy ("NSO") provisions that restrict the right of access to specified parcels.
ii. If a tract includes an NSO parcel, it is necessary to review adjoining parcels to determine whether any surface access is provided for or available. An NSO parcel without access creates a significant problem. If the NSO provision is imposed by only one undivided interest owner holding less than 100%, then there is a risk that the lessee may not be able to meet its lease obligations to the other lessors/interest owners.
iii. Such "NSO" provisions may be more common in federal leases than private mineral deeds.
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2. When examining a lease from owners of severed minerals, you need to be certain that the mineral owner/lessor retained all the rights in the severance deed that s/he is purporting to grant in the lease.
i. For example, if a mineral lessor gives a lease containing language that purports to grant access to explore for and develop oil and gas and other minerals, you need to confirm that the original deed by which minerals and surface were severed, does not restrict surface use.
ii. Severance deeds that restrict access, or otherwise limit the use of the surface to explore for or develop minerals, may make it difficult or impossible to develop the minerals. A subsequent lease cannot remedy this problem without ratification by the surface owner.
3. Lease restrictions on access must be carefully reviewed and understood; if you have not matched the deed and the lease, then there is real potential to acquire a lease right that has no corresponding right to exploit the mineral estate.
C. JUDICIAL MODIFICATION OF THE TRADITIONAL RULE
1. The mineral owner's right to enter on the surface under the implied easement has evolved over the years.
2. For much of the 20 th century, the implied easement of access was interpreted to give the lessee the right to use the surface "to the extent reasonably necessary for the purpose of drilling and producing and removing the oil and gas." 1
3. The concept of reasonable necessity acts as a constraint on the mineral owner's exercise of the easement and is a test for determining whether the mineral owner's use of the servient surface estate has crossed over the line and into the tort of trespass or negligence. 2
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...4. The rule has evolved to the point where the modern "accommodation doctrine" as articulated in Getty v. Jones 3 and Gerrity v. Magness 4
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