Chapter 42 - § 42.2 • TERMS AND TYPES OF INTERESTS IN OIL AND GAS

• Jurisdiction: Colorado

§ 42.2 • TERMS AND TYPES OF INTERESTS IN OIL AND GAS

At first glance, the method for conveying a fee mineral interest does not appear different from the method for conveying a fee interest (surface and mineral interests) or a fee surface interest. Under common law principles, a mineral interest is considered a real property interest and, therefore, should be conveyed and/or reserved in the same method as a traditional fee interest, and should be recorded in the same real property records. However, in contrast to many traditional surface ownership interests, it is common for several parties to own the minerals underlying a single tract of land in differing percentages. In addition, following the execution of an oil and gas lease covering a mineral interest, additional interests are created that impact the mineral estate, such as a lessor's royalty interest and a lessee's working interest. While these interests collectively comprise the entire "bundle of sticks" of the mineral fee estate, rules impacting the ownership and/or conveyance of these varying interests can differ.

In the area of oil and gas law, specific terms are used to define the numerous types of oil and gas interests. Therefore, the best place to start is with a definition of some of these terms. Unless footnoted, the definitions listed below are those found in Martin & Kramer, Williams and Meyers, Manual of Oil & Gas Terms (LexisNexis Matthew Bender 2015) (hereinafter Manual of Oil and Gas Terms). In addition, this Chapter 42 includes supplemental language and definitions from its authors to further illustrate the meaning of the terms.

Fee Interest/Fee Simple Absolute

A fee interest is ownership of both the surface interest and the mineral interest, i.e., the entire "bundle of sticks." Black's Law Dictionary (10th ed. 2014). A fee simple absolute is the estate owned absolutely by a person and his or her heirs and assigns forever without limitation or condition. Through "severance," an estate in fee simple absolute can be severed, resulting in different ownership of the surface estate and the mineral estate.

Severance

Separation of a mineral or royalty interest from other interests (such as a surface interest) in land by grant or reservation. A mineral or royalty deed or a grant of the land reserving a mineral or royalty interest, by the landowner before leasing, accomplishes a severance, as does his or her execution of an oil and gas lease.

Surface Interest/Estate

Every right in real property...