Chapter 42 - § 42.6 • PROBATE ISSUES IMPACTING OIL AND GAS INTERESTS

• Jurisdiction: Colorado

§ 42.6 • PROBATE ISSUES IMPACTING OIL AND GAS INTERESTS

With the sizable increase in the amount of oil and gas production seen in recent years, probate issues surrounding these interests has become increasingly important in Colorado. Frequently, problems encountered in this area stem from situations where an individual dies owning an oil and gas interest in Colorado, but that individual's estate is never probated, or, if probated, the decedent's mineral interest is never conveyed from the estate to the decedent's heirs or devisees. Such a scenario was not uncommon because many individuals owning oil and gas interests in the past did not accord much worth to those minerals, often resulting in the failure to account for these interests through probate. However, the failure to properly probate oil and gas interests in the past can have significant implications in the context of modern oil and gas operations because — depending on the particular facts involved — a considerable amount of uncertainty might exist as to who the current mineral owners are, what percentages they own, and whether their title to the minerals is sufficiently marketable. This uncertainty must be resolved to ensure that oil and gas leases are obtained from the proper individuals and that production proceeds from drilling operations are distributed to these individuals in the correct percentages. Left unresolved, an oil and gas company conducting drilling operations may also be susceptible to trespass claims if leases are acquired from the wrong parties.

This section discusses some of the factors that modern practitioners should consider when dealing with the succession of oil and gas interests through inheritance or devise, as well as some statutory tools that are at the practitioner's disposal to avoid or cure some of the problems that can result from the failure to properly probate mineral interests.

§ 42.6.1—Colorado Probate Code

The law of a decedent's domicile at the time of death governs the descent and distribution of his or her personal property, whereas the laws of the state where the decedent's real property is located govern its descent and distribution. See, e.g., Blatt v. Blatt, 243 P. 1099 (Colo. 1926); Patch v. Patch-Smith, 113 Colo. 186 (Colo. 1945); Foster v. Kragh, 113 P.2d 666 (Colo. 1941); Reed v. McLaughlin, 265 P.2d 691 (Colo. 1954); In re Wimbush, 587 P.2d 796 (Colo. App. 1978). As previously discussed, mineral interests in oil and gas, as well as the related royalty and leasehold interests in an oil and gas lease, are considered real property in Colorado. Therefore, one must look to Colorado law in determining the descent of a decedent's mineral interest located in this state.

In 1974, the Colorado General Assembly adopted the Colorado Probate Code, which is similar in substance to the Uniform Probate Code, with some additional deletions and changes. C.R.S. §§ 15-10-101 through 15-17-103; see also In re Estate of Hall v. Hartley, 948 P.2d 539, 541 (Colo. 1997). As a result, Colorado courts often turn to the committee comments of the Uniform Probate Code when interpreting the Colorado Probate Code. See, e.g., Scott v. Scott, 136 P.3d 892, 897 (Colo. 2006). The policies underlying the Colorado Probate Code include the simplification and clarification of probate law, to discover and make effective the intent of a decedent in distribution of his or her property, the speedy and efficient settlement of estates and their distribution to successors, and the uniformity of probate law among jurisdictions. C.R.S. § 15-10-102; see also In re Estate of Hall, 948 P.2d at 541.

When operating under the Colorado Probate Code in the context of oil and gas interests, there are a few important things to note. First, upon death, an individual's oil and gas interest automatically devolves to those devisees entitled to receive such property by virtue of the decedent's last will, and in the absence of testamentary...