Chapter 42 - § 42.4 • CLASSIFICATION OF MINERAL, ROYALTY, AND LEASEHOLD INTERESTS

• Jurisdiction: Colorado

§ 42.4 • CLASSIFICATION OF MINERAL, ROYALTY, AND LEASEHOLD INTERESTS

Two methods of classification of mineral, royalty, and leasehold interests have been employed by the courts as a tool in the adjudication of legal controversies. These include: (1) the classification of the interest as realty property or as personal property; and (2) the classification of the interest as corporeal or incorporeal. Williams & Meyers, supra at § 208.

§ 42.4.1—Classification as Real or Personal Property

The types of interests that are considered here, being a fee mineral interest or the associated interests in an oil and gas lease covering a mineral interest, are clearly interests in land. Id. at § 212. However, an interest in land may be classified as real property (real estate) or as personal property. At common law, the basis for distinguishing personal from real interests in land was duration. If the interest had the duration of a freehold estate, it was real property or real estate; if it had the duration of a non-freehold estate, it was a chattel real, a personal property interest in land. Whether an interest is classified as real or personal property is unrelated to whether the interest is classified as corporeal or incorporeal.

Classification of a mineral interest as real or personal property varies by jurisdiction. Generally speaking, the laws of the state in which the mineral interest is located dictate whether the interest is classified as real or personal property. Id. at § 213.9; see also Fed. Land Bank v. Bd. of County Comm'rs, 788 F.2d 1440 (10th Cir. 1986); Foster v. Kragh, 113 P.2d 666 (Colo. 1941). In nearly all jurisdictions, including Colorado, after oil and gas has been produced and severed from the land (or "accrued"), it is considered a personal property interest. See Williams & Meyers, supra at § 212.⁵ Prior to production, Colorado courts have described a severed mineral interest as an interest in real property. Id. at § 214.⁶ As noted above, following the execution of an oil and gas lease covering a fee mineral interest, additional interests are created in the lease, including the lessor's royalty interest, the lessee's working interest (or leasehold interest) and, in some situations, an overriding royalty interest. Colorado courts have similarly held that all such interests are interests in real property. Id.⁷ Consistent with these decisions, Colorado also has several statutes that define mineral interests and the associated interests in an oil and...