Dormant Mineral Rights Archive - Attorney Blog | Natural Resources, Commercial Law

Archive for the ‘Dormant Mineral Rights’ Category

South Dakota Underground Trespass

Posted on: January 1st, 2018
by David Ganje

South Dakota courts have not to the date of this opinion piece adopted a definition, nor have the courts ruled on the civil wrong called ‘underground trespass.’ Yet going back to 1877 South Dakota territorial real estate law holds, “The owner of land . . . has the right to the surface and to everything permanently situated beneath or above it.” Beyond this definition of land ownership the legislature has not acted on the issue of underground trespass. Even though South Dakota has no case law on the subject, the state supreme court has a known preference for following a particular legal treatise when deciding legal cases. This treatise clearly defines civil trespass as a wrongful intrusion on one’s property committed on, beneath, or above the surface of the earth with an exception that relates to airspace intrusions.

I leave for another discussion whether the upstanding property-owning residents of Lead and the reputable denizens of Deadwood might, under modern law, be the victims of underground trespass because of the honeycombed labyrinth of old mining tunnels running every which way under the surface of these fine cities. In point of fact most incidents of underground trespass occur out on the plains.

How does underground trespass occur on the plains? Without belaboring a lot of examples, this might occur from underground pipeline leaks, leaking or corroded underground storage tanks, overzealous oil operators infringing a bit too far under unleased property, a so-called disposal well’s ‘waste fluids’ migrating beyond its permissible subsurface boundaries, and so forth.

Is a man’s subsurface his castle? Maybe. A Nebraska Court addressed the issue of subterranean trespass. The court held that the operator of an injection well could be liable if the damaged party could show that fluid migration harmed the damaged party’s ability to produce oil. The North Dakota Supreme Court has ruled that a claim in underground trespass may be trumped by a properly obtained force-pooling order from the state authority which oversees gas and oil operations. In the North Dakota case it must be noted that the claimant property owner did not allege any actual damage to his interests. That claimant was about as smart as the guy who takes a lady out on a date without enough pocket money to buy the coffee. A West Virginia court, in a case that was finally settled and dismissed, ruled that subsurface horizontal fracturing for minerals very close to a Plaintiff’s property line was to be considered underground trespass. The lesson is that modern society and the laws that follow it will consider the issue of trespass on more than just the surface of property.

In addition to underground trespass claims other types of legal claims based on subterranean intrusion are nuisance, negligence, or strict liability. The question then is: What could the actual damage be to subsurface property from such an intrusion? Answers to this include contamination of existing water rights, wrongful taking of a property owner’s mineral rights, contamination of surface soil productivity and degradation of an owner’s foreseeable rights to mineral extraction. I submit that these subsurface intrusions will – if they have not already – occur in the state. There will be much work for the courts to do.

David Ganje. David Ganje of Ganje Law Offices practices in the area of natural resources, environmental and commercial law. The website is Lexenergy.net

DON’T LOOK FOR THE GOLD, LOOK FOR THE GRAVEL

Posted on: March 9th, 2016
by David Ganje

In the natural resources, mining and geological fields, the ‘experts’ are reluctant to call gravel a mineral. It matters not whether they are a lawyer, judge or geologist. But I set aside this ridiculous game of semantics. I deal with reality. My clients deal with reality. So we start with the wisdom of my grandfather who was a farmer. He said, “Don’t look for the gold, look for the gravel.” What mineral has an immediate, practical and economic benefit regardless of where used, how used, or where located? Gravel.

Gravel is everywhere – in South Dakota alone, there are more than 1,800 permits for gravel mining on file with the Department of Mining and Natural Resources. States have inconsistent histories with regard to whether or not gravel should be considered a ‘mineral’ requiring mining permits. As a result, the term ‘mineral’ will sometimes be construed so as to include gravel, and other times to exclude gravel. For this reason, those interested in gravel in South Dakota should be aware of the inconsistent legal nature of the commodity.

On private land, gravel rights are managed by the state. The SD legislature has passed statutes defining the term ‘mineral’ broadly when dealing with situations such as damages from mining, oil, and gas development, mineral exploration (but not mining), and abandoned mineral interests. In these statutes, gravel is included within the term ‘mineral’ – in fact, often ‘mineral’ is defined as expansively as “any substance with economic value, whether organic or inorganic, that can be extracted from the earth, including oil and gas, but excluding water” and in some cases, uranium. In these situations, then, there is no question that gravel is included. For example, like oil and gas, mineral interests in gravel are only abandoned if left unused for a period of twenty-three years, unless a statement of claim is made according to SD law.

Unfortunately, the South Dakota Supreme Court has implied that these definitions only fit the situations that their respective statutes dictate and, cannot always help define ‘mineral’ at other times. It would be easy if rights holders could look at these statutory definitions of the term ‘mineral’ universally. In South Dakota no statute provides a definition for ‘mineral’ or ‘mineral interest’ with the purpose of explaining existing mineral interests or leases. For example, North Dakota law states that “conveyances of mineral rights…in real property in this state…shall not be construed to grant or convey to the grantee any interest in any gravel…unless specifically included by name in the deed, grant, or conveyance.” South Dakota has nothing so specific, so the matter must fall to the courts.

As a result, the SD Supreme Court has instead chosen to handle the matter on a case-by-case basis. Those wishing to claim that gravel is included under their mineral interest or mineral right must show the court that gravel’s inclusion in a warranty deed was intended by all parties at the time the interest or right was created; if not, taking gravel from land on which you have mineral rights may well be prohibited, as the interest in the gravel remains with the surface estate. The SD Supreme Court has expressed concern about possible damage to the surface estate by removing subsurface or surface objects that the grantor did not intend to be removed – like gravel. When surface damage is likely to occur from deeding to the grantee an interest in gravel, courts will demand even a stringent showing of the grantor’s “intent.”

On federal land, where the federal government has reserved mineral interests, the analysis is similarly convoluted. The Supreme Court of the United States has held gravel to be included in a federal reservation of “all the coal and other minerals in the lands so entered” under the Stock-Raising Homestead Act of 1916, but more recently held gravel to not be included with the federal reservation of “all the coal and other valuable minerals” under the Pittman Act of 1918. Lest we feel comfortable that all federal reservations of regular minerals will include gravel, and all federal reservations of valuable minerals will exclude gravel, a two-justice concurrence in the Pittman Act case disparaged the “faulty reasoning” of the SRHA case, and implied that they might consider overturning that holding at some point in the future. This may indicate that whether or not a specific federal mineral reservation includes gravel can depend heavily on the composition of the court at the time of the case.

For those who are interested not in interpretation of current mineral interests, but rather the creation of future mineral interests, the key is clear and careful writing. When mineral reservations and interests are written so as to explicitly include gravel as a mineral, or there is some compelling evidence that the grantor intended to include gravel within the grant, then courts will uphold the granting deed as including gravel. Sadly, the issue can become a grantee interpretation versus grantor interpretation, with the grantor likely to win. This is largely because SD law states that “a reservation in any grant. . . is to be interpreted in favor of the grantor.” This road is a little rocky.

David Ganje. David Ganje of Ganje Law Offices practices in the area of natural resources, environmental and commercial law in New York. The website is Lexenergy.net

Does ‘All’s Well That Ends Well’ Apply To An Oil And Gas Lease?

Posted on: February 19th, 2016
by David Ganje

In oil and gas leases, a shut-in royalty provision is essential to protect the interests of lessors and Operators alike. An Operator is the business responsible for the drilling, completion, and production operations of a well and the physical maintenance of the leased property. Oil and gas lessors like shut-in provisions because they provide that some money continues without the act of suing the Operator to start producing again or get out. Operators like shut-in provisions because they provide a path to maintaining the lease when “the market” makes production ill-advised.

As important as these provisions are for the parties, there are difficulties drafting these terms into an oil and gas lease. For an unprepared lessor, an inadequate shut-in provision allows a non-producing well to sit on his land, shut-in, for years while providing little or nothing to the lessor. For an unprepared Operator, an inadequate shut-in provision forces a lose/lose decision between bad money paid out during new production or losing both the lease and the well that took big bucks to negotiate and complete. For example, what is a fair shut-in period? 3 years? 1 year? Even leases with adequate shut-in provisions have problems in legal interpretation, and in such cases the state code should stand ready with answers. States have woefully inadequate road maps to cover these situations.

New York law requires that production continue with some consistency beyond the primary leasing term. Still, there are some important unknowns that the legislature and the courts have yet to make clear. New York courts have held that “If…there is no production and it is reasonable from the facts to determine that production has finally ceased, then the lessor may recover possession of his lands free of the lease.” But, “temporary cessation of production does not terminate the lease.” What exactly is a final ceasing of production? How long can production cease before it is no longer ‘temporarily’ so? Mechanical issues with wells can last for years, especially if not properly managed – and economic issues can make production untenable for even longer. Complicating this issue, New York courts have implied that these rules only apply when the Operators are not prevented from production by forces outside of their control (which can include market conditions). So how long can lessors be stuck with a non-producing well on their land that the Operators claim has only ‘temporarily’ ceased production because of outside forces? Answer: it is presently unclear.

Where there is no good statutory roadmap, it is vital for all parties to protect their interests with proper shut-in provisions when agreeing to an oil and gas lease. New York must fix their sparse guidance on oil and gas leases that extend past the primary leasing term. Vague statutes that force disagreeing parties into court in order to fill in the legislature’s gaps are not the answer. Astute lessors and Operators can protect their interests by writing a thorough shut-in provision. These matters are too important to be left to hand-me-down, boilerplate lease language.

David Ganje. David Ganje of Ganje Law Offices practices in the area of natural resources, environmental and commercial law in New York. The website is Lexenergy.net

In North Dakota you can talk to the dead

Posted on: January 27th, 2016
by David Ganje

In North Dakota one can give legal notice by mail to a deceased individual, even though he long ago went to that great oil patch in the sky. It is something out of a Charles Dicken’s novel. You can communicate and give notice to the dead. A landowner seeking to claim mineral interests may recover the deceased’s mineral interests by giving notice by US mail to an address long ago abandoned — and legally so, according to the Dormant Mineral Act.

The North Dakota Supreme Court, in ruling on the Dormant Mineral Act, stated that “…no reasonable inquiry was required where the surface owner mailed the notice of lapse to the mineral interest owners’ address which was of record in 2007, even though the mineral interest owners had died in 1980 and 1999, respectively.” When an individual who owned mineral interests in North Dakota dies, they and their heirs may be out of luck if death never kept up the “current address” in the county recorder’s office.

The Supreme Court in an important recent case called Capps also stated, “…the address of record need not be the mineral interest owner’s correct address for the mailing of the notice of lapse to satisfy the statutory requirement.” In other words, a landowner may serve a notice to recover mineral interests by US mail when mailed to the deceased’s last address in the records and thereby obtain minerals formerly owned by the deceased.

Both the legislature and the courts are attempting to make it easier for surface owners to clear title and reclaim lost mineral rights. The Supreme Court in Capps held that “this Court made it clear that when the mineral interest owners of record are deceased, the notice must still be mailed to the address of the deceased owners of record.” In my practice I have done this. The postman must think I am nuts. This rule derives from the intent to encourage mineral development and extraction.

The Court ruled that the surface owner was not required to conduct a reasonable inquiry into an actual address of a mineral owner even when the owner knew they were deceased. The Court determined that it was immaterial whether the surface owner had actual knowledge of the death of the party notified by mail the party who was the record owner of the mineral interests and the person to whom the statutory notices had been mailed. The Court stated that any heirs of the deceased would have received notice if the deceased had recorded notice of their current addresses. The Court also held that the constitutional safeguards of due process and adequate notice do not apply to the non-litigation Dormant Mineral Act used by the landowners in the Capps case.

The Capps case illustrates the growing body of law that makes it easier to develop and reclaim mineral rights.

David Ganje of Ganje Law Offices practices in the area of natural resources, environmental and commercial law in South Dakota and North Dakota. View the original article at the Bismarck Tribune – Brakken Breakout

Article & Presentation of David Ganje on Natural Resources Law

Posted on: March 4th, 2014
by David Ganje

Lost Sheep or Abandoned Mineral Interests: A Discussion of the Dormant Mineral Acts of North Dakota and Elsewhere

Table of Contents

Introduction: Purpose of a Dormant Mineral Act…………………………………………………….. 1

History: The North Dakota Dormant Mineral Act…………………………………………………… 1

Current North Dakota Dormant Mineral Act…………………………………………………………. 3

State Dormant Mineral Acts Generally and Its History…………………………………………. 6

Mineral Interest v. Royalty Interest: Why It Matters………………………………………….. 11

Takings and the Dormant Mineral Act……………………………………………………………………. 15

A. The Abhorrence of Forfeiture: Property Rights in America………………………………………. 16

B. The Unlocatable Mineral Interest Holder………………………………………………………………. 17

“Saving Events”…………………………………………………………………………………………………………. 18

Conclusion: Prior Planning Is the Rule……………………………………………………………………. 19

Addenda…………………………………………………………………………………………………………………….. 20

Introduction: Purpose of a Dormant Mineral Act

This article will discuss the value and challenges of a state’s Dormant Mineral Act (DMA). The article will use, as a reference point, the North Dakota Dormant Mineral Act (the Act). The DMA is a modern recovery procedure which gives a real estate surface owner a right of legal reclamation to unused or abandoned mineral interests.

The law allows an owner to sever mineral interests from the surface estate and to subdivide the mineral interests. These rights are well established in the U. S. Deeds, wills, and the intestacy transfer of property dilutes mineral interest ownership in states such as North Dakota, South Dakota and New York. The owners and claimants to mineral interests are often hard to locate and are also often abandoned or dormant. Such problems resulted in the passage of dormant mineral laws is some states but not in others. As with all matters concerning oil and gas interests, parties should consult an experienced oil and gas attorney.

The articles and blog writings on this website should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of David L Ganje.