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Archive for the ‘North Dakota Mineral Interests’ Category

SD weighs in on the dormant mineral laws

Posted on: February 19th, 2019
by David Ganje

A  recent South Dakota Supreme Court decision, Holsti v. Kimber, has shed light on two areas of the dormant mineral act, previously untouched by South Dakota’s highest court: first, what constitutes “use” and “nonuse” of a mineral interest in order for a claimant to keep ownership of the mineral interests, and second, who may exercise that “use” of mineral interests. Though other issues remain unanswered following the decision, the ruling suggests what a mineral interest owner may do to prevent lapse of one’s mineral interest and what a mineral interest owner may do to keep his interest in a mineral estate. This case is the first time the South Dakota Supreme Court has addressed head-on dormant mineral laws.

South Dakota defines a mineral interest as “any interest, in oil, gas, coal, clay, gravel, uranium, and all other minerals of any kind and nature, whether created by grant, assignment, exception, reservation, or otherwise, owned by a person other than the owner of the surface estate.” A mineral interest is considered abandoned if it is “unused” for 23 years (20 years in North Dakota), and a statement of claim is not recorded within that time. I call this the “Mineral Rights Grace Period.” Upon an abandonment, that is a non-use, the surface estate owner may succeed to the mineral interest of another claimant.

In order to maintain ownership of a mineral interest and avoid lapse, the mineral interest must be “used.” “Use” under the statute may include one of several statutorily defined “uses.” One such “use” relevant to this case is:

Any conveyance, valid lease, mortgage, assignment, order in an estate settlement proceeding, inheritance tax determination affidavit, termination of life estate affidavit, or any judgment or decree that makes specific reference to the mineral interest is recorded …

It is the burden of the mineral interest owner to maintain his interest. Upon lapse, the burden shifts to the surface estate owner (the landowner) to take steps to succeed in the mineral interest. In Holsti, the issue before the court was whether the mineral interest owners fulfilled their burden to maintain their interest in the mineral estate.

The facts of the case: in 1967, Severt Kvalhein conveyed real property to Holsti and recorded the deed. In the sale Kvalhein reserved 50 percent of the mineral rights for himself. Two years later, in 1969, Kvalhein died and his estate was devised to eight heirs, each heir taking a one-eighth interest in the minerals.

In 2007, Holsti conveyed his surface estate to his sons (“the Holstis”). In December 2011, the Holstis published a notice of lapse of mineral interest in the official county newspaper in according with the statutes to recover mineral interests. No one responded by recording a statement of claim asserting ownership of the mineral interest. The Holstis filed a quiet title action in May 2012 alleging abandonment of the mineral interest due to “nonuse.”

Kvalhein heirs answered and rejected the argument that the mineral interest was abandoned. In their defense, the heirs referenced several 1978 oil and gas leases, a 1994 statement of claim by one of the heirs, and two mineral deeds recorded by one of the heirs in 1998 and 2011.

The court looked to whether the Kvalheim heirs had a valid mineral interest at all. The trial court had decided they did not have a valid interest because no document was recorded evidencing transfer of the mineral interests to the heirs and reasoned that “use” of a mineral interest could only be done by a “record owner.” The Supreme Court rejected that reading of the statute and found that the heirs did not need a recorded written document conveying Kvalheim’s mineral interest to them. The court found the Kvalheim’s last will and testament, though unrecorded, was sufficient to convey the mineral interest to the heirs upon Kvalheim’s death.

Once the court determined the heirs had an interest in the mineral estate, it next turned to whether or not that interest had been abandoned due to “nonuse,” or if the heirs had satisfied “use” requirements. The circuit court found the 1978 oil and gas leases recorded by the heirs were insufficient because they did not make specific reference to the mineral deed recorded by Kvalheim in 1967. The Supreme Court disagreed. Because the language of the statute does not specifically use the words “record holder” or “original deed” the court held the only two requirements for a recorded oil and gas lease to satisfy “use” were: 1) a specific reference to the mineral interest in question and 2) recording in the county register of deeds office. Because the heirs’ oil and gas leases specifically referred to the legal description of the mineral and because the leases were recorded in the proper county’s register of deeds office, the Court found the leases to be sufficient as “use.” (In a similar 2013 case decided by the North Dakota Supreme Court, Estate of Christeson v. Gilstad, the court also found that a legal mineral interest owner by inheritance, but not a record owner, could record an oil and gas lease to preclude abandonment of the mineral interest).

By exercising their rights as mineral interest holders and recording oil and gas leases in 1978, the Kvalheim heirs reset the clock back to zero on the 23-year test for abandonment. Therefore, from the last recorded lease in 1978, the heirs had 23 years in which the surface estate owners could not claim abandonment. Before the expiration of the 23 years (1978-2001), two Kvalheim heirs recorded documents sufficient to toll the clock back to zero again: in 1994, one heir recorded a valid statement of claim; and in 1998 and 2011 two valid deeds were recorded conveying the mineral interest between heirs. The court found both the statement of claim and mineral deeds constituted a “use” under the law and precluded abandonment. The court did not decide and instead remanded to the circuit court an additional issue: whether these two “uses” by Kvalhein heirs were sufficient to preserve the other six heir’s mineral interests.

In their holding, the court has clarified who may be a mineral interest holder and what they must do to satisfy the burden of “using” their mineral estate. This clarification is to the benefit of mineral interest holders because non-record holders may still protect their interests (though, it would be better practice to record an interest). Interestingly, in this case the mineral interest claimants were able to keep their claims even though the claims came through a will that was never probated.

David Ganje of Ganje Law Offices practices natural resources, environmental and commercial law.

 

 

David L Ganje
Ganje Law Offices
Web: lexenergy.net

605 385 0330

davidganje@ganjelaw.com

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

Disclosure of Mineral Interests in North Dakota

Posted on: October 2nd, 2014
by David Ganje

Full property disclosure laws are needed in North Dakota.  Current law does not require that the seller disclose information regarding mineral rights ownership at the time of a closing when selling real property.

Mineral rights affect the sale of real estate and affect its value.  These often go unaddressed when selling property.  The consequences of a failure to address these rights are not pretty. Surprises when doing a real estate deal should not occur.  The era of “let the buyer beware” is long gone. I suggest that putting everything material on the table when doing a real estate sale is the best policy.

The need to protect purchasers through honest and full disclosure of mineral rights has also been borne out in the experiences of other states.  Four years ago, Wyoming adopted a statute which requires sellers of property to disclose whether any mineral rights have been severed prior to a sale.  The reason for the new law, according to the President of the Wyoming Realtor’s Association, was to avoid the unpleasant surprise encountered by people who bought property thinking that they owned the rights to minerals only to find that a third party would appear on their land, and start digging on the property.  By making the buyer aware of the severance of mineral rights, Wyoming’s new disclosure law allows a prospective purchaser to make a more informed decision when purchasing. Recently in Florida a large home builder announced that it will stop severing mineral rights when selling property – after a local newspaper wrote a series of articles investigating the practice of selling property to people who learned of the practice only at the closing table where they felt pressured to consent.

Mineral rights can be severed from surface property rights on the same piece of property in North Dakota and do not automatically pass with title to the land in a sale. A third party can own the mineral rights to land. Title insurance is not the answer to this issue. Title insurance does not insure mineral rights on a property, nor does title insurance cover such things as water permit rights. When doing a real estate deal a purchaser should not assume that the title insurance policy will offer coverage.

            “Full disclosure,” makes for a complete sale in a real estate deal.   Full disclosure is the act of a seller of providing all the facts which the other party should know before the other party decides to buy. Full disclosure is not something I would always do on a first date when I was a young man – but that is another matter.  Full disclosure is akin to the term used by contemporary politicians and pundits known as “transparency.” North Dakota’s property disclosure law should require a seller to disclose mineral associated with a piece of property. 

 

Foster Care for Unlocatable Mineral Interest Owners

Posted on: April 7th, 2014
by David Ganje

Foster Care for Unlocatable Mineral Interest Owners

 

Natural resources development and extraction is both cleaner and fairer if all the owners of mineral interests participate. This statement of preferred principal is not, however, reality. Many owners are missing or unlocatable.  Missing interest holders create legal ‘gaps’ in the oil and gas development picture. Gaps perpetuate problems. Problems—such as future claims by currently unlocatable mineral interest owners, and penalties against producers for failure to pay or timely pay interested parties are examples. Both South Dakota (as of 2013) and North Dakota (revised in 2007) have created statutory remedies addressing this conundrum. In North Dakota over 40% of royalty interest payments go out of state. The remedy is a statutory trust created to manage the interests of the unlocatable owners of mineral interests. A party wishing to develop a tract of land can petition the court for the creation of this trust. A petitioning party can be an individual, corporation, or limited liability company that owns a mineral, leasehold, or royalty interest in the relevant tract of land. The statute allows for the creation of a trust by any of the three main interests in oil and gas matters: a mineral interest, a leasehold interest, or a royalty interest. The trust can be used to participate in the leasing and production of the oil and gas interests. Nevertheless, such a trust can only be created if the place of residence and present whereabouts of the so-called unlocatable persons are unknown and cannot reasonably be found after due diligence following a search. In North Dakota, circumstances may arise that warrant a trust account to be set up for the benefit of an unlocatable mineral interest holder. The establishment of the trust has the effect of discharging the developer from further liability for legal or financial claims by unlocatable or unknown claimants to the interest when all payments are made to the trust. The county treasurer, where the interest is located, becomes the trustee and manager of the new trust. An oil and gas lease negotiated by the trustee is an enforceable binding agreement. When an unlocatable claimant comes forward to claim his ownership, he must obtain an order from the district court to receive the monies deposited in the trust account.

 

Any bonuses, royalties, lease payments, or other income owing to the unlocatable mineral interest owner are to be paid to the trustee after the trust is approved by the court. The trust must be kept in force until the unlocatable owners of the mineral interests have successfully claimed their share of the funds held in trust pursuant to the act. This special trust is in affect ‘taxed’. Fifty percent of the monies paid to the trustee, the county treasurer, must be credited to the general fund of the county in which the mineral interest is located. This assessment is stated to be ‘for the costs of administration’. In reality it is somewhat of a confiscatory tax for the benefit of using the law to protect such interests. After three years, if the trust is still open, it is considered abandoned property with the effect that the trust administration is taken over by the State Treasurer rather than the county treasurer. The trust will, however, continue in existence under this special statute. After the three year period mentioned, the State Treasurer takes over the management of the trust unless it is otherwise closed out because of ‘found claimants’. The North Dakota treasurer maintains a data base of unclaimed property, including mineral interests. This public data base however, does not guarantee successful access to the information by a claimant because the parties may not be properly named—the owner is indeed unlocatable, the state’s website data base does not give complete reference to the tract of land, that is, the location of the mineral interest, or a detailed description of the relationship of the petitioning party with the unlocatable mineral interest holder. With its challenges, the law is still a good vehicle for protecting interests while encouraging development of the state’s natural resources.