Foster Care for Unlocatable Mineral Interest Owners

Posted on: April 7th, 2014
by David Ganje

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.

by David Ganje.