12.16

Mineral Rights

12.16.1

In General

NOTE: Effective January 1, 2012, a title company may not be forced to insure the mineral estate, may take a general exception and no credit is required.  Additionally, there is no charge for Endorsement Forms T-19.2 or T-19.3 for Loan Policies (endorsements for Owner’s Policies remain $50 each) nor must these be offered if a general exception is taken.  See Section’s 2703.055, 2703.056, 2703.0515, Texas Insurance Code.

Mineral rights are also referred to as subsurface rights; that is, the rights to the natural resources lying below the earth’s surface. Any transfer of land may be accomplished with or without the transfer of the subsurface rights. Minerals are subject to the same rights of ownership, possession, and alienation as any other land. A conveyance of land without any exception or reservation of the minerals thereon carries with it the minerals as well as the surface of the land. Ordinarily, the term “mineral” is considered to include metallic ores, jewels, hydrocarbons such as coal, asphaltum and petroleum, useful rocks such as shale, granite, limestone and marble, and other miscellaneous materials such as feldspar, fluorspar, building sand, gypsum, silica rock, borax, sulphur, alum, carbonate and nitrate of soda, and salt.  In Texas the rule is that things found within 200 feet of the surface or the mining of which destroys the surface are not minerals (See Wylie v. Reed, 579 S.W.2d 329 (Tex. App. 1979), and Reed v. Wylie, 597 S.W.2d 743 (Tex. 1980), and Moser v. United States Steel Corp., 676 S.W.2d 99, 100 (Tex. 1984)However, the term ordinarily does not include commonplace materials such as clay, sand, gravel, soil, and water.


Conveyances or leases of “minerals” will encompass all of the materials ordinarily included within that term, except those specifically excepted, or limited by category, stratum, or fractional share.  (See Heinatz v. Allen,  217 S.W.2d 994 (Tex. 1949).) There are basically two types of minerals. Minerals in place are those minerals which have relatively fixed and permanent situs either on top of or within the earth and fugacious minerals are those that are migratory in the sense that their physical nature permits them to flow from here to there. Oil and gas are part of the land until they are removed unless the surface and the mineral estates have been separated. Their owner has the absolute right to drill for them but must confine operations to their land and can claim them only so long as they remain in the property, but if they escape into other land, the owner of the land under which they had first accumulated can no longer assert any rights over them.  (The law of capture applies to oil and gas.  (See Halbouty v. Railroad Com. of Texas, 357 S.W.2d 364 (Tex. 1962) cert denied US S.Ct. 371 US888, 1962) Any instrument granting minerals or mining rights is subject to the same principles and requirements as other conveyances of interests in land. The question whether the instrument conveys the minerals in place, or a mere right to extract them, or is a lease of the land with the right to take minerals, is a matter of judicial construction. Generally, the severance of the mineral estate can be accomplished through one of the following methods:
  • Exception in a grant
  • Reservation in a grant
  • Surface deed
  • Mineral deed
  • Mineral lease
  • Mineral license
  • Contract for sale in regard to the mineral estate only
  • Mortgage of the mineral estate only
The minerals being transferred are generally being described as follows:
  • All minerals
  • All minerals except those specifically named
  • Only specified minerals, reserving all others
  • Minerals in a particular seam or stratum
  • Oil, gas, and other hydrocargons
  • Materials sometimes not considered minerals, such as sand, clay, gravel, rock
  • Fractional interest in minerals
  • Rights to additional minerals and deposits discovered by transferee.
A transfer of minerals is always deemed to have granted all operating rights necessary for a mineral transferee to enjoy the mineral conveyance or lease, such as;
  • Right of access (ingress and egress) to the minerals.
  • Rights for the construction, maintenance and removal of roadways, railroads, buildings, machinery and equipment, pipelines, ditches and drains, storage reservoirs, fences, etc..
  • Right to the use of the subject property (subsurface estate) and the surface estate to mine, process, transport, and store minerals from other land.
  • Right to use the water located on the property.
Please note that there are Railroad Commission rules limiting drilling operation.  If you have questions, please contact a Texas Underwriter. Rule 16 TAC 3.37 of the Texas Railroad Commission says that no oil, gas, or geothermal well can be drilled nearer than 1200 feet to any existing well or 467 feet to any property line (of the mineral estate).  The RR Commission can grant variances to prevent waste or confiscation of the property. Underwriting Standard:If the property to be insured is less than 450 feet on all sides and the survey does not show evidence of an oil or gas well, you may provide the mineral coverage of paragraph 3(b) of the T-19 Endorsement.  (See T-19 checklist below)  T-19 and T-19.1 Checklists for Minerals  FORM T-19 MORTGAGEE POLICY ENDORSEMENT MINERALS CHECKLIST  GF NO.                                                               EXAMINE ALL RESERVATIONS AND GRANTS OF SEVERED MINERAL INTEREST AND ANY OUTSTANDING MINERAL LEASES.   MINERAL INTERESTS.  You must except to each outstanding mineral interest in Schedule “B” of the Mortgagee Policy.  You may omit exception if the interest was limited to a term of years now expired (and, if extendable by mineral production, you are satisfied that no minerals are being produced 1) from any part of the land covered by the original reservation/grant and 2) from other property with which the mortgage land has been pooled or unitized under recorded agreement/order).  UNLESS AT LEAST ONE OF THE FOLLOWING CONDITIONS APPLIES TO EACH MINERAL-INTEREST EXCEPTION, YOU MUST DELETE PARAGRAPH 3(b) OF THE T-19 ENDORSEMENT: Applies to B/                 :  By its terms, the mineral interest is limited to a royalty right (participating or non-participating). Applies to B/                 :  In the original reservation/grant or by subsequent recorded agreement, the mineral owner has waived/relinquished rights to use the surface of the land. Applies to B/                 :  The mineral owner has joined in a recorded agreement designating a drill-site that does not include any part of the land covered by the insured mortgage. Applies to B/                 :  The land covered by the insured mortgage is located within the municipal boundaries of an incorporated city that has enacted a drilling-permit ordinance.  Applies to B/                 :  No minerals of any kind are currently produced in your county or in the adjacent county nearest to the land. Applies to B/                 :  The land covered by the insured mortgage consists of five (5) acres or less used for single-family residential purposes, and no minerals are currently produced on the land or in its immediate vicinity. Applies to B/                 You obtain Underwriter Approval (Date ____________     by _____________________).    MINERAL LEASES.  You must except to each outstanding mineral lease in Schedule “B” of the Mortgagee Policy.  You may omit exception if the primary term of the mineral lease has expired and you are satisfied that no minerals are being produced from any part of the original leased tract.  UNLESS AT LEAST ONE OF THE FOLLOWING CONDITIONS APPLIES TO EACH MINERAL-LEASE EXCEPTION, YOU MUST DELETE PARAGRAPH NO. 3(b) OF THE T-19 ENDORSEMENT:Applies to B/                 :  All minerals have been severed from the surface of the mortgaged land, and, prior to the mineral lease’s inception, all mineral owners joined in a recorded agreement that (a) generally waived/relinquished rights to use the surface or (b) designates a drill-site that does not include any part of the mortgaged land. Applies to B/                 :  The mineral lease stipulates that no exploration or production will occur on the surface of the land covered by the insured mortgage. Applies to B/                 :  The mortgaged land is located within the municipal boundaries of an incorporated city that has enacted a drilling-permit ordinance, and no permit has been issued for drilling on the mortgaged land. Applies to B/                 :  Subsequent to inception of the mineral lease, the lessee or its assignee has joined in a recorded agreement that (a) generally waives/relinquishes rights to use the surface of the mortgaged land or (b) designates a drill-site that does not include any part of the mortgaged land. Applies to B/                 You obtain Underwriter Approval (Date                             , by                                            ).   FORM T-19.1 OWNER POLICY ENDORSEMENT COMBINED CHECKLIST (7/1/04) GF NO. __________________________ This Endorsement is a NONRESIDENTIAL endorsement. Do NOT issue this Endorsement if the insured land qualifies as “residential real estateunder Procedural Rule P-1(u), Basic Manual (land occupied by one-to-four-family residence improvements and consisting of a platted lot, an unplatted tract of 5 acres or less, or an individually-owned, agricultural-use tract of 200 acres or less). Issuance of this Endorsement is limited to the Form T-1 Owner Policy and requires review of the following: 1) a current survey of the insured land (which can include prior survey evidence updated by acceptable affidavit); 2) all restrictive covenants affecting the insured land; and 3) all recorded mineral severances and leases occurring in the chain-of-title to the insured land.  BUILDING SETBACK VIOLATIONS. UNLESS ONE OF THE FOLLOWING APPLIES, YOU MUST EXCEPT IN T-1 SCHEDULE “B” TO ANY SETBACK VIOLATION AND ALSO DELETE PARAGRAPH NO. 4 IN THE T-19.1 ENDORSEMENT: ____Permanent structure of any age extends over a setback line (from plat or restrictions) by a distance of one foot (1.00’) or less. ____Improvement occupying or extending into the setback width is not permanent (e.g. portable        sign) OR is a nonstructural improvement (e.g., driveway, parking lot, fence, or landscaping        element). ____You obtain underwriter approval.               Describe apparent violation:_____________________________________________              Approved by:_____________________________ Date:_______________________  EASEMENT ENCROACHMENTS (including nonstructural improvements). UNLESS ONE OF THE FOLLOWING APPLIES, YOU MUST 1) EXCEPT TO THE EASEMENT ENCROACHMENT IN T-1 SCHEDULE “B” AND 2) IN THE INSTANCE OF AN ENCROACHING BUILDING, YOU MUST ALSO DELETE PARAGRAPH NO. 2(a) IN THE T-19.1 ENDORSEMENT:  ____Encroaching building or other improvement occupies no more than 50% of the total easement width. ___ You obtain underwriter approval. Describe apparent encroachment:_________________________________________ Approved by:_______________________________ Date:______________________  BOUNDARY PROTRUSIONS/ENCROACHMENTS (including nonstructural improvements). UNLESS YOU OBTAIN UNDERWRITER APPROVAL TO DO OTHERWISE, YOU MUST 1) SPECIFICALLY EXCEPT IN T-1 SCHEDULE “B” TO ANY PROTRUSION OR ENCROACHMENT OF AN IMPROVEMENT ONTO OR FROM ADJOINING PUBLIC OR PRIVATE LAND, AND 2) IN THE INSTANCE OF A BUILDING PROTRUDING ONTO ADJACENT LAND, YOU MUST ALSO DELETE PARAGRAPH NO. 3 IN THE T-19.1 ENDORSEMENT. ____ Underwriter approval given to _______ omit exception and/or ____ ___omit deletion.    Describe protrusion/encroachment:___________________________________________    Approved by:______________________________ Date:_____________________ RESTRICTIONS. UNLESS YOU OBTAIN UNDERWRITER APPROVAL TO DO OTHERWISE, YOU MUST SPECIFICALLY EXCEPT IN T-1 SCHEDULE “B” TO ANY OF THE FOLLOWING MATTERS ARISING UNDER/FROM RESTRICTIVE COVENANTS: 1) Easement right; 2) option to purchase; 3) right of first refusal or prior approval at sale or lease; 4) reversionary right or other potential loss of title as penalty for violation; and/or 5) significant existing violation disclosed by survey or other information known to you at or before closing.  ____  Underwriter approval given to omit exception.      Describe omitted item:________________________________________________     Approved by:______________________________ Date:_____________________  MINERALS. IN ALL INSTANCES, YOU MUST SPECIFICALLY EXCEPT IN T-1 SCHEDULE “B” TO ALL OUTSTANDING MINERAL INTERESTS AND LEASES. UNLESS ONE OF THE FOLLOWING APPLIES, YOU MUST ALSO DELETE PARAGRAPH NO. 2(b) FROM THE T-19.1 ENDORSEMENT:  ____ Other than royalty grants/reservations, all minerals are intact with the surface and are not the subject of any unexpired/producing mineral lease. ____ All owners of outstanding, non-royalty mineral interest, including operating interest under         any producing mineral lease, have relinquished surface rights by recorded          waiver/nondisturbance agreement or drillsite designation of other land. ____ The insured land lies in the developed area of an incorporated municipality, but not in the          immediate vicinity of any current mineral exploration/production, and is currently occupied           by multi-tenant apartment, office, or retail buildings/centers. ____ You obtain underwriter approval to retain Paragraph No. 2(b) in the T-19.1         Endorsement.    Describe covered mineral interest(s):_____________________________________    Approved by:_______________________________Date:_____________________

12.16.2

Mineral Grants And Reservations As Title Exceptions

A grant or reservation of a mineral right or interest found in a chain of title must be specifically excepted from the legal description of the subject property in Schedule A of the policy, and at the same time, be shown as a special exception in Schedule B thereof. An exception in regard to severed minerals or mineral rights should never be omitted from the policy on the theory of adverse possession, unless the omission is fully authorized by statute or based on a proper judicial determination. It is imperative that the mineral right or interest be shown in the title commitment or policy in the same manner as it is described in the instrument granting or reserving it. No attempt should be made to alter, change, modify, explain, or clarify the language of the grant or reservation. It must be shown verbatim. Once the mineral estate is shown as an exception in the policy, it is unnecessary to trace the title any further and your exceptions should so state. Because the mineral estate is the dominant estate in Texas, you should also use our Mineral Exceptions.

12.16.3

Mineral Leases And Oil And Gas Leases As Title Exceptions

  ·   In General

A mineral lease is an agreement granting to the lessee the right to explore land and remove from it all the minerals or certain specific minerals contained therein. The lease can be for a specific term or for as long as the minerals can be extracted from the land. Rent or royalty is simply the income received from the lease of the mineral estate. These words are frequently used interchangeably; however, royalty is the more appropriate term for rent based upon quantity of coal or ore removed from a mine.
 
  ·   Legal Characteristics of a Mineral Lease

The most important legal characteristics of a mineral lease are the following:
 
  ¨   It is the granting of the possessory right to mine for a term:
 
  ·          Lessee gets title only to the minerals actually severed and removed.
 
  ·          Lessor retains title to all the unsevered minerals during the term and the remaining unsevered minerals at the end of the term.
 
  ¨   It is analogous to the leasing of land, but has substantial variations from the leasing of the surface because of the physical and functional differences that are involved.  Some commentators consider a mineral lease to actually be a conveyance in fee simple determinable.
 
  ¨   It can be abandoned.
 
  ¨   Consideration is usually in the form of royalties and/or rent.
 
  ¨   The term of a mineral lease is frequently subject to the performance of certain conditions relative to the exploration, development, and production of the leased minerals.
 
  ¨   A mineral lease frequently is characterized by a fixed primary term followed by an indefinite secondary term lasting as long as production continues.
 
  ·   Purposes of the Mineral Lease

Most mineral leases are comprehensive in the scope of permissible mining activities. However, leases with a limited purpose are occasionally executed. The following is a list of the mining activities most commonly enumerated in a mineral lease:
 
  ¨   Exploration for minerals
 
  ¨   Development of the mine
 
  ¨   Production of minerals
 
  ¨   Treatment and processing of minerals removed from the land
 
  ¨   Transportation of minerals
 
  ¨   Storage of minerals
 
  ¨   Marketing of minerals
 
  ¨   Reservation of minerals in place or storage on the surface for future production or marketing
 
  ·   Term of the Mineral Lease

The term of a mineral lease may be either a fixed term or an indefinite term, the latter made up of a short fixed period followed by an indefinite period so long as minerals are produced.

A mineral lease may contain one of the following term provisions:
 
  ¨   Fixed term - specified number of months or years.
 
  ¨   Indefinite term - primary and secondary terms.

Provisions calling for primary and secondary terms are quite common in mineral leases and in oil and gas leases.
 
  ·   Termination of the Mineral Lease

Because of the special nature of the mineral lease or the gas and oil lease, fully examine the lease instrument to ascertain the circumstances and/or conditions for its termination. Even though a lease may be beyond its primary term, it is necessary for you to inquire as to whether the property is subject to a pooling arrangement which may extend the term of the lease the same as if there was production under the lease.

Requests to waive recorded mineral leases or gas and oil leases on the basis that production has ceased and the lessee has abandoned the lease may present an EXTRAHAZARDOUS RISK for the Company. In order to waive the allegedly terminated lease, full consideration must be given as to the possible utilization of any of the following procedures:
 
  ¨   Affidavit of nonproduction. (See Section 12.16.6 below for example form.)
 
  ¨   Release duly executed by the lessee.
 
  ¨   Judicial determination of the termination.
 
  NEVER RELY ON AN AFFIDAVIT OF NONPRODUCTION DURING THE PRIMARY TERM.
 
  ·   Express Insurance

Depending on the facts, the Company may be willing to expressly insure against loss due to the existence or enforcement of a mineral lease. National Legal or the Texas Agency Manager or a Texas Underwriter must approve.  In this regard, keep in mind that endorsements T-19 and T-19.1 insure against damage to existing improvements for the exercise of surface by a mineral owner or lessee.  No express insurance is available for the coverage available in the endorsements T-19 and T-19.1.

12.16.4

Minerals Reservations In Patents

12.16.5

Mineral Deeds

12.16.6

Insurance Of A Mineral Estate Interest

The insurance of a mineral estate interest separate and apart from the ownership of the land itself is an extrahazardous risk. Any request for this type of insurance must be submitted immediately to a Texas Underwriter or the Texas Agency Manager or Stewart Legal Services (in Houston) for consideration and reply.

12.16.7

Form Of Affidavit Of Nondevelopment And Nonpayment of Rental Executed by Owner

  STATE OF __________§
 
  COUNTY OF ________§
 
  ______________________ being first duly sworn, deposes and says:
 
  That ______________________ is the present owner of the ______________
 
  ______________________________________________ of Section _____, Township _____, Range _____ in __________________, County ___________, which land is described in an oil and gas mining lease executed on ______________________ day of ____________________ by _______________________ as lessors, and ____________________ as lessee, recorded in Book ________, Page _____, in the office of the (Register) (Recorder) of Deeds of said county.
 
  That since the day of said lease the property covered by said lease has not been pooled, there has been no well drilled upon said land, nor any oil or gas produced therefrom, and that none of the rentals accruing under and by virtue of the terms of said lease have been paid or tendered to affiant or said lessors, or to any bank for their credit, by the lessee, or his agents or assigns, since _____________________ and further that the lessee and his assigns had actual notice that rentals were payable to affiant under said lease. Affiant states that he has not at any time executed any extension of said original lease, and that the same has expired.
 
  Affiant further states that by reason of the noncompliance with the terms of said lease by lessee and his assigns, affiant hereby declares said lease forfeited, and will not, by acceptance of rentals, or in any other manner, recognize the same as a valid or existing lease.
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