12.16 Mineral Rights

12.16.1

In General

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. However, the term ordinarily does not include commonplace materials such as clay, sand, gravel, soil, and water.

Unless otherwise provided by statute or case law, 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.

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. 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.

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.

It needs to be noted that, by implication and unless otherwise specifically excepted in the instrument, the mineral transfer is always deemed to have granted all operational powers necessary for a mineral transferee to enjoy the mineral conveyance or lease, viz;

  • 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

12.16.2

Mineral Grants And Reservations As Title Exceptions

Fee simple absolute title, among other rights, is the ownership of the right to occupy the surface of land and to own and extract valuable minerals. The term “split estate” describes when the surface estate and all or part of the mineral estate in a particular tract of land are not owned by the same party. It is important to know that the surface estate and mineral estate are not merely a distinction of land above ground and below ground. The surface estate is everything that is not mineral substances and vice versa. Therefore the surface estate includes the dirt a mile below the property and the mineral estate owner can own the gold nugget reflecting sunlight in the creek on the surface.

The mineral estate is dominant meaning that the surface owner cannot prevent the mineral estate owner from accessing and developing minerals.  These are not unfettered rights and limitations are imposed on the mineral owner in any given jurisdiction by case law, statutes and governmental regulations.

A grant or reservation of a mineral right or interest found in a chain of title, because it splits the estates, 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. Refer to your state’s Bulletin or the applicable Multi-State Bulletin for exception language to use.

12.16.9

Unpatented Mining Claims  

Mining law on public land grew out of rules and regulations from various mining districts and was finally codified in federal mining acts in 1866, 1870. The prior acts were combined into the General Mining Act of 1872 (Rev. Stat. § 2318 et seq.). The 1872 Act declared all valuable mineral deposits in lands belonging to the United States free and open to occupation and purchase by citizens. Unpatented mining claims resulted from prospecting for minerals and locating claims to them. They are possessory rights conveyable by deed. Under the 1872 Act unpatented mining claims were self-initiating by the miner and numerous claims were historically staked but no longer mined. In 1976 Congress enacted the Federal Land Policy and Management Act (FLPMA) in part to address an estimated 6 million stale mining claims. After FLPMA’s enactment any unpatented mining claim had to be recorded with the Bureau of Land Management (BLM) within 3 years to be valid. In order to keep a mining claim active a miner has to file evidence of assessment with the BLM or pay the BLM an annual maintenance fee.

Unpatented mining claims can only exist on federal land and can only be located in 19 states: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Idaho, Mississippi, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington, and Wyoming. In these states it is customary to take a Schedule B exception for unpatented mining claims even on land not titled in the name of the USA. The principal reason for the exception is the fact that under certain Acts whereby the USA patented land to private parties, the USA reserved the mineral estate. Pursuant to Acts such as the Stock-Raising Homestead Act of 1916 and the Taylor Grazing Act of 1934, tens of millions of acres of land today has a split estate of private surface ownership and federal mineral ownership. The federal mineral estate is still open for prospecting and mining under the Act of 1872 in the same vein as any land in a National Forest is. The Stock-Raising Homestead Act was amended in 1993 to provide the surface owner some protections from mining activities including requiring the Secretary of the Interior to approve a surface use plan, making extractors post a bond and protecting all surface improvements in addition to crops.

12.6.10

Patented Mining Claims  

A patented mining claim typically resulted from an unpatented mining claim, but despite this origination, a split estate was not created. In many areas the title to land, including valuable land in and around modern day ski resorts in the western states, is based on patented mining claims. A Congressional moratorium ended the practice of issuing new mineral patents in 1994. Considering the vast amount of land historically conveyed from the United States as patented mining claims, very little of that land is actually mined today. Consequently, many Insureds utilizing mineral lands for residential, recreation and commercial purposes must own the surface estate. Patented mining claims conveyed the title to the mineral estate and the surface estate in most cases, however, the patent must be inspected for reservations of the surface estate, water rights and the interests of prior mining claim holders whose legal descriptions intersect with the mineral survey of the current patentee.

There were two types of mining claims that could become patented:

• Lode Claims

Mineral deposits of classic veins or lodes having well defined boundaries. The term also includes rock in-place bearing valuable minerals and may be broad zones of mineralized rock. Examples include quartz and veins of gold or silver. A typical lode claim is described as a 1500’ x 600’ rectangle although older lode claims were long and narrow with some having angle points that generally conformed to the location of a vein or lode containing about 5 acres.

Locators of a lode claim where no adverse claim existed had the exclusive right of possession and enjoyment of all the surface included within the lines of their locations, and all veins, lodes, and ledges throughout their entire depth or apex including extra-lateral rights to minerals that extended beyond the boundaries of the claim extended downward vertically A locator could then file an application for a patent together with a government surveyor’s plat and field notes of the claim(s) showing the boundary of the claim(s).

• Placer Claims

All forms of mineral deposits excepting veins of minerals or other rock in-place.  In other words every deposit not located in a lode claim. Examples are gold in unconsolidated materials like sand or gravel and many nonmetallic bedded or layered deposits, such as gypsum and high calcium limestone. Placer claims are typically described as aliquot parts of sections ranging from 20 – 160 acres depending on the number of mining claimants associating on a claim.

12.6.11

Millsite Patents

Millsites are non-mineral lands used in conjunction with lode or placer claims for milling or reduction works. Patents for millsites were subject to the same survey and notice requirements applicable to veins or lodes.

 

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.

  • 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.

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.
  • Release duly executed by the lessee.
  • Judicial determination of the termination.

Never rely on an affidavit of nonproduction during the primary term.

12.16.4

Minerals Reservations In Patents

In those states wherein title devolves from the federal or state government and the title examination of a chain of title commences with a patent issued by the federal or state government, special care should be exercised to determine whether the patent or grant contains any provision reserving to the grantor a specified mineral or all the minerals from the land being conveyed. If such a reservation is present, an appropriate exception relative to the mineral reservation must be shown in Schedule B of the title commitment and policy.

12.16.5

Mineral Endorsements: Affirmative Insurance

A mineral endorsement is an endorsement used for the purpose of insuring over the effect of a mining interest that is being excepted in the title policy.

Basically, a mineral endorsement insures the owner or the lender of the surface estate against loss or damage arising as a consequence of the mining operation in the mineral estate. These endorsements may vary in their formats and extension of coverage.

Consider the following factors prior to the issuance of affirmative insurance:

  • Federal and state law provisions (if any).
  • How long ago did the reservation or grant of the minerals occur?
  • How broad or specific is the language of the reservation or grant of the minerals?
  • Can the buildings and improvements be disturbed as a result of the mining operations?
  • Can the owner of the minerals develop exclusively within the property in question?
  • Can the owner of the minerals develop anywhere on the property in question?
  • Is the property urban, rural, downtown, commercial, residential?
  • Has there ever been any development on the property in question?
  • Has there ever been any development on the adjoining areas?
  • Is there any probability of the existence of minerals in the property in question?
  • How valuable are the granted or reserved minerals?

The basis for the selection and use of any of the different existing forms of a mineral endorsement is dependent on (1) the extent of the afforded coverage and (2) the geographical location of its utilization.

The specific approval of the National Legal Department must be obtained prior to the issuance of any affirmative coverage involving minerals.

12.16.6

Insuring Against Loss Arising From Mine Subsidence

The Company does not permit insuring against loss or damage arising from mine subsidence.

12.16.7

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 the National Legal Department for consideration and reply.

12.16.8

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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