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Issues Involving Conveyances + Reservations

of Mineral Interests

presented by Margeaux Kimbrough

December 3, 2015

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Discussion TOPICS

Requirements for satisfying conveyances and reservations

Voluntary vs. involuntary conveyances

Types of interests typically conveyed or reserved

Pitfalls in complicated conveyances and reservations

Mineral vs. royalty distinction

Fractional royalty vs. fraction of royalty

Joint ownership

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History of Mineral Severances

cujus est solum, ejus est usque

ad coelom Ownership

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Requirements for Satisfying

Conveyances +Reservations

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An act by which it is intended to create one or more property interests

What is a Conveyance?

Giving an interest away

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A method by which an interest is reserved from a grant

What is a Reservation?

Keeping an interest

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Satisfying Conveyances +Reservations

Writing Granting Language

Adequate Description

Designation of Parties

Proper Execution

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Satisfying Conveyances +Reservations

Writing Granting Language

Adequate Description

Designation of Parties

Proper Execution

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WritingStatute of Frauds

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Satisfying Conveyances +Reservations

Writing Granting Language

Adequate Description

Designation of Parties

Proper Execution

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…Grant, Bargain, Sell + Convey…

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Satisfying Conveyances +Reservations

Writing Granting Language

Adequate Description

Designation of Parties

Proper Execution

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…Grant, Bargain, Sell + Convey…

Located in Section 28, Range 4 of Newport Township,

Washington County, Ohio, being 26.74 acres of land, more or less, and bounded substantially as follows…

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Best Practices

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Best Practices

Section1

Township2

Range3

Tract4

Acreage5

County6

State7

Metes + Bounds8

Tax Parcel ID #9

And…

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Satisfying Conveyances +Reservations

Writing Granting Language

Adequate Description

Designation of Parties

Proper Execution

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I, Grandpa Simpson, grantor…

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Satisfying Conveyances +Reservations

Writing Granting Language

Adequate Description

Designation of Parties

Proper Execution

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I, Grandpa Simpson, grantor…

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Voluntary vs. Involuntary

CONVEYANCES

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Can be generalor limited

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General Warranty Deed

Grantor covenants:+ Lawful ownership in fee simple+ Free from encumbrance+ Right to convey+ Defense of title

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Limited Warranty Deed

Only warrants claims madeby, or throughunder,the grantor/warrantor

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Quitclaim Deeds

No covenants or warranties of title

“as-is”

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Oil + Gas Leases

fee simple determinableor license

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Transfers the rights of a grantor to a grantee

Assignments

Oil and gas leases

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Involuntary CONVEYANCES

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Foreclosure Tax Sale Bankruptcy Lien

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Types of Interests Typically Conveyed

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Think about real property interests as…

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The Fee Simple Absolute Tree

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Mineral Severance

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Ownership Before Severance

Blackacre

X owns Blackacre in fee simple – from the heavens to the center of the earth

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Ownership After Severance

Blackacre

X retains ownership in the surface and the

airspace above Blackacre

Y owns the minerals underlying Blackacre

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Mineral Interests

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Mineral Interest

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Executive Rights

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Royalty Interest

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Working Interest

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Other Types of Interests

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PITFALLS in Complicated Conveyances + Reservations

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Transferring Fractional Interests

1/2 + 1/3 = Blue

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Conveyance 1Moe is the fee simple owner of Blueacre Farm. By virtue of a general warranty deed, Moe conveys

to his brother Larry, “Blueacre Farm and an undivided 1/2 interest in the minerals

underlying Blueacre Farm,” and to his brother Shemp, “an undivided1/2 interest in the

minerals underlying Blueacre Farm.”

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Conveyance 2Larry conveys to Curly, by

quitclaim deed, “an undivided ¼ interest in the minerals

underlying Blueacre.”

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Moe Larry1/2

Curly?

Larry?Shemp

1/2

Conv

eyan

ce1

Conv

eyan

ce2

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1/4 of the 1/2 undivided mineral interest he (Larry) received from Moe (in such case Larry would retain 3/8 of the whole mineral interest and Curly would

receive 1/8 of the whole mineral interest)

1/4 of the whole mineral interest, vesting Larry with1/4 of the whole mineral interest and Curly

with 1/4 of the whole mineral interest

OR

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100% Mineral Interest Underlying Blueacre Farm

Moe’s Interest

Curly’s

Larry’s

Moe’s Interest

Curly’s

Larry’s

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POLL

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A) 1/4 of the 1/2 undivided mineral interest he (Larry) received from Moe (in such case Larry

would retain 3/8 of the whole mineral interest and Curly would receive 1/8 of the whole mineral

interest)

B) 1/4 of the whole mineral interest, vesting Larry with1/4 of the whole mineral interest and Curly

with 1/4 of the whole mineral interest

OR

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Moe’s Interest

Curly’s

Larry’s

Greatest Possible Estate Rule

1/4 of the wholemineral interest,

vesting Larry with1/4 of the whole mineral

interest and Curly with 1/4 of the whole mineral interest

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Moe’s Interest

Curly’s

Larry’s

Literal Interpretation Rule

1/4 of the wholemineral interest,

vesting Larry with1/4 of the whole mineral

interest and Curly with 1/4 of the whole mineral interest

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Grantor purports to convey a larger fractional interest than what he owns

What is an Overconveyance?

Moe

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Conveyance 1Comic Book Guy conveys the comic book store to Millhouse and reserves unto himself an undivided

1/2 mineral interest

Comic Book Guy Millhouse

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Conveyance 2

BartMillhouse

Conveyance 2Subsequently, Millhouse conveys the comic book store to Bart by general warranty deed, reserving unto himself an undivided 1/2 mineral interest

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Grantor W.J. Duhig

1/2

Miller-LinkLumber

?

Grantor

1/2

The Duhig Rule

?

Peavy-MooreLumber

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Grantor W.J. Duhig

1/2

Miller-LinkLumber

?

Grantor

1/2

The Duhig Rule

1/2

Peavy-MooreLumber

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Result Applying the Duhig Rule

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Conveyance 1

Comic Book Guy Millhouse

Conveyance 2

BartMillhouse

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RememberDoes not apply in all states

Does not apply to quitclaim deeds

May not apply when grantee has actualnotice of prior outstanding interest

May not apply to oil + gas leases

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Rules +Case Law

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Mineral vs. Royalty

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Mineral Interests

zRights Associated with Mineral Interests

Reasonable use of the surface

Receipt of profits

Receipt of benefits of production

Obligation to pay costs

Receipt of bonus payments, delay rentals and royalties

Right to transfer, search, develop and produce

Ability to seek partition

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Royalty Interests

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Receipt of benefits from production

Rights Associated with Royalty Interests

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How to Tell the Difference

Look for language that describes the rights being conveyed

“right to enter upon the lands”

“right to prospect for oil + gas”

“right to remove oil + gas”

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Mineral Interest

“in and under”

Royalty Interest

“removed from the ground”

Key Words

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“in the event that said premises or any part thereof shall at any time hereafter be

operated for oil or gas or both, there and in that case the royalty oil which may

be produced and saved from said premises and the rents and royalties that may be derived from gas wells drilled thereon shall be owned and

distributed as follows…”

Example

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POLL

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“in the event that said premises or any part thereof shall at any time hereafter be operated for oil or gas or both, there and in that case the royalty oil which may be produced and

saved from said premises and the rents and royalties that may be derived from gas wells drilled thereon shall be owned

and distributed as follows…”

A) Mineral interest OR B) Royalty interest

Example

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“Moe, grantor…doth hereby Grant, Bargain, Sell and Convey to the said Larry… the following described real estate…reserving to the Grantor, his heirs, executors, administrators and assigns for a period of 20 years

from the date of this instrument, the minerals underlying the real estate, including the right to

enter upon the above described lands and to prospect for, drill, produce and remove oil and gas removable by wells including the right to receive

rents and royalties during said 20 year period from oil and gas leases…”

Example

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POLL

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“Moe, grantor…doth hereby Grant, Bargain, Sell and Convey to the said Larry… the following described real estate…reserving to the Grantor, his heirs, executors, administrators and assigns for a period of 20 years from the date of this instrument, the minerals underlying the real estate, including the right to enter upon the above described lands and to prospect for, drill, produce and remove oil and gas removable by wells including the right to receive rents and royalties during

said 20 year period from oil and gas leases…”

A) Mineral interest OR B) Royalty interest

Example

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Fractional Royalty vs. Fraction of

Royalty

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Fixed royaltyOwner is entitled to the stated fraction of gross production, unaffected by the royalty reserved in the lease

an undivided ¼ royalty interest

Fractional Royalty Share of Production

Total Production

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Language that creates a fractional royalty

an undivided ¼ royalty interest

Fractional Royalty Share of Production

Total Production

“A fee royalty of 1/32 of the oil and gas”

“One-half of the one-eighth royalty interest”

“1% royalty of all the oil + gas produced and saved”

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Owner is entitled to a fraction of the royalty retained by the lessor

Fraction of Royalty

Total Production

an undivided ¼ royalty in all royalties received from any oil and gas produced

on the premises

1/8 royalty

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Fraction of Royalty

Total Production

an undivided ¼ royalty in all royalties received from any oil and gas produced

on the premises

1/8 royalty

Language that creates a fraction of royalty

“1/16 of all oil royalty”

“An undivided one-half interest in and to all of the royalty”

“One-half of one-eighth of the oil, gas and other mineral royalty

that may be produced”

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Concurrent Successive

Spouses Business Entities

Types of Joint Ownership

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Two or more persons own fractional, undivided interests in the whole

Joint Tenants

Concurrent Ownership

Tenancy by the Entirety

Tenants in Common

Moe + Larry Moe + Martha (husband/wife)

Moe Larry

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Successive Ownership

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Life Tenants

Timeline of Ownership

Death of Crazy Cat Lady BobCrazy Cat Lady

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Term OwnershipTimeline of Ownership

End of 20 Years LarryMoe

20 Years

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POLL

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Reserving unto the grantors, their heirs, executors, administrators, and assigns, for the period ending February 1, 2016, coal;

also oil, gas and all other minerals removable by wells.

Interpretation 1+ Interest in coal is reserved

until February 1, 2016+ Interest in oil, gas and other

minerals is reserved in perpetuity

Interpretation 2+ Interest in coal is reserved

until February 1, 2016+ Interest in oil, gas and

other minerals is reserved until February 1, 2016

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Other?Marital Rights

Business Entities

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Thank You!Margeaux KimbroughKegler Brown Hill + Rittermkimbrough@keglerbrown.comkeglerbrown.com/kimbrough614.462.5437

@MargeauxEsq

linkedin.com/in/mkimbrough