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Mineral Rights and Oil/Gas Rights

More and more often we are seeing requests from clients on standard one owner searches that ask "Were mineral rights checked? Was there a search for oil/gas leases?" The mortgage abstractor – regardless of length of time in the business – can make the mistake of answering "yes" to this question without understanding the implications of that response. It is equally obvious that the title companies making that request also do not understand the liability they may be facing by placing verbiage on their commitments that leads the buyer/refinancer of a property to think they own the mineral/oil/gas rights on their property.

In Michigan, we have a 20 year dormancy law. Even if mineral rights were severed 60 years ago, unless the owner of those rights has some sort of recorded activity re those minerals every 20 years, the rights will revert back to the surface owner in the absence of activity. However, how does one ascertain such information without searching back through many decades (or back to the original land patent)?

In Pennsylvania, oil/gas rights are SEPARATE from coal and mineral rights. There can be an oil chain and a coal/other minerals chain. And there are no dormancy laws. If John Smith sold off his oil rights to Paul Williams in 1900, those rights remain severed and will continue to rest with Paul Williams and his heirs until the time they are legally deeded away. As you can well imagine, this can create heirship nightmares of monstrous proportions when Paul Williams never realized the value of what he was holding and died without the family members even realizing there were mineral rights in his name. By the year 2000, Paul's heirs could number in the hundreds and all of them have to be tracked down in order to release their claim on the oil rights for the original property.

Keep in mind, too, that Paul Williams may have bought 200 acres of oil rights in 1900, but today that 200 acres has been subdivided many times and could impact hundreds of surface owners.

Let's go back to Michigan for now with a realistic example of mineral rights (which in Michigan DOES include oil/gas). In 1920, Mary Jones owned 40 acres of land. She sold that 40 acres to Paula Johnson but retained the mineral rights. This can be accomplished by a simple sentence on the deed itself: "Mary Jones excepts and reserves all mineral rights to the above-referenced property." Paula Johnson sells the property to her cousin Fred Kravitz in 1930. In 1940, there is a land boom in Michigan and Fred divides and sells that property into four 10-acre parcels. We'll follow ONE of those parcels to the current owner whom we'll call Stanley Potter. Stanley is approached by ABC Oil Company to lease his property as it sits on a nice shale deposit that technology has now advanced to the point where the oil is economically extractable. Stanley has a title policy from XYZ Title Company that says he owns the mineral rights. In fact, Stanley BOUGHT the 10 acres because he knew the oil industry was heading into Michigan and to his county. He was betting that he would be approached and that they would want to sink an actual well on his property. Under the right circumstances, he could actually retire on those royalties! He has heard all about the overnight millionaires in South Dakota.

ABC Oil Company decides to sign a lease with Stanley and therefore needs to run a thorough title search – the oil companies do not depend on any commitment from any title company and insist on doing the search with their own people (Landmen).

They find out that Mary Jones reserved the mineral rights in 1920 and her savvy heirs have recorded documentation on the property ever since, keeping their mineral rights active. Since Michigan (and Pennsylvania and West Virginia and Kentucky) is a grantee/grantor state, the search has involved going back thru time – from seller to buyer – until low and behold a title Landman discovers that in 1920, the minerals were reserved. Now the Landman has to search forward to see what happened to that totally separate chain with totally different names to the present day. A search of the current surface owner will show nothing about mineral rights. The current surface owner doesn't OWN the mineral rights. Nor do the (many) previous owners. Since the mortgage abstractor was sent a 1-owner search, he/she assumes that when the title company requests something re minerals or oil/gas, then that must mean a search on the current owners of the property – not understanding that who owns the surface has no bearing on who owns the minerals. As for the title company, they know that a 1 owner search means back to a good WD. Apparently the title company doesn't understand that the rights could have been severed a 100 years ago either.

Now, ABC Oil Company has to tell Stanley that not only doesn't he own the mineral rights to his property, they have found the current mineral owner (Greg Pappazaglu) and now have signed a lease with GREG and will start drilling on Stanley's property next week ... of which Stanley will not see a dime and will have to contend with the legal easements the oil company has to get to and extract the oil.

Stanley gets himself a lawyer and contacts XYZ Title Company....and you know the rest of the story.

Argent Title Research & Abstracts, Inc. will never include a mineral search and/or oil/gas search on any order, even when that request is part of an order. Any true mineral search must be negotiated separately.

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