Oil and gas law is a specialized area of real estate law concerning the title, ownership, use, exploration, exploitation, and development of the mineral estate. North Dakota is considered an ownership in place state, which means the surface estate (ownership of the surface) is separate and distinct from the mineral estate (ownership of the minerals beneath the surface) as though they concern two completely different parcels of land. The mineral estate concerns the ownership of the various substances beneath the surface, or minerals, the most common of which are coal, oil, and gas and is created when the mineral estate is severed from the surface estate, usually through a reservation in a patent or deed.
The focus of our oil and gas practice naturally centers on ownership of the mineral estate. Our attorneys have extensive experience representing landowners and mineral title holders regarding the various matters that arise regarding their interests in the mineral estate, particularly those related to title issues concerning ownership determination and preservation, lease review and negotiations, litigation, and estate planning.
The foundation of every oil and gas matter is the title, or recorded ownership of a portion of the mineral estate which is usually referred to as an interest. Mineral ownership is broken down into three classifications, or interests: the general mineral interest, royalty interests, and leasehold interests.
The mineral interest is the basic form of mineral ownership. One who owns a mineral interest has a right to sell all or part of his interest, explore and develop the minerals, execute leases to others to secure the exploration and development of his minerals, and the right to share in production. This is the most common form of interest which derives directly from the severance of the mineral estate from the surface estate. Absent some express provision to the contrary, the owner of the mineral interest has the exclusive right to lease, explore, and develop the minerals in the land, even if there is an outstanding royalty interest. A royalty interest holder has no power or right to lease, explore, or develop. Thus, it is important to research the history of ownership of the mineral estate by reviewing the chain of title to determine what type of interest you may own.
A thorough title examination is the first step in preserving, using, and enforcing your rights of ownership in the mineral estate. Our attorneys have experience in assisting clients in determining their ownership of any share of the mineral estate by carefully reviewing the chain of title to determine whether there are or may have been any defects in past deeds or lapses in the use of their or their predecessor in interest’s mineral interests. If you believe you have a mineral interest in property in North Dakota, our attorneys and staff are here to help you determine and preserve whatever interests you may have.
Lease Review & Negotiation
Since most mineral interest holders do not have the means to explore and develop the coal, oil, and gas they own beneath the surface, they often lease their interest to companies in the business of developing these valuable natural resources. Mineral leases often last for multiple years. The most common oil and gas lease in North Dakota will last for three to five years; however, some leases may have a term of up to ten years.
In return for signing the lease, the companies will pay the mineral owner a “bonus” for signing the lease along with a “royalty,” or a portion of the profits from production which is set in the terms of the lease. The royalty is almost always represented in fractional terms and is usually somewhere between 1/8 and 3/16. Often the amount of the bonus will determine the royalty. However, mineral owners need to be cautious in executing a lease and should take steps to be sure they’re getting a fair market value for their lease.
A mineral lease is a contract between the mineral interest owner and the company seeking to develop the minerals. Usually, the company will seek out the mineral interest owner (the lessor) through their own representative or an independent contractor, both of whom are commonly referred to as a “landman” to lease the land and will have prepared a “standard” lease they will ask the mineral interest owner to sign. Despite the landman’s typical characterization of the lease being simple and straightforward, oil and gas leases are very technical and concern multiple aspects of the development process.
Mineral owners should be aware and take caution because these leases have been written by and are drafted to the advantage of the company, not the mineral owner. There is no such thing as a truly standard agreement or what is referred to as the “Producer’s 88.” All leases, just like any other contract, are negotiable, and mineral owners have definite rights and interests to protect in their formation.
Our attorneys have extensive experience in reviewing and advising clients regarding the terms of oil and gas leases and have experience in negotiating with the companies to achieve a lease that is fair and reasonable. If you have been approached by a landman with a lease, be sure to protect your ownership rights and secure a fair lease. Our attorneys and staff are here to assist you in making sure you’re getting the best possible deal on your lease.
Surface Owner Contract Review & Negotiation
While mineral owners have the right to explore and develop their minerals, surface owners are also impacted by leases and have rights to protect. Surface owners often need to consider the impact mineral exploration will have on the surface estate – the ground they farm, ranch, hunt, or live on. Surface owners need to understand how leases will affect their property and their ability to use their property.
Our attorneys are well versed in contract drafting and negotiation. If you are a landowner and a company has approached you regarding a surface damages contract, be sure to protect your ownership rights and secure a fair agreement that will represent all parties’ interests. Our attorneys and staff are here to assist you to make sure you are treated fairly and are reasonably compensated for the loss of your use of your property.
On occasion, disputes will arise regarding mineral ownership, dormancy of the mineral estate, payments on leases, or destruction of property as a result of increased activity in oil country. People discover they own minerals they never even knew about and some may have allowed their interests to go unused for too long (in which case the mineral estate can revert, or be awarded to the surface owner). Sometimes, when the price of oil drops, the company that was so anxious to get you to sign that lease becomes a little less anxious or outright forgets to send you a check to pay for their lease. And, on occasion, accidents will happen and property will be damaged beyond the extent everyone bargained for.
Our attorneys are experienced in representing clients involving these complex issues. If you have concerns regarding your claim to the mineral estate, or are being sued over your claim, protect your rights and contact us. We are here to help preserve and enforce your ownership interests.
One of the positives of mineral ownership is the income one can attain from a mineral lease, especially when the price of oil is high. However, as we all know, without proper planning and budgeting, money can often be spent as fast as it comes in. It can also change the amount of taxes the government will want to collect from you.
Our attorneys are experienced and well versed in estate planning and taxation. We can help you preserve your newfound wealth for your children, grandchildren, and great-grandchildren. Please contact us to find out what we can do to assist you in preparing for your and your family’s future.