Columns / Kline: Unmistakable Marks

Getting to the Bottom of Subsurface Rights

May 1, 2014
KEYWORDS legal / minerals
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Mineral rights and mining interests in land have become more critical than ever in recent years, and disputes over conflicting property rights are common. In some instances, surveyors may play a significant role in determining the limits of these valuable property interests. This article considers a few of the myriad concepts related to the recovery of the various materials known collectively as minerals. As is often the case when dealing with these complex issues, it must be clearly understood at the outset that individual states do not always agree on some of the concepts discussed below.

Because the separation of a mineral estate from the surface may create a property interest other than fee simple, it is important to determine precisely what rights were transferred in the granting document. While a majority of states consider a deed that severs the underlying coal from the surface ownership to create separate and distinct estates in land, the situation is less clear-cut where an interest to oil or gas has been granted. Leases (of various terms), grants (fee simple or fee simple determinable), and profits a prendre are all legitimate mechanisms for creating interests in mineral deposits. The wording of the document, surrounding circumstances and local industry standards may all be considered when determining precisely what right was created. There is an important difference between the right to recover a specific material and actual ownership of an estate.

Vague descriptions can make it difficult to determine exactly what materials will be considered minerals under the terms of a specific lease, grant, or exception. As is also the case with other transfers of property rights, the scope of the materials included in a description will be determined by the intent of the parties. This can be a difficult proposition, particularly when dealing with old or poorly worded documents. Intent may be clearly spelled out in a document; however, where ambiguity exists, intent may also be inferred from surrounding circumstances including typical mining practices at the time of the conveyance as well as from local idioms and customs.

Rulings from several jurisdictions affirm that the term minerals does not generally refer to all matter found beneath the surface. Sand and gravel are sometimes excluded from the category, and natural caverns together with the features and wildlife associated with them are likewise considered separate from a mining interest. At times, the relative scarcity of the material in that particular region may play a part in determining the status of a specific substance.

Subsurface water is generally considered a separate interest although the right to limited use of water may be implied. It is also often inferred that subterranean water filling mineshafts and tunnels may be pumped out to some other location. However, this principle may come into conflict with environmental standards, common law or state statute prohibiting waste.

Mccormick v. Union Pacific describes a two-pronged approach to determine if a substance is reserved under a general mineral reservation in a grant. This test is only considered valid in circumstances where an ambiguity exists in the wording of the grant or arises from the specific situation and the surrounding circumstances of the case: (1) the word "minerals" when found in a reservation out of a grant of land means substances exceptional in use, in value, and in character, and does not mean ordinary soil which if reserved would practically nullify the grant; and (2) in deciding whether exceptional substances are "minerals," the true test is what that word means in the vernacular of the mining world, the commercial world, and landowners at the time of the grant, and whether the particular substance was so regarded as a "mineral." [1] The court emphasizes that this test may not be applied to documents where the meaning is clear and self-evident. An additional complication emerges with the warning that a few eastern states have not followed this convention consistently.

 

Oil and gas are commonly included in the general term minerals as applied to grants of subsurface estates. The Colorado decision cited above notes: “The courts are practically unanimous in holding that oil and gas are minerals in the broad and general sense in which that term is used. These decisions would seem to fix a common standard of meaning of the term, and it is a general rule, adhered to by a majority of the courts, that a conveyance or exception of minerals includes oil and gas, unless from the language of the instrument, or from the facts and circumstances surrounding the parties at the time of its execution, it is found that the term was used in a more restricted sense.”[2] Note that this ruling leaves room for specific situations where gas and oil were clearly not intended as part of the grant.

When dealing with oil and gas fields, the fugitive nature of these materials must be considered. Several state courts have conceded that the precise location of any individual quantity of oil is not fixed while the underground reservoir remains untapped. In other words, these materials may seep from one place to another over time.

An early Louisiana decision draws an analogy between subterranean water supplies and oil deposits. In both cases, landowners have the right to extract the material from below their own tract. In addition, any fugitive material that seeps to the landowner’s well from the neighboring substrata is considered a reasonable consequence of the nature of these materials. [3]

Higgins Oil & Fuel Co. v. Guaranty Oil Co. was later quoted and reinforced by an opinion from the Virginia court: “An owner of land under which there is fugitive mineral oil cannot complain that his neighbor uses a pump in a well located on the neighbor's property, although the effect is to drain oil from beneath that of the property owner…An owner of land does not own the fugitive oil beneath it.” [4]

These decisions were recorded long before horizontal drilling at great depth was technologically feasible, and different rules may apply for modern drilling practices where a directional well or horizontal bores physically intrude into the lands of another. Modern pooling laws found in many states (and recent rulings based on the current statutes) address situations where oil and gas wells extend into the subterranean estate of a third party.

          

Some of the principles that affect the creation and treatment of easements between adjoining surface tracts may also apply when considering horizontal estates of land. Similarities are quickly found when considering implied easements as applied to horizontal and vertical divisions of property. One California court notes: “The owner of real property may divide his lands horizontally as well as vertically, and when he conveys the subsurface mineral deposits separately from the surface rights, or reserves them from a conveyance of such surface rights, he creates two separate fee simple estates in the land, each of which has the same status and rank.” [5]

When mineral rights are severed from surface interests in a given parcel, it is customary to consider the subterranean estate as the dominant tract; the surface then becomes the servient estate. This is a reasonable position because the owner of the mineral interest must often resort to the use of some portion of the surface in order to profit from ownership of the minerals below. By contrast, the owners of the surface interest may have no need or desire to intrude into the subterranean estate in order to fully enjoy their property rights. Note that this convention may be further complicated if the owners of the surface rights have need to reach a subterranean water supply, or other subsurface interests below those described in an existing mineral estate. Multiple subterranean estates and associated conflicts arising from the parties attempts to access different strata are not only possible but have become more common in recent years.

While it is certainly preferable that easements be expressed in writing, some type of implied easement (such as an implied easement by necessity) will often be recognized by the court where no method of access is expressly described. This is not a foregone conclusion in situations where the owner of the mineral interest also owns fee simple title to neighboring properties and the subterranean estate may be reasonably accessed through existing shafts and tunnels on those adjoining tracts. One claimant was denied an implied easement by the Maryland courts: “Where a vendor of the surface reserves the coal, with no stipulation as to the mining thereof, he will be entitled to such use of the surface as is necessary to make his reservation effective; but, if he owns adjoining property, through or over which it is practically possibly to mine and remove the reserved coal, he will not be entitled to use for that purpose the conveyed surface.”[6]

 

In situations where a general easement is stipulated by deed or other writing, the method of accessing the materials to be recovered will depend on the intent of the grantor as described in the document. In cases where any ambiguity exists in the wording of the document, the recovery method may also depend on typical practices and the technology available at the time of the signing of the document.

One question that courts will consider is whether the material in question is traditionally recovered from open quarries, through wells drilled by various methods, or from a series of mine shafts and tunnels. An interesting example of this idea is found in major areas of the Shenandoah Valley of western Virginia, where the substrata is dominated by limestone layers that begin just below the surface and extend to great depth. Due to a plentiful supply near the surface, this stone is generally recovered from open quarries rather than from mines. One Virginia ruling includes the following statement: “The term '" mineral"' is not a definite one, capable of a definition of universal application, but is susceptible of limitation according to the intention of the parties using it, and in determining its meaning regard must be had not only to the language of the deed in which it occurs, but also to the relative position of the parties interested, and to the substance of the transaction which the deed embodies. [7]

Among other items of interest, this ruling considers that the relevant document refers to those materials recovered by mining and concludes that limestone deposits were clearly beyond the scope of what was intended: “A fair construction of the language of the reservation in the deed here involved, with such explanation as is given thereto by the rights reserved therewith, reached in the light of the conditions surrounding the thing dealt with, does not, in my judgment, include limestone in the reservation. It seems to me that the words describing the substance reserved and the words describing the removal rights are only such as are apt and proper to describe 'such minerals as are secured by the ordinary processes of mining.' Limestone is obtained by quarrying. In ordinary usage, in this section, neither the layman nor the lawyer would think of limestone when metals and minerals are referred to.” [8]

Indiana common law supports the premise stated by the Virginia courts and at least one Indiana decision implies that accessible deposits of “Dolomite Limestone” are sufficiently rare to merit special mention. [9] It is also noteworthy that several Indiana rulings associate limestone deposits with quarrying and make no mention of mining.

 

           A problem associated with boundary retracement occurs when a mineral estate is bounded by a riparian boundary that is subject to the effects of accretion and erosion. Rulings on this issue are rare nationwide, but a recent decision from Arkansas summarizes the consensus of the few relevant cases. This opinion notes that the surface and subterranean estate must be measured with the same yardstick. As a result, if the boundary of the surface estate is affected by accretion or erosion of a stream bed called for in the deed, the limits of the mineral rights are similarly affected.

Swaim v. Stephens Production Co. includes an admirable summary of what little case law is currently available on the topic, and the rationale for the decision. Quoting a 1980 ruling from Oklahoma, [10] this court observes:“The trial court had ruled that a severed mineral interest could not be lost by accretion. The Oklahoma Supreme Court disagreed based upon its view that distinguishing between severed and unsevered mineral interests would allow fee owners to convey a greater mineral estate than they themselves possess. Id. The court also noted that such a rule would inevitably result in inequities because an unsevered mineral interest would still be subject to loss by virtue of accretion; whereas, a severed mineral interest would never be subject to such loss.” [11]This analysis was also supported by a Montana ruling in 1983.[12]

Swaim v. Stephens Production Co. continues with the observation that several legal treatises dealing with this issue support the premise that mineral rights are subject to accretion and erosion. The situation is further complicated by the effects of relevant Arkansas statutes. [13]

Several rather one-sided articles have been written condemning the recognition of accretion relating to subsurface interests in land. However, a more comprehensive article recently considered this problem and proposed four alternatives to the present system – but conceded that none were completely satisfactory. [14]

 

In major metropolitan areas, subsurface rights encompass numerous activities other than the recovery of minerals. Subways, major utility installations and other structures create new dimensions to add to the difficulties faced by the surveyor. At least one court has emphasized the increasingly complex nature of property interests to be found below ground surface. Each tunnel constructed creates a new possible activity underground that would have been impossible to contemplate before the structure was completed. An Illinois ruling admirably summarizes this idea: “Piers, bridges, and underground tunnels "create" new property where none existed before, in spaces that were heretofore nonassessable. Piers extend into water, bridges soar into air, and tunnels create space below the surface of land. Upham holds that such man-made creations have a "separate existence from the land in which they are constructed," and are assessable real property belonging to their constructors.” [15]

 

The information presented here is only an overview of a few of the concepts that the surveyor must deal with when involved in survey projects associated with subterranean property rights. Additional digging will reveal more useful information and these informational gems may lead to additional business opportunities in related fields.

 

List of Sources:

 

1.  Mccormick v. Union Pacific Resources: Colo.14 P.3d 346 (2000)

2.  Mccormick v. Union Pacific Resources: Colo.14 P.3d 346 (2000)

3.  Higgins Oil & Fuel Co. v. Guaranty Oil Co.: 145 La. 233; 82 So. 206 (1919)

4.  Couch v. Clinchfield Coal Corporation: 148 Va. 455; 139 S.E. 314 (1927)

5.  Nevada Irrigation v. Keystone Copper: 224 Cal. App. 2d 523; 36 Cal. Rptr. 775 (1964)

6.  Calvert Joint Venture # 140 v. Snider: 373 Md. 18; 816 A.2d 854 (2003)

7.  Beury v. Shelton: 151 Va. 28; 144 S.E. 629 (1928)

8.  Beury v. Shelton: 151 Va. 28; 144 S.E. 629 (1928)

9.  Brown v. Lowell Mining Co.: 636 N.E.2d 154 (1994)

10.      Nilsen v. Tenneco Oil Co., 1980 OK 14, 614 P.2d 36 (Okla. 1980)

11.      Swaim v. Stephens Production Co.: 359 Ark. 190; 196 S.W.3d 5 (2004)

12.      Jackson v. Burlington Northern, Inc., 205 Mont. 200, 207, 667 P.2d 406, 409-410 (1983).

13.      Ark. Code. Ann. § 22-5-404 (2004)

14.      Alternatives to Accretion: Daniel K. Brough – 2004 B.Y.U.L. Rev. 169

 15.      Kankakee Board v. Tax Appeal Board: 226 Ill. 2d 36; 871 N.E.2d 38 (2007)

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