North Dakota Mineral RightsNorth Dakota Mineral Rights Deed

North Dakota Mineral Rights

Surface Rights & Mineral Rights

Title ownership of real property in North Dakota can be divided between:

  • the right to the use of the surface – for farming, ranching, commercial, or residential purposes – among others;
    and
  • the right to the underground minerals – such as coal, oil, natural gas, or metals – with the corresponding right to use the surface in order to retrieve such resources.

In most cases, surface and mineral rights in North Dakota were originally owned by the same person or entity.

However, they are distinct legal rights, that may or may not be currently owned by the same person or entity.

It has been estimated that North Dakota surface rights owners currently own only 25% of the North Dakota mineral rights – with the other 75% of the mineral rights owned by other persons.

In North Dakota – subject to certain limitations – the right to exploit the underground minerals has priority over the rights of the surface owner to the use of the surface.

Severed Mineral Rights

When mineral rights are owned by one or more parties other than the surface owner, the mineral rights are referred to as having been severed from the surface rights.

Such a “severance” could occur when:

  • a surface owner transfers the mineral rights to another person, but retains the surface rights,
    or when
  • a surface owner transfers the surface rights to another person, but retains the mineral rights.

After any such severance and transfer, ownership of the surface rights and mineral rights:

  • would remain as separate and distinct property interests,
    and
  • would be transferable to buyers, donees, or heirs as separate interests.

After a severance of the mineral rights from the surface rights, there would no longer be any ownership connection between:

  • the surface rights,
    and
  • the underlying mineral rights.

Sharing Ownership of the Mineral Rights

Surface and mineral ownership interests can be, and often are, divided among family members, usually as a result of inheritance rights arising after the death of one or more relatives.

Partial Reservation of Mineral Rights

It is not uncommon for:

  • part of the mineral rights to be sold with the surface rights,
    and
  • part of the mineral rights to be retained by the seller.

Example:

Swen sells:

  • the surface rights,
    and
  • one-half of the mineral rights to Bjorgvin.

Later, Bjorgvin sells:

  • the surface rights,
    and
  • one-half of the remaining mineral rights to Charlie.

After such conveyances – providing that they are done properly:

  • Charlie will own the surface rights, and 25% of the mineral rights,
  • Bjorgvin will own 25% of the mineral rights
    and
  • Swen will own 50% of the mineral rights.

Upon Swen’s death, if he leaves his mineral rights to his three children – Ole, Lena, and Hildegard – as an inheritance, then:

  • the surface rights and 25% of the mineral rights will be owned by Charlie,
  • Bjorgvin will own 25% of the mineral rights,
    and
  • Ole, Lena, and Hildegard will each own an undivided one-third of 50% of the mineral rights.

Manner of Ownership of North Dakota Mineral Rights

Tenancy in Common – Joint Tenancy

Complete mineral rights can be owned by multiple owners either as:

  • tenants in common – with no rights of survivorship between the co-owners,
    or as
  •  joint tenants – with rights of survivorship between the co-owners.

(i)      Leasing of Mineral Interests

Each tenant-in-common or joint tenant of mineral rights will have to consent to lease their mineral interests by signing a mineral lease.

While each tenant-in-common or joint tenant will be free to contract either separately, or collectively, with oil leasing companies, it may be in their best interests for all tenants-in-common or joint tenants to negotiate with one lessee, and sign the same lease.

In addition, joint tenants who sign separate leases relating to their individual ownership interests may “sever” the joint tenancy, thereby converting it into a tenancy in common, which may or may not be the result which they intended.

Life Estate – Remainder Interest – In North Dakota Mineral Rights

The owner of mineral rights can also convey such rights to a third party, while reserving the right to receive the benefit from such mineral rights during the grantor’s lifetime.

Such a deed grantor would be the  holder of a life estate in the mineral rights (a life tenant“) and the deed grantee would be the holder of the remainder interests.

The grantee’s remainder interests in the mineral rights will develop into complete ownership of such interests upon the death of the life tenant.

Life Estate – Remainder Interest – In General

During the lifetime of the life tenant, he or she would be entitled to receive all of the cash rent and royalty payments which may be generated during his or her life with respect to such interest.

However, a life tenant is not allowed to take any action that would permanently diminish the value of the land that will eventually be received by the remainder persons.

Since it could be argued that either mining activities, or the extraction or oil and gas, would permanently reduce the value of the land, the life tenant may be prohibited from unilaterally developing the mineral rights.

Therefore, it may be advisable for the life tenant to join with all of the remainder persons, to:

  • sign any mineral lease,
    and
  • share in any bonus payments which may be available.

Such life tenants and remainder persons may agree to divide any compensation received pursuant to a mineral lease in either the lease itself, or in a separate agreement.

In the absence of such an agreement, North Dakota law and the IRS regulations provide a formula for computing the share of each interest – which is based upon the life expectancy of the life tenant, and applicable interest rates.

North Dakota Mineral Rights – Trusts

The owner of mineral rights can also convey such rights to a trustee, to be held by the trustee for the benefit of one or more persons – including the grantor of such mineral rights.

If mineral rights will be included as assets of the trust, it may be best if the trust document specifically identified how the trustee should manage:

  • the mineral interests,
    and
  • the income derived from leasing those rights.

North Dakota Mineral Rights – Guardianship – Conservatorship

If the owner of mineral rights happens to be either a minor, or an incapacitated person, a court may appoint a guardian or conservator to act on behalf of the minor or incapacitated person.

A court appointed guardian or conservator will need to decide if, when, and for how much consideration any mineral rights of the ward or incapacitated person should be leased, providing that the guardian or conservator has such authority under the laws of the state where the guardian or conservator was appointed.

North Dakota Mineral Rights – Determining Ownership of the Mineral Interest

It is not uncommon for individuals to be unaware that they own North Dakota severed mineral rights.

Upon the death of a North Dakota decedent, the personal representative of his or her estate:

  • may not have been aware of such mineral rights,
    and
  • may have administered the decedent’s Estate without addressing the need to obtain the necessary:
    • court decree with respect to the mineral rights transferred to beneficiaries,
      or
    • Personal Representative’s Deed of Distribution confirming such rights.

Upon the subsequent death of any such beneficiaries, their probate estates may also have been settled without properly addressing the mineral rights.

The result may be remote family relatives unknowingly sharing ownership of the mineral rights.

Obtaining a complete title examination of the mineral ownership records years later may be difficult, but necessary, in order to properly determine the identity of the current mineral owners.

However, the reverse is also true – persons may believe that they own certain North Dakota mineral rights, but a review of the title records may indicate otherwise.

As discussed above, the surface owner may or may not own the mineral rights.

It would be helpful if surface owners would keep track of the percentage of mineral rights remaining on the various tracts of land they own – which would at least provide a starting point for a Title Company or examining attorney to properly determine the owners of the mineral rights.

It is always advisable to retain the services of a North Dakota attorney in order to assist the owner in determining the extent of any mineral rights.

North Dakota Mineral Rights – The Public Records

In North Dakota, public real property ownership records are maintained in each county by a County Recorder.

A mineral rights attorney should be consulted in order to provide a title opinion as to ownership of the mineral rights.

North Dakota Mineral Rights – “Quiet title” lawsuit

In situations where the ownership of mineral rights is not well-established, it may be necessary for a person claiming mineral rights to commence a “quiet title” action in a North Dakota District Court, which will allow the court to review the available title evidence, and determine the owner(s) of the mineral rights.

North Dakota Mineral Rights – Implications of Severed Mineral Rights

While the owners of severed mineral rights in North Dakota have certain privileges with respect to the surface of the land to explore and produce oil, gas, or other minerals without the consent of the surface owner, such privileges are not unlimited.

In Hunt Oil Co. v. Kerbaugh, 283 N.W.2d 131 (N.D. 1979), the North Dakota Supreme Court:

  • confirmed that mineral rights include inherent rights to use the surface of the land to find and develop the minerals,
  • but identified that the rights of the owner of the mineral estate are limited to use only so much of the surface as is reasonably necessary to explore, develop, and transport the minerals.

This means that if:

  • there is an existing surface use that would be unduly interfered with by one method of mineral recovery,
    and
  • there is an alternative method of mineral recovery available,

the rules of reasonable use of the surface by the mineral owner may require the mineral owner to adopt the alternative recovery method in order to accommodate the existing surface use.

However, if there is no alternative means of recovering the minerals, the mineral owner may pursue the only means possible to find and develop the minerals, despite the adverse impact it may have on existing surface activities.

In other words, the owner of the surface rights cannot stop the owner of the mineral rights from taking whatever action is reasonably necessary in order to recover any available minerals.

Nevertheless, according to the North Dakota Supreme Court:

the surface owner is entitled to not have the surface negligently used and to have existing uses reasonably accommodated“.

Transfer by Conveyance of North Dakota Mineral Rights (N.D.C.C. 47-10-24)

The general rule when transferring the ownership of mineral interests in North Dakota is that:

All conveyances or reservations of mineral rights (except leases), conveys or reserves all minerals of any nature (and their compounds and by-products), except

  1. those minerals specifically excluded by name from the conveyance or reservation,
    and
  2. gravel, clay, or scoria (unless specifically included by name in the conveyance or reservation).

Gravel, clay and scoria are statutorily exempted from the definition of “minerals”, and:

  • the right to such materials will remain with the owner of the surface rights,
  • unless gravel, clay and scoria are specifically identified as having been severed by either the conveyance or reservation.

Scoria is a volcanic semi-porous rock, which is often used:

  • in landscaping and drainage works,
  • in gas barbecue grills,
  • in high-temperature insulation,
    and
  • on oil well drilling sites in order to prevent the degradation of road access points which typically arises with heavy truck traffic.

North Dakota has significant quantities of scoria in certain regions, which can provide significant value to the owner thereof.

Therefore, the rights to scoria should be preserved whenever possible.

Leasing of North Dakota Mineral Rights

The general rule applicable to the conveyance of ownership of mineral rights is reversed with respect to any lease of mineral rights.

A lease of mineral rights will transfer only those minerals specifically identified or named in the lease.

Nevertheless, with respect to an oil and gas lease, all “associated” hydrocarbons produced in a liquid or gaseous form shall be deemed to be included in the lease.

Even when the words “all other minerals” or similar words of an all-inclusive nature are used with respect to any lease, such a phrase may NOT result in the lease of any minerals – except those which are specifically named in the lease.

Therefore, North Dakota treats mineral leases differently than sales, gifts, or other transfers of mineral interests.

Abandonment of North Dakota Mineral Rights

Once mineral rights have been severed from the surface ownership, special rules require that the owner of the severed mineral rights take certain actions within a 20 year period of time in order to preserve the owner’s continued rights to such severed minerals.

If the required action is not taken, North Dakota statutes allow for the forfeiture of a person’s ownership of severed mineral rights, even if the owner was not aware that he or she even had any such mineral rights:

“Any mineral interest …, if unused for a period of twenty years immediately preceding the first publication of the notice required by section 38-18.1-06, [is] deemed to be abandoned, unless a statement of claim is recorded in accordance with section 38-18.1-04.

Title to the abandoned mineral interest vests in the owner or owners of the surface estate in the land in or under which the mineral interest is located on the date of abandonment.”

A mineral interest is deemed to be used when:

A.         There are any minerals produced under that interest. …
D.        The mineral interest on any tract is subject to a lease

G.        A proper statement of claim is recorded… (N.D.C.C. 38-18.1-03).

Therefore, an owner of severed North Dakota mineral rights must either:

  • file a statement of claim,
    or
  • take certain other action,

in a timely manner in order to prevent the mineral rights from being considered “abandoned” – which will result in ownership of such rights reverting to the owner of the surface rights.

Leasing North Dakota Mineral RightsRather Than Directly Producing Minerals

Since most minerals rights are not exploited directly by individuals owners, it is common for an oil company to acquire the right to develop the oil or minerals from the owner or lessee of the mineral rights.

While such an acquisition could be accomplished by purchasing the mineral rights outright from the owner, usually the oil company:

  • will obtain a lease of the mineral rights from the owner,
  • which will allow the mineral or oil company to develop the minerals on the property.

A mineral lease usually requires the oil company to pay rent or other compensation to the owner of the mineral rights in exchange for the right to:

  • explore for oil and minerals on the property,
    and
  • begin developing or producing any oil, gas, or other minerals upon discovery.

Such leases commonly grant these rights to the oil company for a limited period of time – perhaps 3 to 10 years – and also typically provide that:

  • if production begins during the period of the lease,
  • the oil company will also have the right to continue to produce the minerals, or oil and gas, for as long as production occurs – which could be decades.

However, if no production activities have been commenced by the end of the initial lease term:

  • the lease may expire,
    and
  • the owner of the mineral rights may thereafter be free to offer release the mineral rights to a different oil company to lease the mineral rights.

In exchange for the continued production of minerals on the property, the owner of the mineral rights is typically paid a royalty, which is usually a percentage of the actual production of minerals, or oil and gas.

The North Dakota Industrial Commission is responsible for overseeing mineral development in the state – so some government monitoring of such activities is provided at the state level.

Leasing co-owned North Dakota Mineral Rights

When the mineral rights are co-owned by several persons, difficulties can arise in getting all of such owners to execute a lease, including those situations where one or more of the owners:

  • cannot be located,
  • is a minor,
  • refuses to execute the lease for undeclared reasons,
    or
  • for some other reason, cannot execute the lease.

If the place of residence or whereabouts of any other co-owner are unknown, North Dakota law permits an owner of mineral or royalty rights to petition the court for an order declaring the creation of a trust, and the appointment of a trustee.

Thereafter, the trustee will be authorized to execute a mineral lease, which will allow the production company to develop the mineral resource – pursuant to Section 38-13.1 N.D.C.C.

If the petition is approved by the court, nonsigning owners are guaranteed to receive their proportionate benefits from the lease.

Likewise, if the owner of a life estate:

  • desires to enter into a mineral lease,
  • but is unable to locate or determine the owners of the remainder interest,

the life tenant may petition the court for an order declaring a creation of a trust, and the appointment of a trustee.

Topics of Interest – North Dakota Ancillary Probate

Topics of Interest – North Dakota Transfer on Death Deeds

Topics of Interest – North Dakota Affidavits of Heirship

Topics of Interest – North Dakota Intestate Succession.

Topics of Interest – North Dakota Informal Probate

Copyright 2019 – All Rights Reserved

 Gary C. Dahle – Attorney at Law
2704 Mounds View Blvd.
Mounds View, MN 55112

Phone:  763-780-8390   Fax:     763-780-1735      gary@dahlelaw.com

Gary C. Dahle has represented clients from the countries of Canada, Norway, and Sweden, and the states of Alabama, Arizona, California, Colorado, Connecticut, Florida, Idaho, Illinois, Indiana, Iowa, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Missouri, Montana, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Tennessee, Texas, Virginia, Washington, and Wisconsin in the United States, with respect to North Dakota mineral rights and probate issues in various North Dakota Counties.

http://www.legis.nd.gov/general-information/north-dakota-century-code

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