[April 2, 2020]

In this time of uncertainty, real property owners, including owners of mineral interests, are feeling an increased responsibility to set their estates in order. Probate proceedings can be expensive and time-consuming for loved ones, so many people are turning to alternative estate planning tools, like revocable trusts, to transfer real property outside of probate. to transfer real property outside of probate. Another valuable tool that mineral and surface owners should consider is an instrument called a beneficiary deed in Colorado1 and a transfer on death deed in Wyoming2. The beneficiary or transfer on death deed operates similarly in many states. This estate planning tool can accomplish many of the same goals as a revocable trust, without the more complicated aspects of setting up and administering a trust.

A beneficiary deed is a special type of deed that allows a property owner to distribute real property assets, including mineral interests, upon death without those assets going through probate. By executing a beneficiary deed at any time while living, a property owner can convey title to real property to one or more grantee-beneficiaries upon the death of the owner. Colo. Rev. Stat. § 15-15-404 (2019).

There are several advantages in using a beneficiary deed to transfer real property to intended grantee-beneficiaries. The obvious benefit is that the current owner retains full control and enjoyment of the property. In addition, the beneficiary deed can easily be revoked at any time during the life of the owner. With regard to taxes, the owner-grantor avoids paying a gift tax by transferring title at death, and the value of the property at the owner’s death typically receives a stepped-up basis, minimizing the capital gains the beneficiary must pay3. While the grantee-beneficiary does take title to the real property subject to all encumbrances, like mortgages, deeds of trust and leases, the grantee-beneficiary may disclaim all or any part of the real property and will not be liable for any encumbrances if they do so. Colo. Rev. Stat. § 15-15-407(2) (2019); Colo. Rev. Stat. § 15-15-414 (2019).

Certain legal requirements must be complied with for the beneficiary deed to be effective. The beneficiary deed must contain very particular legal language and must be recorded with the clerk and recorder’s office in the county where the real property mineral interest is located. Colo. Rev. Stat. § 15-15-404 (2019). A certified death certificate, accompanied by a supplemental affidavit, must also be recorded for title to transfer. Colo. Rev. Stat. § 15-15-413 (2019). A beneficiary deed may not be the right tool to convey real property and mineral interests if an owner is planning on qualifying for Medicaid, if there are undefined grantee-beneficiaries, or if estate liabilities exceed assets4. If you are interested in learning whether the beneficiary deed may work for your estate planning needs, please consult a professional to more fully evaluate your individual circumstances.


1. This article relies on the Colorado law regarding beneficiary deeds located at Colo. Rev. Stat. §§ 15-15-404–414 (2019).
2. Wyoming law regarding transfer on death deeds, which is similar to Colorado law, is located at Wyo. Stat. Ann. §§ 2-18-101–106 (2019).
3. See Practical Considerations in the Use of Colorado Beneficiary Deeds, 44 Colo. Law. 41 (Jan. 2015).
4. Id.

Part III of III: The Effect of Avulsion on Riparian Mineral Ownership
 [April 1, 2020]

Unlike the gradual processes of accretion, reliction, and erosion, discussed in the preceding post for this series, avulsion is a “sudden inundation or sweeping away of land resulting from a sudden change in the course of a waterbody.” Eaton v. Francis, 484 P.2d 128, 131 (Colo. App. 1971). Avulsion results from both man-made and natural events. For example, the government may divert a river’s course for agricultural purposes, creating a “new” channel covering lands that were not previously riparian. A flood may also create avulsion, resulting in an entirely different landscape as homes, roads, and agricultural developments are completely wiped out. In this final part of our series on riparian land title, we examine how avulsion events impact mineral title.

Avulsion can result in several distinct types of changes to the landscape, with each result having a different effect on property ownership. In North Dakota, the statutory scheme deals with the multiple types of avulsion. First, sudden changes to the banks are addressed:

If a river or stream … carries away by sudden violence a considerable and distinguishable part of a bank and bears it to the opposite bank or to another part of the same bank, the owner of the part carried away may reclaim it within a year after the owner of the land to which it has been united takes possession thereof.”  N.D.C.C. § 47-06-06.

The statute above clearly lays out the title remedies if a situation occurs where the bank of a river is suddenly carried away and attached to another part of the bank. A more complex type of change occurs when the entire course of river is relocated. For example, let’s say a river previously ran through Sections 16 and 17, but because a governmental entity diverted the river, it now runs through Sections 20 and 21. An abandoned channel now lies in Sections 16 and 17. Who obtains title to that abandoned channel, and what recourse do landowners in Sections 20 and 21 have? A majority of states have adopted a provision derived from the Napoleonic Code.  Unlike a majority of our legislation, this statute is not based on common law, but rather on French and Roman Civil Law. The North Dakota version of the statute states the following:

If a stream, navigable or non-navigable, forms a new course abandoning its ancient bed, the owners of the land newly occupied take by way of indemnity the ancient bed abandoned, each in proportion to the land of which the owner has been deprived. N.D.C.C. § 47-06-07.

In other words, the landowners of Sections 20 and 21 would now acquire title to the abandoned channel in Sections 16 and 17, in proportion to the lands they originally owned in Sections 20 and 21. Louisiana, Oklahoma, and South Dakota have also applied this doctrine of indemnification if avulsion occurs. See L.A. Civ. Code Ann. Art. 504 (West 1980); 60 Okl. St. § 340; S.D. Codified Laws Ann. § 43-17-11 (1983). Texas has applied a similar, but different approach to indemnifying owners. The Supreme Court of Texas has followed Mexican Civil Law and held that if an avulsion event occurs, the riparian owners are entitled to the abandoned channel in proportion to their frontage.

Finally, it is important to note that accretion, rather than avulsion, is presumed if a river changes course. If you suspect avulsion has occurred, you must obtain and record proof. This can often be found in surveys, land records, plats, or even quiet title decisions. Moreover, you should provide all aerial photos and related surveys to your attorney when conducting mineral title examination.

Through the course of this riparian title series, we have examined how navigability, the shift of water bodies due to accretion, reliction, and erosion, and avulsion events affect mineral title.  Although not exhaustive, each discussion provides basic principles that should be considered when examining title in a drilling unit that encompasses riparian lands.

 

Part II of III: How do Changes in the Boundaries of Bodies of Water Affect Mineral Ownership?
 [March 25, 2020]

As discussed in Part I, grantees of riparian land conveyances take to the center of the non-navigable river, while the state owns the minerals underlying navigable bodies of water up to their ordinary high watermarks. Over time, however, bodies of water shift their course. What effect do these changes have on underlying mineral ownership of riparian land? Below, we discuss the effects of accretion, reliction, and erosion upon mineral ownership. Before we begin, a brief definition of our terms is as follows. Accretion is the “deposit and addition of soil along the bank of a waterbody caused by gradual shift of the waterbody away from the accreting bank,” while reliction is “the gradual receding of water resulting in the gradual baring of previously submerged land.” Erosion occurs when the bank of a waterbody loses soil because of “the gradual encroachment of water into the eroding bank.” J.P. Furlong Enters. v. Sun Exploration & Prod. Co., 423 N.W.2d 130, 140 (N.D. 1988).

How do the above processes affect mineral title? Let’s hypothesize that originally, Landowner A owns Lots 1, 2, and 3, lying west and adjacent to the river. Landowner B owns Lots 4, 5, and 6, lying east and adjacent to the river. The river moves eastward overtime. In doing so, its movement leaves behind accreted lands, those lands to the west that were previously underwater but are now exposed. Likewise, the river completely subsumes Lots 4, 5, and 6 by the process of erosion. The majority rule states that title to accreted and relicted lands belongs to the adjacent riparian owner. See Eaton v. Francis, 484 P.2d 128, 131 (Colo. App. 1971). Conversely, title to the eroded land is lost. N.D.C.C. § 47-06-05. Here, Landowner A would now gain title to the accreted lands, while Landowner B would lose title to Lots 4, 5, and 6. The severity of these rules may be surprising, but Courts have stated that the rules are based on the equitable idea that a riparian landowner should be aware of the risks involved. If one owner is subject to the hazard of loss by erosion, the same owner may also have the opportunity to gain by accretion. J.P. Furlong Enterprises, Inc., 423 N.W.2d at 133.

Occasionally, lots that have been eroded away eventually re-surface as the river continues to shift. In our example above, imagine that the river continued its movement eastward so that portions of Lots 4, 5, and 6 eventually re-surfaced. In situations such as these, jurisdictions vary in their rules of ownership. Because the analysis varies from state-to-state, the landman or title attorney should consult case law within that jurisdiction.

Additionally, it is important to note that federal lands are also subject to the doctrines of accretion, reliction, and erosion. In the example above, if the United States owned Lots 4, 5, and 6, it would also lose its land by the hazard of erosion. If federal lands are leased, then “lost” to the river, the operator should ask that the lease be cancelled pursuant to 43 C.F.R. 3108.3(c). The Secretary of the Interior, rather than the BLM, has the authority to cancel the lease.

Finally, if there are multiple riparian owners whose lands lie adjacent to accreted lands, ownership of the accreted lands is divided on the basis of the rule of apportionment. Under this rule, ownership of the accreted lands is allocated in proportion to each owner’s share of the original shoreline, and a line is drawn from the owner’s respective points to the new shoreline. Nord v. Herrman, 577 N.W.2d 782, 786 (N.D. 1998); Gardner v. Green, 271 N.W. 775, 783 (N.D. 1937). While this rule is practical for a circular body of water, it would likely result in an inaccurate allocation if the body of water is irregular. At minimum, a survey should be conducted. For security of title, landowners that find themselves in this situation may want to execute a stipulation of interest and cross-conveyance that references a professional survey.

In our upcoming and final discussion in this series on riparian land title, we will examine the effects of avulsion on mineral title.

 

Part I of III: Ownership Underlying Navigable and Non-Navigable Water Bodies
 [March 18, 2020]

With nearly 265,000 square miles of water, the United States offers a diverse landscape. Inevitably, some of the largest bodies of water are located in targeted areas for oil and gas drilling. Texas, for example, contains over 7,300 square miles of water, while North Dakota has nearly 1,700 square miles of water, including the large Yellowstone and Missouri Rivers.1 Mineral title examination underlying riparian lands, those lands that lie contiguous with and underneath bodies of water, has its own set of rules. This article discusses navigability, the first step in the title analysis. We also discuss mineral ownership allocation underlying non-navigable waters.

The first step in riparian mineral title examination is determining whether a body of water is navigable or non-navigable. Navigable bodies of water are deemed navigable in fact “when they are used, or susceptible of being used, in their ordinary conditions, as highways for commerce, over which trade or travel may be conducted.” The Daniel Ball, 77 U.S. 557, 563 (1871). This test of whether a body of water could have been used as a commercial highway is applied to the body of water as it existed at the time of statehood. From a title perspective, we typically look to court decisions for guidance on whether a river is navigable or non-navigable. For example, some courts have considered whether traders and fur trappers used the river as a basis for navigability. This test is also applied on a segment-by-segment basis. Thus, your drilling unit may include a river with both navigable and non-navigable waters.

How does navigability affect mineral ownership? At common law, the original thirteen states owned title to navigable bodies of water by virtue of their sovereignty. Pollard v. Hagan, 44 U.S. 212 (1845). Before a state is admitted to the union, the United States holds navigable waters in trust for the new states. Upon admission, the new state obtains title to the beds of navigable bodies of water on “equal footing” with the original states. Pollard at 224. The states therefore own the minerals underlying navigable waters, up to their ordinary high watermarks.2 In bodies of water that are non-navigable, we analyze mineral title differently. If a conveyance of real property is made where a non-navigable river is the boundary line, the riparian owner takes to the center of the river. Hanlon v. Hobson, 52 P. 433, 435 (Colo. 1897). See also Hunzicker v. Kleeden, 17 P.2d 384, 385 (Okla. 1932).

The term “boundary line” can have different meanings, and it is important to define for purposes of allocating ownership. A deed that references a non-navigable river as the boundary line is referring to the ordinary high watermark, unless the instrument of grant indicates a different intent. A meander line, the line used in surveys to establish the curves of a body of water, is often mistaken as the boundary line. Even if a deed does describe the boundary using a meander line, the property is still conveyed to the ordinary high watermark. North Shore v. Wakefield, 530 N.W.2d 297, 300 (N.D. 1995). See also, Twin Lakes Reservoir & Canal Co. v. Bond, 157 Colo. 10, 14 (1965) (holding that in consideration of the attached survey and reference to acreage, the grant intended to limit the boundaries of the conveyance). Courts have defined the ordinary high watermark as “the point up to which the presence and action of the water is so contiguous as to destroy the value of the land for agricultural purposes by preventing the growth of … an ordinary agricultural crop.” In re ownership of Bed of Devil’s Lake, 423 N.W.2d 141, 145 (N.D. 1988). Because the ordinary high watermark is subject to change based on the Court’s analysis above, it is always important to obtain a professional survey of riparian lands within your drilling unit.

Part II of this series will look at the effect that changes in boundaries of water bodies may have on underlying mineral ownership.

2. Recent legislation has affected this analysis in North Dakota. Please see www.dmr.nd.gov for more information regarding navigable rivers and their ordinary high watermarks in North Dakota.
 
 

[February 25, 2020]

The Wyoming Oil and Gas Conservation Commission (“WOGCC” or “Commission”) received more than 22,000 Applications for Permit to Drill (“APDs”) in 2018 and far surpassed that number with more than 30,000 permit applications in 2019. The influx of APDs was caused by operators looking to lock up acreage. In response to the flood of applications, the WOGCC promulgated a new APD rule, which went into effect December 20, 2019. However, in attempting to resolve the issues created by the former rule, the new rule may raise new issues. Under the former rule, the first party to file an approvable APD secured their position as the operator of the drilling and spacing unit (“DSU”) and had two years to commence drilling operations. This led to operators securing more permits than feasible to develop, while effectively locking other potential operators out of the DSU for the life of the permit. The rule was criticized for resulting in an unfair advantage to larger operators with more capital, and as detrimental to the interest of mineral owners whose estates go undeveloped.

While retaining the vast majority of the old rule, the new APD rule seeks to undo gridlock created by the old rule and to encourage actual development. Through the addition of Section 8(l), the new rule limits who may file for a new APD or extension to the owner or operator having either a spud or completed well in the DSU or the oldest pending or approved APD. Under Section 8(m), the new rule creates a process whereby an owner or operator who does not meet those criteria can trigger contested case proceedings to determine operatorship of the DSU. Section 8(m)(i) requires the parties to provide a wealth of information in contested case proceedings, including a description of their technical ability and experience, details on the percentage of working interest held within the proposed DSU and the “area,” information on the wells operated by the applicant and protestant in surrounding lands, and other information. The Commission will consider all of the information, as well as “other relevant evidence.” If the parties are deemed “equal,” the Commission will grant the permit to the party with the largest percentage of working interest ownership “combined with working interest owners who have expressed written support.”

The various factors identified in Section 8(m) grant the Commission broad discretion and also raise questions about what information is most likely to sway the Commission. For instance, parties are to provide working interest ownership for both the DSU and the “area.” The scope of the word “area” is unclear. Does the rule contemplate working interest in the neighboring sections or some broader category, and why is that relevant to the APD under review? Alternatively, if operators are of disproportionate size, will technical ability and experience always favor larger operators? It is also unclear how operators may be “deemed equal,” triggering the tiebreaker of working interest ownership and partner support. As operators seek to distinguish themselves from one another, the broad standards on supporting evidence may result in floods of information with relatively unknown value. The answers to these questions and more will undoubtedly play out in the coming months.

Despite the uncertainty, the new rule should encourage actual development by raising the stakes associated with APDs. If an operator fails to diligently develop, they will likely face a higher risk of losing operatorship in the DSU. The costs associated with obtaining and maintaining APDs are also likely to increase as owners and operators apply for or defend their operatorship and APDs through contested cases. It remains to be seen whether the WOGCC has traded a flood of APDs for a flood of contested cases to determine operatorship.

Further information regarding the new APD rule can be found on the WOGCC website.

 

[November 12, 2019]

Operators today have access to geographic information that far outstrips the information once commonly available.  County Assessor’s records are routinely linked through GIS (Geographic Information Services) to provide interactive maps that allow for detailed and accurate mapping and measurement.  At the same time, mineral ownership in large subdivisions has created the need for accurate acreage measurement of numerous parcels.  These factors have led operators to undertake mapping and acreage determinations in order to allocate royalty payments and working interest ownership. What happens when these acreage determinations differ from acreages stated in pre-existing leases?  Where the newly determined acreage is smaller than the stated estimate of area it may result in reduced royalties.  Where the acreage is larger a more problematic question arises.  Is the “new acreage” covered by the lease?

In Hild v. Johnson, 723 N.W.2d 389, 391 (N.D. 2006), the North Dakota Supreme Court ruled that an unambiguous property description controls over a statement of acreage.  In 1960, Hild took title to all of Section 21 by marshal’s deed, which described the land as “containing 582.76 acres, more or less,” which represented the section less the lands underlying the Little Missouri River. The same year, Hild conveyed an undivided 382.76/582.76 interest in the minerals of all of Section 21 to Harding.  The Deed described the land as “All of Section Twenty-one in Township One Hundred Thirty-Nine (139) North of Range One Hundred Two (102) West, containing 582.76 acres, more or less.”

In 1992, the 8th Circuit ruled that the Little Missouri River was non-navigable at the time of statehood for North Dakota, and as such, the state did not own the land or minerals underlying the river as previously thought. Instead the minerals underlying the river belonged to the adjoining parcels.  This increased the acreage of Section 21 from 582.76 to 640 acres.

Hild argued that the 1960 deed conveyed only 382.76 acres. The Court disagreed and held that the fraction used in the 1960 deed from Hild to Harding represented an undivided interest, rather than a specified acreage. Id. at 393-394. The Court ruled that “[w]here the deed purports to convey the whole of a designated tract, with the description of it as containing a given number of acres ‘more or less,’ the primary significance of that deed is that the grantor intended to convey all the land in the tract described, whatever may be its acreage, and the grant is not defeated by a discrepancy between the recited and the actual area” Id. At 394 (quoting 16 Am. Jur. Deeds,§ 282).Thus, the 1960 deed conveyed undivided 382.76/582.76 interest in the 640 acres of Section 21.

That same logic was applied to acreage statements in North Dakota Oil and Gas Leases by the Court in Lario Oil & Gas Co. v. EOG Res. Inc., 832 N.W. 2d 49, 53 (N.D. 2013). Colorado has not yet expressly adopted these principles, but numerous other jurisdictions have. See, e.g., Anderson-Prichard Oil Corp. v. Key Okla. Oil Co., 299 P. 850 (Okla. 1931); Koennicke v Maiorano, 682 A.2d 1046, 1053 (Conn. 1996). Moreover, Colorado courts presume that general descriptions include the acreage of adjoining strips.  See Near v. Calkins, 946 P.2d 537, 541 (Colo. 1997). Accordingly, we believe that a Colorado court would agree with the outcomes in the Hild and Lario cases.

Tjornehoj & Hack LLC invites you to join our attorneys Peter Hack and Katie Moisan as they speak at Denver Association of Petroleum Landmen’s luncheon on Wednesday, April 17, 2019. With continued expansion along Colorado’s Front Range and a tense political climate, landmen face growing issues concerning development in suburban areas. The presentation will provide practical solutions to avoid and correct title issues underlying subdivisions, including the severance of lot minerals, after-acquired title concerns, and the Colorado Common Interest Ownership Act.  The discussion will also focus on operational issues with regard to leasing and statutory pooling, as well as an effective approach to community outreach. The luncheon will be held from 11:30 a.m. to 1:00 p.m. at the Denver Athletic Club, located at 1325 Glenarm Place.  For more information, please visit www.dapldenver.org.

Tjornehoj & Hack, LLC was happy to provide burritos to the hungry attendees of the 2018 DAPL and GeoLand Ski Day at Copper Mountain. This fun event was organized by the Denver Association of Petroleum Landman (DAPL) and the Rocky Mountain Association of Geologists. See the links below for more information and to learn how to attend next year!

 

Learn more about this event and how to attend or sponsor next year's event here:

Denver Association of Petroleum Landman (DAPL) - https://dapldenver.org/event/2017-geoland-ski-day/

Rocky Mountain Association of Geologists (RMAG) - http://www.rmag.org/geoland-ski-day

-Tjornehoj & Hack, LLC

 

 

[February 13th, 2018]

Jon Tjornehoj and Alex Finch had the opportunity to present their "Anatomy of a Farmout Agreement" presentation to the Denver Association of Lease and Title Analysts (DALTA) at their first luncheon of the year. The presentation covered the structure, purpose, and function of a typical Farmout Agreement as well as the impact such an agreement can have on your chain-of-title and mineral title ownership.

Free download of our presentation is available here: Anatomy of A Farmout Agreement.

Thank you DALTA for the opportunity and the wonderful crowd.

Check them out at www.DALTA.org and LinkedIn at: https://www.linkedin.com/company/denver-association-of-lease-and-tit-le-analyst/

-Jon and Alex

 

 

 

Law Center Gala

Tjornehoj & Hack, LLC recently attended the 35th Annual Legacy Gala celebrating the Rocky Mountain Children's Law Center. Our attorneys not only enjoyed the evening, but also the opportunity to support a great cause. In addition to corporate support, our attorneys actively volunteer with the Domestic Violence program and provide legal support for Colorado's most vulnerable population. The mission of the Rocky Mountain Children’s Law Center is to positively transform the lives of abused, neglected and at-risk Colorado youth through legal advocacy and public policy reform. The Rocky Mountain Children’s Law Center recently celebrated 25 years of their Domestic Violence Program, which is the only program in the nation providing legal representation for children in domestic violence cases. In 2016, the Domestic Violence Program provided guardian ad Litem representation for 271 children in 146 cases. 

Read more about this great organization and how you can support it at: https://childlawcenter.org/

-The team at Tjornehoj & Hack LLC