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Oil, Gas, & Mineral Interests
In General
A Caution
Unauthorized Practice of Law
Concerns
Note: Appreciation and gratitude is extended to
Mr. Larry Elkus, Esq., of Farmington Hills, Michigan (www.elkus.com), who
generously contributed the research and content of this Legal Bulletin.
IMPORTANT NOTICE TO USERS:
The information contained in this legal bulletin is general in nature and
does
not constitute legal advice. Non-attorneys should consult
with a qualified estate planning attorney regarding any trust funding matter.
Issues of state law may contradict any information contained herein.
Accordingly, the information contained in this legal bulletin and on our web
site should not be relied upon without first confirming with a qualified
attorney that the legal requirements in a particular state are satisfied.
This web site, our products and services, and any accompanying resources
are
not intended to be a substitute for research, continuing legal education, or a
thorough knowledge of the law. In using any aspect of this
web site, the user, whether attorney or non-attorney, agrees to assume all
responsibility for the validity of the information contained herein.
In General: Funding
Oil & Gas interests requires an understanding of some of the basic concepts
of real property ownership. The highest form of real property ownership is
called fee simple absolute. When property is owned in fee simple absolute
ownership, the owner possesses a bundle of ownership rights. These ownership
rights include rights to the oil, gas, and other minerals below the surface of
the land. These oil and gas rights can be separated from other ownership rights
the owner has in the property.
The fee simple absolute owner can grant the oil and gas
rights to a third party and retain the remaining interests (surface, air,
etc.). Similarly, the owner
can reserve the oil and gas rights to himself and assign the remaining interests to
a third party. In addition, the bundle of oil and gas rights can be further divided.
Oil
and gas interests can be divided in the quantity of ownership in the oil and gas rights
(e.g., 100%, 25%, 8.7234%, etc.) and can also be divided in terms of the vertical
ownership of the oil and gas rights (e.g. from the surface to 3,000 feet subsurface or
from the surface to the base of the Antrim formation).
Oil and gas interests (also referred to as "Mineral
Interests") are held in one of two different types of ownership. The manner in
which you and your attorney fund the oil or gas interest will depend on how the interest is owned.
Oil and
gas interests can be owned by deed or by lease. Thus, in order to fund an oil or gas
interest, a copy of the original deed or lease should be reviewed by an
estate planning attorney . If your not in possession of the deed or lease, the county recorder’s office or
register of deeds office of the county where the property is located can usually provide
your and your estate planning attorney with a
photocopy. (NOTE: It is not uncommon for a county recorder to charge a small fee for
providing a photocopy of a document).
As a general rule, if the oil or gas interest is owned by a deed
(called Fee Ownership ), then the interest is funded by the use of a new deed.
If
the oil or gas interest is owned by a lease (called a "Lease Ownership"),
then the interest is funded by the use of a legal assignment.
NOTE:
Beyond these
broad generalizations, there are many other factors to consider when funding a
mineral interest which including but are not limited to: whether there is
a surface interest or a mineral interest; if royalty considerations exist; any
severed mineral rights; and "division orders" on properties producing
oil and/or gas.
A Caution:
CAUTION! Although the process of funding a mineral
interest appears similar to the process of funding real estate and lease
interests, their are additional considerations when funding a mineral
interest. Because of the legal complexities and requirements in
funding owned or leased "Mineral Interests", we strongly
recommend that you consult an estate planning attorney with trust funding
experience for guidance relevant to your personal circumstances and state
law considerations.
Unauthorized
Practice of Law Concerns: Most states’ laws consider the preparation of a
deed or lease to be the practice of law. Additionally, state laws pertaining to transfer
tax, creditor protection, and recording and title requirements differ substantially from
state to state. NOTE: For this reason, preparing an out-of-state deed or lease should only
be done by an attorney licensed to practice law in the jurisdiction where the mineral
interest is located! If the mineral interest is located in another state
jurisdiction, your estate planning attorney can locate a qualified attorney to
prepare the out-of-state deed or lease to fund the interest to your trust.
Be advised that there will be legal fees associated with preparing the legal
documents to effectuate the transfer.
Find
an Attorney with trust funding services
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