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Evaluating Legal Consequences of Energy Production from Agricultural Lands. Theodore A. (Ted) Feitshans Department of Agricultural & Resource Economics North Carolina State University 919-515-5195 ted_feitshans@ncsu.edu May 16 , 2013. Disclaimer.
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Evaluating Legal Consequences of Energy Production from Agricultural Lands Theodore A. (Ted) Feitshans Department of Agricultural & Resource Economics North Carolina State University 919-515-5195 ted_feitshans@ncsu.edu May 16, 2013
Disclaimer • This slide set is provided for informational purposes only. Nothing herein constitutes the provision of legal advice or services.
Title to Interests in Real Property • Subsurface capable of being a separate estate from surface estate
Title to Interests in Real Property • Further subdivision • Oil & gas • Depth range • Coal bed methane • Minerals • Sand and gravel (as distinguished from crushed rock)
Title to Interests in Real Property • Presumption that surface estate includes all subsurface rights
Title to Interests in Real Property • Importance of intent of the parties • Conveyances transfer ownership of the mineral estate and/or oil & gas estate • Leases do not transfer ownership of oil, gas, or minerals that have not been severed • A leasehold interest is a chattel real, a species of intangible personal property • Bankruptcy implications
Title to Interests in Real Property • Shale gas • Mineral or something else • PA - rebuttable presumption that natural gas is not included in a grant of the mineral estate • Is shale gas different than conventional gas? • Shale is generally a mineral • Gas is generally not a mineral
Title to Interests in Real Property • Oil & gas not included in definitions for purposes of The Mining Act of 1971 • N.C.G.S. §74-49(6) – minerals • N.C.G.S. §74-49(7) – mining • The Oil and Gas Conservation Act (1945) • Applies to all “common sources of supply of natural gas discovered after January 1, 1945...” N.C.G.S. §113-387.
Title to Interests in Real Property • “’Security’ means any ... certificate of interest or participation in an oil, gas, or mining title or lease or in payments out of production under a title or lease” N.C.G.S. §78A-2.
Title to Interests in Real Property • Rights to sand and gravel not a mineral right? (NC decisions inconsistent) • Profit à prendre in gross • Defense of laches applicable • Title passes only upon severance • Applicability to gas leases?
Relationship Between Surface & Sub-Surface Estate • Dominance of surface estate (apparently opposite rule in Texas) • Reasonable use of surface estate • accepted and prevailing method for mining of the particular mineral • any particular rights waived or reserved • Intent of parties • protection for residences and residential water supplies (inconsistent case law) • right to compensation for surface damages?
Extinguishment • N.C.G.S. §1-42.1 through N.C.G.S. §1-42.9A • Exceptions: • Current use (at effective date) • Subsurface interest in adverse possession • Listed for ad valorem tax purposes w/n exception period - nonpayment alone does not extinguish • Exception noted in surface holders chain of title within past 30 years prior to effective date of statute
Extinguishment • Grace period • Two years from statutory date • Determine operative statute • Sworn and subscribed before official authorized to take probate (N.C.G.S. §47-1) • Recorded with register of deeds • Listed for, and ad valorem taxes paid
Extinguishment • County failure to publish notice • Proof thereof • Application to those under disability?
Extinguishment • Constitutionality • Texaco, Inc. v. Short, 454 U.S. 516, 102 s. Ct. 781 (1982) • Indiana Dormant Mineral Interests Act • Texaco, Inc. v. Short cited favorably in Rowlette v. State, 188 N.C. App. 712 (N.C. App. 2008) • McDonald’s Corp. v. Dwyer, 338 N.C. 445 (1994) • Violation of due process for insufficient notice
Extinguishment • By registration under N.C. G.S. § 43-1, et seq. (Torrens system)
Abandonment • Mere lapse of time insufficient • Nonpayment of ad valorem taxes insufficient taken alone • Requires unequivocal acts of abandonment
Adverse Possession • Not previously severed • Adverse possession of surface includes subsurface rights • Previously severed • Adverse possession of surface does not include subsurface rights • Adverse possession of subsurface rights does not include surface rights • Surface activities to extract subsurface resources do not confer adverse possession of the surface
Adverse Possession • Actual mining required to establish adverse possession of mineral estate • Need not mine all possible types of minerals in property subsurface
Conveyancing • Caveat emptor • Covenant of seisin • Lease versus sale • Look to substance not form • Statute of frauds applicable to sales and leases of mineral rights andgas & oil rights
Questions • Were mineral or oil & gas rights ever transferred? • What rights were transferred? • Were such rights ever relinquished or abandoned? • Were such rights ever extinguished?
Condemnation • Fee interest in minerals may be acquired by condemnation • Value of minerals a factor in valuation
Partition • Tenants in common in mineral rights may have interests partitioned
Taxation • Use of statutory method • ‘True value’
Evaluating Oil & Gas Lease Proposals Long term leases
Registered to do business in North Carolina?NC Secretary of State http://www.sosnc.com/
Does the landowner own the resource to be leased?What is to be leased?
Factors That Affect Negotiation of Wind, Solar, and Oil & Gas Leases
