Home  Coloradoan Archives  Sr. Voice Archives  FAQs  Links 
Law Offices of Ronald W. Rutz
Coloradoan Archives

April 10, 2001: Mineral Rights

Q: I am buying this small parcel of land and am especially excited about being able to own mineral rights for the first time. Can you give me a quick primer?

A: First you need to remove those dollar signs from your eyes. Although there are both oil and gas contained in a number of geologic formations throughout northern Colorado, drilling activity has been going on for about eighty-five years. If you have a chance, sometime look at an area map showing all the drilled wells to get the full impact of the sheer numbers and activity.

Not every parcel carries mineral rights. Right after the Civil War, as an incentive to build, railroads such as the Union Pacific received the mineral rights on alternative sections of land, normally on each side of their tracks. Even though Union Pacific is up in Wyoming, the 19th Century grant affects parts of Larimer and Weld Counties, even today.

It is normally understood that you only receive the mineral rights that the seller has. Over the years, many prior owners have reserved (retained) various percentages until now it is not unusual for the present landowners to control no rights. But note that there is a bill working its way through the legislature that would require title companies to include in its title commitments and title policies an indication concerning the percentage of mineral rights still with the land, thus giving the potential buyer a quick and easy way of knowing.

Assuming your seller does own part of the "minerals", you still may never be able to lease your "share" because throughout the years, the other owners may have failed to properly convey their interest from a deceased's estate to the beneficiaries. I have encountered any number of parcels throughout northern Colorado that are unleasable because of that. (Leasing companies won't offer you a lease if they can not be sure they will obtain a legal interest in the remaining shares.)

But even if all of the foregoing obstacles are overcome, drilling may be prohibited because of legalities, such as city ordinances, zoning laws, covenants, privately imposed surface restrictions, etc.

One final quick note, let's say that a leasing company offers you a standard lease, such as the old "Producers 88" format. Take the time and spend the money to have a lawyer review it. Otherwise you will become just one more member in the large and loud chorus of landowners complaining to the legislature because they are now asked to live up to the agreements they signed. But what is the big deal?

Just a couple of quick points. Assume that a successful well is drilled but it is "capped" (shut down for years or, in some parts of Weld County, decades) and nothing is being produced. Or your property could be "pooled" with hundreds of other acres. Drilling in one part of the "pool" will now hold your property even if no drilling takes place on your property. Thus you have the mineral rights and the right to royalty payments since the property is leased and successfully drilled. But you are not receiving any money and may not for a long, long time, or you may receive a very small share when divided among the other pool members.

The foregoing is a very simplified, thumbnail sketch. So it is fun to own mineral rights, but buying lottery tickets might be a more practical way of striking it rich.

Home  Coloradoan Archives  Sr. Voice Archives  FAQs  Links