The discovery of oil in Colorado and Wyoming has sparked a renewed interest in oil exploration in Nebraska, and in landowners seeking to consolidate severed mineral rights.
As companies explore their options in Sioux County and other southern Panhandle counties that lie in the Denver-Julesburg basin where oil was discovered in neighboring states, landowners have started the process of reclaiming mineral rights often parceled out long ago. The process can be a complicated one, as the owners of the mineral rights have in some cases died, and their heirs now claim the rights as their own. Interpreting the state’s laws on who owns the mineral rights and for how long can lead to a drawn out court battle.
The Nebraska Supreme Court recently handed down two decisions regarding Sioux County mineral rights, reversing the District Court rulings in the cases and offering interpretations of the state’s three laws addressing severed mineral interests. The laws were passed in 1967.
State statute 57-228 declares that owners of the surface land can sue for the return of the mineral rights, naming all known and unknown owners of the mineral rights as defendants.
Statute 57-229 spells out what owners of the mineral rights must do in order to keep ownership: in the 23 years prior to any lawsuit for termination of severed mineral rights, the owner of the mineral rights must publicly exercise that ownership. That can be done by “acquiring, selling, leasing, pooling, utilizing, mortgaging, encumbering or transferring” the interest in the mineral rights or by “drilling or mining for, removing, producing, or withdrawing minerals from under the lands or using the geological formations, or spaces or cavities below the surface of the lands for any purpose consistent with the rights conveyed or reserved in the deed or other instrument which creates the severed mineral interest.” Mineral owners can also publicly exercise their rights by recording a verified claim of interest in the county where the land is located.
Once the ownership has been publicly recorded in some form, the rights of the mineral owner are extended for another 23 years.
The final statute, 57-230, says that if the courts determine that the mineral rights have been abandoned because the owners did not publicly exercise those rights, the court must enter a judgment terminating the mineral rights and restoring them to the surface owners.
Both cases before the Supreme Court revolved around two main issues – who is considered an owner of mineral rights and what type of records courts must consider when deciding whether or not to terminate severed mineral rights and restore them to the surface owner.
The first, Gibbs Cattle Company v. Edna F. Bixler, Margaret Bixler and Edward Stephen Cassells, involves the mineral rights of two separate families, the Bixlers and the Cassells.
The Nebraska Supreme Court reversed the District Court and upheld the rights of the mineral owners. Gibbs filed its complaint in 2010 against John Bixler and Virginia Cassells.
In the Bixler portion of the lawsuit, Gibbs Cattle asked that John Bixler’s rights be terminated. However, John Bixler died in 1996, and his widow, Margaret, answered the complaint, stating that she had completed the probate process and owned the rights to the minerals. Margaret’s attorneys argued that passing the rights to her through John’s will and the probate process served as a public exercise of her interest and that her 23 years had not yet elapsed.
The Cassell portion of the lawsuit concerned the addition of a new defendant to the initial claim on the rights. Gibbs had filed the case against Virginia Cassell, but in 2011, the cattle company learned that Virginia’s son, Edward, was also asserting ownership rights and filed a claim of interest with the register of deeds in January of that year. After learning of Edward’s possible interest in the mineral rights, Gibbs added him as a defendant to the lawsuit in March and claimed that Edward had not publicly exercised his rights to the minerals prior to the filing of the lawsuit. Edward argued that the addition of his person as a defendant altered the lawsuit to a great enough extent that the March date should be the date which the court relied upon to determine if he’d previously exercised his rights.
The Supreme Court decided that probate records, not only register of deeds records, can be used to determine who owns the mineral rights, and in the case of Cassell ruled that adding Edward’s name changed the suit and allowed Edward’s filing of interest in the mineral rights.
In WTJ Skavdahl Land LLC v Sandra Elliott and Lynn Elliott, Sandra was named as a defendant both as an individual and as the personal representative of the estate of Evelyn Elliott, the original owner of the mineral rights. Evelyn died in 1999, leaving her property to the S&G Living Trust, of which Sandra was the last surviving trustee. The register of deeds listed Evelyn as still being the owner of record, and WTJ Skavdahl argued that as such her 23 years to exercise her mineral rights had expired. The Supreme Court noted that as in Gibbs Cattle Company v Bixler, probate records can be used to determine owners of record and reversed the District Court’s decision.
While interest in consolidating mineral rights remains active in Sioux County, actual exploration is limited. Bill Sydow, director of the Nebraska Oil and Gas Conservation Commission, said Fidelity has drilled two exploration wells in southern Sioux County. Testing on one well is still underway while the other is considered inactive at this point.
There is a bit more interest farther south, and an Australian company, Black Star Petroleum, has drilled a development well in Banner County. Sydow said he believes hydrocarbons, possibly oil, are located in the area Black Star is exploring but the question is whether or not the oil is of the correct viscosity. According to media reports, Black Star estimates there could be 4-24 million barrels of oil in that region, but Sydow pointed out that in a good oil producing field only 30 percent of the reserves can be extracted. If the hydrocarbons in Banner County are of a lower quality, the amount of oil that could be extracted would be less.
“It’s a resource. But resources have to be converted to a reserve,” he said.
There is also some interest in Morrill County, but much of the oil production activity in Nebraska has refocused along the Kansas border between Benkleman and McCook, Sydow said.