MINERAL SEVERANCES Mineral severances, or the separation of the ownership of the minerals underlying the land from the ownership of the surface of the land, is common throughout most of Illinois. When a severance takes place, whether by conveyance, reservation or even by subdivision restrictions, a separate interest in real estate with a separate chain of title comes into existence. The severance may be of all minerals or only specific minerals such as oil and gas (which are minerals under Illinois law). The severance can be of undivided interests. The severance may be for a term of years. The situation is further complicated by modern searching practices. Mineral severances have been taking place since the 1850 s. If only a 40-year, or even a 75-year search is being performed, mineral severances may not be discovered. Thus many title companies have the practice of excluding minerals from all title work produced. SCHEDULE A: ALL OR PART OF MINERALS KNOWN TO BE SEVERED REQUESTS TO INSURE SEVERED MINERAL INTERESTS ARE OUTSIDE THE SCOPE OF THIS MANUAL AND SHOULD BE REFERRED TO AN UNDERWRITER OF THE COMPANY. When the examination discloses that the minerals, or some portion of the minerals, have been severed and are not owned by the owner of the surface of the land, the following language should be used to except the minerals so severed from the legal description of the land conveyed: MINERAL SEVERANCES ARE FOREVER. THEY CAN NOT BE WAIVED ON THE PASSAGE OF TIME EXCEPT THE COAL, OIL, GAS AND OTHER MINERALS UNDERLYING THE LAND AND ALL RIGHTS AND EASEMENTS IN FAVOR OF THE ESTATE OF SAID COAL, OIL, GAS AND OTHER MINERALS. This exception from the legal description can be modified. If only an undivided ½ interest has been 1
severed it can read: EXCEPT AN UNDIVIDED ONE HALF INTEREST IN THE COAL, OIL, GAS AND OTHER MINERALS UNDERLYING THE LAND AND ALL RIGHTS AND EASEMENTS IN FAVOR OF THE ESTATE OF SAID COAL, OIL, GAS AND OTHER MINERALS. If only one type of mineral has been severed then it can be modified accordingly: EXCEPT THE COAL UNDERLYING THE LAND AND ALL RIGHTS AND EASEMENTS IN FAVOR OF THE ESTATE OF SAID COAL. Since the language excludes all rights and easements in favor of the estate of the minerals so excepted, no Schedule B exception need be raised for matters affecting the minerals excepted. If all minerals have been excepted, no oil and gas leases, coal leases, etc. need be shown. However, if only an undivided interest has been excepted, such matters would have to be shown. If only coal was excepted, matters affecting the oil and gas interest would have to be shown, etc. The minerals should not be excepted from the legal description due to the existence of leases of record. Leases do not truly sever the mineral estate from the surface ownership. The surface owner continues to own the minerals subject to the lease. MINERALS EXCEPTED FROM TITLE WORK WITHOUT KNOWING IF SEVERANCE HAS OCCURRED If you have no knowledge whether severance has occurred, due to your search practices or reliance upon prior title evidence which does not purport to examine minerals, the following type of exception from the legal description should be used. EXCEPT ANY INTEREST IN THE COAL, OIL, GAS AND OTHER MINERALS UNDERLYING THE LAND WHICH HAVE BEEN HERETOFORE CONVEYED OR RESERVED IN PRIOR CONVEYANCES, AND ALL RIGHTS AND EASEMENTS IN FAVOR OF THE ESTATE OF SAID COAL, OIL, GAS AND OTHER MINERALS, IF ANY. 2
Use of this language prevents you from creating a mineral severance when none exists. If the party in title does own the minerals and you simply except all minerals underlying the land on the title commitment, what will happen? The attorney preparing the deed will use the language from your title commitment and except the minerals from the conveyance to the buyer. By using this language, a mineral severance will not be created by the use of the title commitment language on the deed, where there has in fact been no mineral severance of record. When using this language an exception for matters affecting the mineral estate does need to be shown on Schedule B of the title commitment and/or policy. The following exception is recommended: ALL RIGHTS AND EASEMENTS IN FAVOR OF THE HOLDER OF ANY INTEREST IN THE MINERAL ESTATE OR OF ANY PARTY CLAIMING BY, THROUGH, OR UNDER SAID HOLDER, IF ANY. NOTE: NO EXAMINATION HAS BEEN MADE OF THE TITLE TO MINERALS UNDERLYING THE LAND. SCHEDULE B: EXCEPTION FOR MINERAL SEVERANCE: (RESERVATION) (GRANT) OF (AN UNDIVIDED INTEREST IN) THE (INSERT HERE THE DESCRIPTION OF THE MINERAL SEVERED, FOR EXAMPLE: THE COAL, OIL, GAS, AND OTHER MINERALS) UNDERLYING SAID LAND CONTAINED IN THE DEED DATED AND RECORDED AS DOCUMENT AND ALL RIGHTS AND EASEMENTS THEREUNDER OF SAID HOLDER OF THE MINERAL ESTATE OR OF ANY PARTY CLAIMING BY, THROUGH, OR UNDER SAID HOLDER. NOTE: TITLE TO SAID INTEREST HAS NOT BEEN FOLLOWED OUT. This exception should be raised on the office opinion where an examination is being made for the purpose of insuring title to land from which part of the minerals, such as coal, oil, or gas, have been severed by a grant or reservation. The exception is designed to clearly show the separation of the mineral estate or interest from the fee simple absolute and to show that the surface estate remaining is subject to express or implied easements in, over, and under that estate for access to, and removal of, the minerals. Where the total mineral estate has been granted or reserved (as opposed to simply an undivided interest in the mineral estate having been granted or reserved), the examiner may except the mineral estate from the legal description in Schedule A rather than raising the exception. This method has become standard practice in most of Illinois. 3
EXCEPTION FOR RECORDED MINERAL LEASE: (DESIGNATE MINERAL HERE) LEASE MADE BY TO DATED AND RECORDED AS DOCUMENT NO. DEMISING THE (AGAIN DESIGNATE MINERAL) FOR A TERM OF (YEARS) (MONTHS) BEGINNING AND ENDING WITH A PRODUCTION CLAUSE, AND ALL RIGHTS THEREUNDER OF, AND ALL ACTS DONE OR SUFFERED THEREUNDER BY SAID LESSEE OR BY ANY PARTY CLAIMING BY, THROUGH, OR UNDER SAID LESSEE. This exception should be raised on the office opinion where a recorded mineral lease appears in the chain of title. Mineral leases can vary in several ways from other leases. Perhaps the most noticeable departure is the inclusion of the so-called production clause in the lease. This clause usually appends to the stated term the following language: or as long thereafter as /mineral/ may be produced. The effect of this language can be dramatic as it can cause the instrument to have the same effect as a deed, thus going far beyond simply extending the term of the lease. When this type of language is contained in a lease, the phrase with a production clause should be made part of the exception. Of course, where no such language appears, the phrase should be deleted from the exception. A lease with a production clause can only be waived if we have some knowledge or evidence that the term has expired and production has ceased. Care must be taken due to the fact that pooling agreements (often not recorded) may extend the lease even if there is no production on any particular lease so pooled. A form of Affidavit of Non-Production is included at the end of this chapter. MINERAL ENDORSEMENT An endorsement insuring the insured against loss or damage due to the use of the surface of the land (Surface Entry or Mineral Endorsement) is available in those cases where the severance instruments expressly prevent the use of the surface, or where local zoning would prohibit exploration and development. Any request for such an endorsement should be referred to an underwriter of the company. 4
STATE OF ILLINOIS ) ) ss COUNTY OF ) AFFIDAVIT OF NONPRODUCTION The undersigned, being first duly sworn upon oath, this, deposes and states as follows: day of, 1. That for years last past, he has been personally familiar with the history of the production of oil and gas from the following described lands, to-wit: 2. That such land were covered by an oil and gas lease, recorded, in Book, at page, from, as lessor, to, as lessee, which lease covered the following lands in addition to the lands described above: 3. That he knows of his own personal knowledge that production of oil or gas pursuant to the aforedescribed lease was obtained on or about and that such production continued until on or about, when such production ceased; that upon the cessation of production, all wells located on the land covered by the aforesaid oil and gas lease were plugged and all equipment previously utilized to produce oil or gas from such wells was removed from the land; that such plugging and equipment removal was completed on or before. 4. That the lease does/does not contain a Mother Hubbard clause, but he knows of his own personal knowledge that there has been no production of oil or gas from, or production equipment located upon, any portion of the land contiguous to or appurtenant to the above described land and owned or claimed by lessor. 5. That the lease has/has not been pooled or unitized with other land, lease or leases or parts thereof, but he knows of his own personal knowledge that there has been no production of oil or gas from, or production equipment located upon, any portions of the lands contained within the other lease, leases or parts thereof denoted in the pooling or unitization agreement(s). 5
6. That the lease does/does not contain a Shutin Clause, and/or Delayed Rental Clauses. That on day of, 19, under the terms of said lease, that should have been paid to the Lessor or deposited to his credit in the (bank) the sum of Dollars, ($ ), the payment of which was necessary in order to keep the above lease in force and effect. That he knows of his own personal knowledge and hereby swears the above payment has never been made to Lessor or his representative, in money or otherwise, nor has same been deposited to his credit in the above bank, or any other bank. 7. That he knows of his own personal knowledge that there has been no production of oil or gas from or production equipment located upon, any portion of the lands described in the aforesaid oil and gas lease during the period from to the date of this affidavit. FURTHER saith Affiant not. STATE OF ILLINOIS ) ) ss COUNTY OF ) Subscribed and sworn to before me, a Notary Public in and for the County and State aforesaid, on this day of,, by who is personally known to me to be the same person who executed the foregoing instrument and acknowledges the execution of same. Notary Public Mother Hubbard clause states that land owned by lessor contiguous or appurtenant to the land described in the lease is intended to be included. Shutin clause enables lessee to shut in a well and extend lease beyond primary term without production. 6