When and why is it necessary to cure title relating to outstanding estates?
In Colorado, ownership of oil, gas, and minerals is considered an interest in real property. Certain documents and instruments must be obtained and recorded (in the county records where the property interest is located) to evidence marketable title in the event of the death of a person having an interest in real property.
Generally, our attorneys advise oil and gas exploration companies and operators to initiate curative action related to property previously owned by a deceased person when their oil and gas leasehold interest is threatened by the title uncertainty that arises from the outstanding estate. This situation occurs if oil and gas leases were taken from presumed heirs of a deceased party, although proper probate proceedings have not yet been conducted in Colorado. Many of these oil and gas leases rely on Affidavits of Heirship or unprobated Wills. However, when probate proceedings have not occurred, the now leased heirs of an outstanding estate likely do not hold marketable title. This means that the oil and gas leases are at risk of being proved invalid or only covering a part of a mineral interest in the event of future probate proceedings or challenges by unknown heirs, claimants, or creditors.
There are several ways an oil and gas company can be assured its lease is based on a lessor’s marketable title, thereby confirming the lease’s validity and coverage. An operator’s options range from normal probate procedures (obtaining corrective action from a personal representative), court orders, and determinations of heirship under C.R.S. §15-12-1302(3). Operators with leasehold interests deriving from an estate are an interested party, and can thus unilaterally pursue determinations of heirship, declaratory judgments and seek other relief from a court to clear title to the interest.
In other situations, the succession to an outstanding estate only affects the disbursements of royalties from oil and gas leases held by production. Here, an operator should consider the risks involved with paying royalties to the wrong parties, or only some of the correct parties. In that case, depending on the risk level, we advise clients to hold the royalty interest in suspense and require the royalty owners to independently establish and prove marketable title. It is usually not worth the operator’s expense to undertake time consuming and expensive curative procedures because the royalty owners are motivated to initiate probate and cure title themselves.
What benefit does an operator gain from marketable title related to Determination of Heirship proceedings?
If an operator’s oil and gas leases derive from good and marketable title, the risk of title failure is substantially diminished related to leasing the wrong party or not all of the mineral owners in particular lands. For example, if an operator has only properly leased 50% of the mineral interest due to an issue relating to an estate, it’s possible for an adversarial exploration company to buy leases from the remaining heirs, or even parties who have a mere claim to the estate. This could open the door to protracted legal disputes and the possibility of having undesired partners in the oil and gas operations.
How long does it take and much will it cost in attorney fees, time, and other expenses?
The attorneys at Stengel Hoppe LLP seek the most practical and economical solution to estate issues affecting operators. We review a client’s options for an outstanding estate in detail and provide the client with all available alternatives to pursuing a remedy through litigation in court. Determination of Heirship cases involve substantial administrative and paralegal time, and our firm completes these tasks at the appropriate hourly rates which provides our clients a substantial savings on their legal costs. Typically, an uncontested proceeding can take up to 90 days before an order is issued. In the event of complications, some matters could take substantially longer.