Gas and Oil Rights of Owner of Limited Interest in Land

Oil and gas in place or in and under the land are part of the land.  Persons having a limited interest in a land can exercise the limited right to oil and gas from the land in which s/he possesses a limited interest.

A co-tenant is a person holding an interest in real property together with one or more persons.  A co-tenant can exercise a gas and oil right.  A co-tenant can develop the gas and oil interest himself/ herself.  Additionally, a co-tenant can permit a third party to develop a gas and oil interest.  A co-tenant with the permission of others can extract oil and gas from the land in which s/he has a limited interest.  When a co-tenant extracts gas or oil with the permission of others, s/ he has the right to get reimbursed for the expense incurred for extraction and marketing.  However, a co-tenant extracting oil and gas without the permission of others has no right for reimbursement and all work done is considered to be done under his/her risk.  A co tenant cannot transfer the right to extract without the permission of the other co-tenants.  Conferring the right without permission is a nullity.  However, with others’ consent, an individual co-tenant can make a valid transfer of his/her interest in gas and oil.

Tenants in common share a specified proportion of ownership rights in real property.  Upon the death of a tenant in common, that share is transferred to the estate of the deceased tenant.  However, a tenancy in common with respect to oil rights does not give rise to a fiduciary relationship[i].

A tenant in common leasing a property to a third party can legalize his/ her action by obtaining ratification of the non consenting party.  The co-tenant can receive his/her fractional interest and recognize the transaction.  The co-tenant can also reject the transaction.  The co-tenant rejecting the transaction can receive only part of his/her fraction by lessening the cost of discovery and production.  Where the subject matter is oil, the co-tenant taking oil from the land must account to his/ her co-tenants for their respective proportions of the net value of the oil produced.  The amount is its market value, less the cost of extracting and marketing the product[ii].  When it is claimed that a co-tenant in possession of a mine or a mineral property has become liable to his/ her co-tenants for profits accruing from his/ her productive operations, the usual mode of settling the account is to credit the co- tenant with all his/ her expenses and ascertain the net profits available for distribution.

A partition provides a method whereby two or more persons owing property together can put an end to a joint ownership.  Each person can own a separate portion of the property.  When a division in kind is not feasible, the property can be sold and each owner given an appropriate share of the proceeds.  Oil and gas lasts for a short time.  It is difficult to partition a right to produce oil and gas without possession of the surface right.  Generally, a co-tenant cannot select and take for himself/herself part of the property jointly owned and thus make partition.  Moreover, there is uncertainty with regard to the location, extent, and value of the unexplored gas and oil.  It is more easy to sell the right than to partition.  However, a co-tenant interested in extracting gas or oil but failing to obtain the assent of others can get the property partitioned.  Oil and gas rights can be portioned in kind or by sale.  “It is the co-tenancy and a right to possession of the property or the interest which give the right to partition, whether it is real or personal property or an estate or interest created by an oil, gas or mineral lease or an oil or gas royalty”[iii].

A rail road company exercising an easement right for its right-of-way cannot extract gas and oil from the way.  Drilling for oil on or under land is not a railroad purpose within the meaning of right-of-way to a railroad.  Pursuant to 56 I.D. 206 (I.D. 1937), a right of way through the public domain granted to a railroad by Congress can be used only and exclusively for railroad purposes.  “Only such interest in the right of way was vested in the grant as may be essential to the continued use and enjoyment of the land for the purpose specified in the grant”[iv].

[i] Pure Oil Co. v. Byrnes, 388 Ill. 26, 39 (Ill. 1944).

[ii] Prairie Oil & Gas Co. v. Allen, 2 F.2d 566, 571 (8th Cir. Okla. 1924).

[iii] Witt v. Sheffer, 6 Kan. App. 2d 868, 869 (Kan. Ct. App. 1981).

[iv] 56 I.D. 206 (I.D. 1937).

Inside Gas and Oil Rights of Owner of Limited Interest in Land