Legal Updates

Who owns the minerals under a right-of-way?

On December 12, 2023, the Colorado Supreme Court heard oral argument in Great Northern Properties LLLP v. Extraction Oil and Gas Inc. et al., 2022SC805, about whether the centerline presumption applies to minerals in Colorado.  This type of dispute arises when an owner conveys property next to a right-of-way—like a road, path, or railroad—without expressly saying what happens to the land under and covered by that right-way.  Since the Nineteenth Century, Colorado’s centerline presumption has provided that, if the deed is silent, that land passes to the grantee (i.e. the purchaser) with the adjoining estate.  Practically, that means that if a developer subdivides a large property into houses, with a road to access the houses, each purchasing homeowner owns the land with the house through to the centerline of the road, unless the deed says otherwise.  Throughout Colorado law for the past 125 years, courts have phrased and applied the rule broadly without excepting any particular type of property interest.  Thus, Colorado law instructed that if the seller and purchaser left the deed silent about the right-of-way, the deed would be interpreted as the parties having intended to convey through to the centerline.

The current Colorado Supreme Court case addresses two questions that prior cases have not specifically resolved.  First, does the rule apply without exception as it always has, or should mineral rights be treated differently than the rest of the sticks in the bundle of property rights?  On behalf of the defendant/respondent Extraction, Joe Pierzchala and Sam Bacon of Welborn argued that the rule should continue to apply without exception to all property rights, including minerals.  The Colorado Court of Appeals agreed.  Based on the broad phrasing of the rule, it reasoned that the subject deeds from the ‘70s, which are indeed silent about the road, presumptively intended to convey through to the centerline of the road.  The Colorado Supreme Court’s questioning recognized this crucial aspect about presumed intent.  Questioning also highlighted the future problems if minerals were treated differently—namely the large-scale redistribution of mineral royalties from homeowners to developers, many of whom are long-defunct but would rematerialize to reap royalties.

Second, the case asks if the rights surrounding the road pass to the purchaser at the time of conveyance, or sometime later once the seller conveys everything else it owns along the right-of-way.  The parties did not brief this issue in the trial court or Court of Appeals.  Rather, the Court of Appeals added a new element, requiring the seller fully divest everything it owned along the right-of-way.  Though the new element may sound simple at first blush, it generates a springing property interest that would change hands at some unknown point in the future, creating new contingencies and major problems in title examination.  In Colorado Supreme Court oral argument, the justices inquired about the issues created by the new element, potentially signaling they too are wary of this significant change in Colorado property law.

Lastly, the origins of this case merit consideration.  The case came to be, in a broad sense, because horizontal drilling unlocked minerals under roads.  In the age of vertical drilling, surface development would often strand the minerals below, but laterals extending miles have changed both the industry writ large and the value of covered minerals. Similar issues could arise in the future regarding other nascent technologies like carbon capture.  In a narrow sense, the case was filed because an entity purchased the defunct developer’s potential rights (i.e. the right to bring the lawsuit).  Given the considerable and ever-expanding housing development above oil and gas across the front range, the lawsuit serves as a test case whereby a win for developers would yield numerous lawsuits going forward as developers try to capture a share of oil and gas revenue.  Whether they will be successful is now in the hands of the Colorado Supreme Court.