Navigating property inheritance laws in America can be tricky, especially when dealing with an oil and gas deed that ties existing parties to deceased relatives who once owned or maintained land used in oil production. A Texas court case by the name of Duhig v. Peavey Moore Lumber Company set a clear precedent that when a piece of property changed hands, there will be a fair split of surface and subsurface mineral rights. Below, Adam Ferrari, CEO of Ferrari Energy explains the Duhig rule.
How does the Duhig Rule work?
Landmen looking to acquire mineral rights, beware of the Duhig rule. If a landowner decides to sell a property and signs a mineral deed that retains one-fourth of the mineral rights and conveys the surface and three-fourths of the mineral rights to the buyer, no one else will be able to retain mineral rights, even if another contract says so.
The Duhig rule states that priority will be given to the granted interest, so even if another buyer receives a deeded interest later that claims one-fourth of the minerals rights, their rights will be invalidated because their one-fourth share is going to the original owner as deemed by their original contract. The other three-fourths are going to the seller offering a new contract. Even if that negotiation is on a separate contract, it still counts. Find other examples and more information about the Duhig rule here. These mistakes can happen, but sometimes landmen will be cheated out of mineral rights because of intentional oversight that enacts the Duhig rule.
The Duhig Rule in Action
Here is a historical case in which the Duhig rule took effect. In 1954, in a small area in Mountrail County, North Dakota, a party known as the Doktors owned 100% of the minerals in a tract. They were granted undivided 64/160th interest in the minerals that were found in and under the property of the Northwestern National Bank of Minneapolis because there was no dispute whether the conveyance constituted a party interest that had no participation.
When Winco purchased the Doktor’s remaining interest in 1993 via a warranty deed, it stated that the conveyance was subject to prior mineral reservations that are of current record. Winco then leased to a company named EOG. When EOG found productive minerals on the property, Wenco sued, stating that its royalty interest should be at least equal to the Northwest Bank’s royalty.
The Northwestern Bank received its 64/160th share, and the Doktors’ were able to retain their 16/160th share after the reduction due to the Duhig rule. This is a modern case settlement example in which the Duhig rule has taken effect and successfully mitigated ownership disputes between parties.
The Duhig rule is a complicated piece of legislation that properly distributes mineral interests amongst existing parties that share the property after it has been inherited by multiple buyers.
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About Adam Ferrari
Adam Ferrari is the founder of the mineral acquisitions company Ferrari Energy. He is a chemical engineer by degree and is an accomplished petroleum engineer by profession. He also has experience in the financial sector through his work at an investment banking firm. Under his leadership, his company has supported numerous charitable organizations including St. Jude Children’s Hospital, Freedom Service Dogs, Denver Rescue Mission, Coats for Colorado, and Next Steps of Chicago.