On March 1, 2019, the Utah State Legislature passed a law clarifying what happens to unclaimed mineral interests located in the state of Utah. The text of S.B. 78 and information about its passing can be found here. This new law doesn’t change who owns unclaimed mineral interests, but it does streamline the process for transferring ownership and dealing with any proceeds derived from the interests.
The Utah Uniform Probate Code, Utah Code § 75-1-101, et seq., governs what happens to a person’s property at his death. If a person dies without a will, then his property passes to his heirs by intestate succession. Ordinarily, when a person dies without a will, his property passes to his immediate or extended family—beginning with his closest relationship and moving more distant until a taker is found. If, however, a person has no family to whom his property can pass, his property will pass to the state of Utah. That includes personal property, like bank accounts, furniture, and cars, as well as real property, like land and buildings.
A person’s ownership in real property is really a number of rights in the real property. Normally, all of those rights remain intact and owned by a single person or in a familiar form such as “joint tenants.” A “mineral interest” includes any interest in oil, gas, coal, gravel, or any substance that is “ordinarily and naturally considered a mineral.” Often, a person who owns land will separate his ownership interest in the land’s minerals from the rest of his ownership interest in the land. That means that he may sell his house and his land to one person, but sell the right to drill for oil or mine for coal to someone else. Unless there is active drilling or mining on a property, it may not be obvious that the ownership rights have been separated. In fact, it is not uncommon to discover many years after a property owner has died, that the person who owns the house and surface land does not own the underlying mineral interest in the land.
Mineral interests can be very valuable. When a potentially valuable mineral interest is identified, the only person who can authorize drilling or mining on the land containing the interest is the owner of the mineral interest. If the owner shown in the records of the county in which the land is located has died, then a person seeking to make use of the land’s minerals must find the current owner. For property located in Utah, when the deceased owner of record has no family members, the current owner is the state of Utah. S.B. 78 now clarifies the process by which a person who wants to make use of unclaimed mineral interests can go about getting permission.
Under the new law, the Utah School and Institutional Trust Lands Administration (“SITLA”) has been charged with administering unclaimed mineral interests and their proceeds for the benefit of Utah’s public education. Now, when an unclaimed mineral interest is identified, SITLA may bring an action in district court to be named the owner of record for the interest. By becoming the owner of record, SITLA can deal with the mineral interest in the best way it sees fit. That is, SITLA can hold the property and do nothing, it can sell the property, or it can lease the property to an “operator” to make use of the mineral interest.
As you can imagine, SITLA’s ability to determine what mineral interests may become subject to its administration is limited. Because it would be nearly impossible for SITLA to find unclaimed mineral interests on its own, S.B. 78 requires “operators,” “owners,” and “payors” to notify SITLA that it has found a mineral interest that is potentially owned by the state. That requirement does not impose a duty on every person who comes across an unclaimed mineral interest to report it to the state. On the contrary, “operators,” “owners,” and “payors,” in this context, generally already have a stake in the mineral interest and owe some duty to the owner of the mineral interest. For example, a “payor” is a person who undertakes to distribute oil and gas proceeds to the persons entitled to them. Under the new law, the payor is not allowed to keep proceeds for himself under the guise that he cannot find to whom the proceeds should be paid. Rather, the payor must notify SITLA that it is probably entitled to receive the unpaid proceeds to enable SITLA to perfect its right and receive the oil and gas proceeds for the benefit of Utah’s public education.
This new law benefits Utah public education because it streamlines the state’s ability to administer unclaimed mineral interests that the state owns by law. It also benefits those who seek to make use of mineral interests because there is a clear process by which actual ownership of a mineral interest can be recorded and acted upon.
Passage of the law highlights, however, that there may be a significant number of mineral interests in the state of Utah whose owner of record is deceased. That leads to at least two lessons we can learn: (1) a person who owns a mineral interest should develop an estate plan that adequately passes his property to those of his choosing, whether it is family, friends, or otherwise, and (2) when administering an estate, pay attention to real property. Whether a decedent dies intestate or has a valid will at death, a mineral interest that remains titled in the decedent’s name may not be discovered for many years. When the mineral interest is finally discovered, if the decedent’s heirs cannot be located, that interest will pass to the state—probably not the result the decedent intended.