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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)



STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL


Opinion No. 5997

October 15, 1981

MINES AND MINERALS:

Mineral rights owned by the state

NATURAL RESOURCES, DEPARTMENT OF:

Authority over coal, oil and gas, and mineral rights owned by the state

The state may not be compelled to surrender title to mineral rights owned by the state.

The Honorable Jack E. Kirksey

State Representative

The Capitol

Lansing, Michigan

You have requested my opinion concerning the authority of the Commission of Natural Resources relative to conveyance of coal, oil and gas, and mineral rights held by the state to the owner of the surface fee.

Information provided this office indicates that one of your constituents has sought to purchase from the state coal, oil and gas, and mineral rights held by the state in a 160 acre tract in Ogemaw County, the constituent owning the surface fee. The Department of Natural Resources has declined to make any such conveyance.

In 1907 the Legislature, by adoption of 1907 PA 188, authorized the appointment by the Governor of a Commission of Inquiry with the object of making

'[the] necessary preliminary investigations and to prepare and submit a report to the next legislature setting forth a comprehensive plan for the protection, improvement, utilization, and settlement of, and for the better and more economical administration of the affairs and business of the State connected with the delinquent State tax lands, now owned or hereafter acquired to the end that the State may hereafter pursue a consistent and complete policy in reference thereto.'

That commission filed its report in 1908 (Report of Commission of Inquiry, Tax Lands and Forestry to the Governor and Legislature of the State). In 1909, pursuant to recommendations contained in that report, the Legislature adopted 1909 PA 280, 1915 CL 445 et seq, 1929 CL 5838 et seq; MCLA 332.202 et seq; MSA 13.431 et seq. In the words of the Supreme Court in Rathbun v State, 284 Mich 521, 537; 280 NW 35 (1938); the statute

'[was] designed to correct existing evils, to remedy a deplorable situation which had grown out of private exploitation of the natural resources of the State. . . .'

Under provisions of 1909 PA 280, supra, the Legislature created the Public Domain Commission, granting it jurisdiction over all state-owned lands within the 'public domain.' Encompassed within the definition of 'public domain,' 1909 PA 280, supra, Sec. 3, are all tax delinquent lands title to which was acquired by the state under provisions of the General Property Tax Act, 1893 PA 206, CL '97 3824 et seq, CL '15 3995 et seq, CL '29 3389 et seq; MCLA 211.1 et seq; MSA 7.1 et seq.

1921 PA 17; MCLA 299.1 et seq; MSA 13.1 et seq, created the Department of Conservation and vested in it all powers and duties previously vested in the Public Domain Commission.

1965 PA 380, as amended; MCLA 16.101 et seq; MSA 3.29(1) et seq, created the Department of Natural Resources and transferred to it 'by type I transfer' the Department of Conservation.

As originally enacted, 1909 PA 280, Sec. 8, supra, provided that:

'When any sales are made by and under the direction of the [public domain] commission the deeds by which said lands are conveyed shall reserve all mineral, coal, oil and gas rights and said rights shall be owned by the State; but said commission shall have power to make contracts with private individuals for taking ore, coal, gas or oil from said lands upon a royalty basis upon such terms as to said commission may be deemed just and equitable. . . .'

Amendment and revision effected by 1911 PA 294 resulted in renumbering Section 8 as Section 12 of 1909 PA 280, as amended, without changing the text.

In 1929 (1), 1909 PA 280, Sec. 12, supra was amended by 1929 PA 320 to provide, in part:

'When any sales are made by and under the director of the commission [of conservation] the deeds by which said lands are conveyed may reserve all mineral, coal, oil, and gas rights to the state, and said rights shall be owned by the state; but said commission shall have the power to make contracts with private individuals or corporations for taking ore, coal, gas or oil from said lands upon a royalty basis upon such terms as to said commission may be deemed just and equitable. . . . Provided further that the [conservation] commission is also authorized to sell all reserved mineral, coal, oil and gas rights to such lands upon such terms and conditions as the commission may deem proper. The owner of such lands as shown by the records shall be given priority in case the commission shall authorized and sale of such lands and unless he shall waive such rights, the commission shall not sell such rights to any other person.' (Emphasis added.)

The state may, therefore, as owner in fee of the land, sever the estate in fee to the surface from that of fee in the oil, gas, coal and minerals underlying the surface, retaining for the state the mineral fee. Krench v State, 277 Mich 168, 269 NW 131 (1936); Rathbun v State, supra, and; Matthews v Department of Conservation, 355 Mich 589, 96 NW2d 160 (1959).

As a result of retention of tax reverted lands by the state pursuant to 1893 PA 206, supra, Sec. 131, and reservation of coal, oil, gas and mineral rights by authority of 1909 PA 280, supra, Sec. 12, the state currently holds title in fee to both surface and mineral rights to approximately 3,800,000 acres of land, and mineral rights only to an estimated 2,100,000 additional acres, for a total mineral ownership of 5,900,000 acres. (Minerals underlying an additional 25,000,000 acres of Great Lakes bottomland are also state owned.) 1977-78 Biennial Report Department of Natural Resources.

Pursuant to authority granted by 1921 PA 17, supra, Sec. 3, and 1909 PA 280, Sec. 12, supra, as a result of leases entered into by the state for the taking of oil and gas from lands in which the state holds 'oil, gas and mineral rights', the state has realized the following revenue for the period of 1927 through 1978 (2):

Royalty .. $ 76,306,016.68

Rental ..... 21,066,419.35

Bonus ...... 24,561,246.13

Fees ........... 53,736.00

--------------------------

Total .... $121,987,418.16

Cognizant of the truth imposed upon it in administering the state's mineral resources, and the discretion vested in it with respect to the alienation of mineral rights held by the state, the Commission of Natural Resources has adopted a policy with regard to the sale of mineral rights (No. 2308 effective January 14, 1977).

That policy provides in part:

'General Policy: The Commission will consider the conveying or waiving of mineral and/or allied rights in tax-reverted lands under specific conditions outlined herein: Provided, however, that no mineral rights will be sold in any area of known or probable mineral value.

'Specific Policy:

'1. Conveyance of previously reserved mineral and allied rights.

'a. Surface owners may apply to purchase previously reserved minerals or rights in land, provided:

'(1) They can demonstrate record title to the surface interest; and

'(2) Their present or future use of said property is impaired by the State reservation.

c. Each such conveyance shall reserve to the State 50 percent royalty interest in future production of oil, gas or any other reserved minerals previously held by the State.

'(1) The term royalty as used herein shall mean the amount paid the mineral interest owner by an extractor. Minerals in this context include hydrocarbons.

'(2) The royalty interest held by the State shall be a real covenant running with the land title, in form approved by the Attorney General.'

Deeds conveying the state's reserved mineral interests accordingly now provide:

'EXCEPTING, RESERVING AND ALWAYS SAVING UNTO THE STATE OF MICHIGAN, its successors and assigns, a minimum royalty of one-sixteenth (1/16) of the value of all oil, gas and hydrocarbons produced and saved from the subject premises; said value to be equal to the prevailing market price for the oil, gas and hydrocarbons at the time and place so produced and saved.

'THERE IS FURTHER EXCEPTED AND RESERVED UNTO THE STATE OF MICHIGAN, its successors and assigns, an additional royalty equal to fifty (50) percentum of all royalty payments paid or payable to any Lessor under any lease of oil, gas or hydrocarbons conveyed hereunder to the extent that such lease or leases alone or cumulatively reserve to such lessor or lessors royalty payments exceeding one-sixteenth (1/16) part or one-sixteenth (1/16) of the value of the oil, gas and/or hydrocarbons produced and saved from the subject premises.

'ALSO EXCEPTING, RESERVING AND ALWAYS SAVING UNTO THE STATE OF MICHIGAN, its successors and assigns, a minimum royalty of one and seventy-five one-hundredths (1.75) percentum of the value of all coal, metallic minerals and/or metallic mineral products produced and saved from the subject premises; said value to be equal to the prevailing market price for the coal, metallic minerals and/or metallic mineral products at the time and place so produced and saved.

'FURTHER EXCEPTING AND RESERVING UNTO THE STATE OF MICHIGAN, its successors and assigns, an additional royalty equal to fifty (50) percentum of all royalth payments paid or payable to any lessor under any lease of the coal, metallic minerals and/or metallic mineral products conveyed hereunder to the extent that such lease or leases alone or cumulatively reserve to such lessor or lessors royalty payments exceeding 1.75 percentum of the value of such products produced and saved from the subject premises.'

There is little doubt but that it is provident and wise for the Department of Natural Resources to pursue its policy with respect to the sale of the state mineral rights. The recent boom in oil and gas exploration in the Ogemaw County area underscores the wisdom and propriety of its policy in the matter. In this connection, it is to be noted that in that county alone through 1978, there were drilled 534 production oil wells and 21 gas wells.

It is my opinion, therefore, that there is no provision of law pursuant to which the state may be compelled to surrender title to mineral rights owned by the state.

Frank J. Kelley

Attorney General

(1) Intervening amendments by 1913 PA 332 and 1917 PA 262 are not here discussed. Pursuant to subsequent amendment (1964 PA 125) reservations of 'mineral rights' made by the state in deeds executed after May 16, 1964 do not include a reservation of 'sand, gravel, clay or other nonmetallic minerals'.

(2) In lease sales conducted in August 1981, the State of Michigan realized another $24,000,000 in bonus payments.

 


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