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Oxy USA Inc. v. Red Wing Oil, LLC

Supreme Court of Kansas

June 7, 2019

Oxy USA Inc., Appellee,
v.
Red Wing Oil, LLC, et al., Appellees, Alice LaVelle King, Appellant.

         SYLLABUS BY THE COURT

         1. Misappropriation of royalties cannot, standing alone, establish a claim of adverse possession to a mineral interest.

         2. Adverse possession of a mineral interest requires actively working the minerals in the ground.

         Review of the judgment of the Court of Appeals in 51 Kan.App.2d 1028, 360 P.3d 457 (2015).

          Appeal from Haskell District Court; Bradley E. Ambrosier, judge.

          Jacob M. Cunningham, of Doering & Grisell, P.A., of Garden City, argued the cause and was on the briefs for appellant.

          Daniel E. Lawrence, of Fleeson, Gooing, Coulson, & Kitch, L.L.C., of Wichita, argued the cause, and Willard B. Thompson, and David G. Seely, of the same firm, and Erik E. Nordling, of Kramer, Nordling, & Nordling, LLC, of Hugoton, were with him on the briefs for appellees Red Wing Oil, LLC, et al.

          STEGALL, J.

         This case arises from a dispute over a one-half ownership interest in the minerals under a quarter section of land in Haskell County. Royalties from these mineral rights are being generated by mineral production occurring on adjacent land which is part of the same unitized production unit. The producer initiated an interpleader and quiet title action in order to determine who is the rightful owner of these royalties. As set forth below, we determine that the rightful owner of the disputed one-half interest in the minerals is the fee owner of the surface property and that, as a matter of law on these facts, adverse possession does not bar the surface owner's rightful claim to ownership.

         Factual and Procedural Background

         In 2009, Oxy USA Inc. (Oxy) developed a productive oil and gas well on a unitized production unit of land in Haskell County. The unitized area included the quarter section of land which is the subject of this lawsuit (the Property). The well is not actually located on the Property, but the owner of the minerals under the Property is entitled to receive royalties from the production by virtue of the unitization agreement. But Oxy was unable to determine which party owned a disputed one-half interest in the minerals under the Property. Thus, Oxy initiated this interpleader and quiet title action to determine the rightful legal owner of the minerals under the Property.

         The real contestants here are the two potential owners of the minerals at issue. Alice LaVelle King, who currently owns the surface of the Property and an undisputed one-half interest in the minerals, claims the other one-half mineral interest belongs to her. Opposing King are at least 41 different people or entities that claim some fraction of the disputed one-half mineral interest under a term interest once held by Frank Luther. For ease of reference, we will refer to these parties as the Luther Term Interest Holders.

         Highly summarized, the history of ownership of the disputed minerals on the Property proceeds as follows. In 1943, the owner of the Property entered into an oil and gas lease with a producer. Following the Property owner's death, the Property passed to Frank Luther, who took the property subject to the lease. Then, Luther sold the Property, reserving only:

"an undivided one-half interest in and to all oil, gas or other minerals in and under and that may be produced from the . . . property and the right of participation in all events pertaining to said oil, gas or other minerals for a period of twenty (20) years from the date of this instrument or as long ...

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