In the first part of this series, we reviewed a 2010 Licking County case, which held that Ohio’s Marketable Title Act (MTA) extinguished an adjoining landowner’s claim against former railroad property. This article discusses how the MTA was used to reconcile competing claims to a severed mineral interest before Ohio’s Dormant Minerals Act was passed.
The Marketable Title Act and severed minerals: coal excepted, but not oil and gas
When the MTA was first enacted in 1961, it expressly excepted all mineral interests . But in 1973 the Ohio Legislature amended the mineral interest exception so that only coal was excepted from the operation of the MTA. That amendment set the stage for Heifner v. Bradford, 5th Dist. Muskingum No. CA-81-10, 1982 Ohio App. LEXIS 14859 (Jan. 29, 1982), overruled by Heifner v. Bradford, 4 Ohio St. 3d 49; 446 N.E.2d 440 (1983). Continue Reading
We are in the process of posting a series of articles on the Ohio Dormant Minerals Act (DMA), in which we’ll provide analysis about Dahlgren-v-Brown, Carroll C.P., 13CVH27445, (Nov. 5, 2013). However, today we wanted to share news about this Carroll County opinion and what it may portend for future cases.
Leora Dahlgren owned severed minerals pursuant to a reservation in a deed to Walter Dunlap in 1949. When Leora passed away in 1977, her estate was probated and a Certificate of Transfer conveying the minerals to her heirs was issued and recorded — at the Probate Court rather than the Recorder’s Office — in 1978.1 More than 30 years later, in 2009, the mineral owners leased their oil and gas. During that same period of time, the surface had become owned by successors to Dunlap pursuant to deeds reciting the reservation in the 1949 deed. The surface owners filed a DMA notice of abandonment in March 2012. Within the following 60-day period, the Dahlgren mineral heirs filed their notice of claim and, in 2013, sued to quiet title. Continue Reading
This is the first in a series of articles delving into the history and influence of the Ohio Dormant Minerals Act since it was enacted in 1989.
The oil boom at the turn of the last century led property owners selling their land to reserve from the sale, for themselves, “the oil and gas and other minerals” — thus creating severed mineral interests. During the next 40 to 50 years there were two world wars, divorces, deaths and myriad other family-changing events. In many cases, the ownership of severed mineral interests became clouded. Through the years, legislatures in the Midwest have worked to address the situation through mineral lapse acts or dormant minerals acts, whereby the severed interest is reunited with the surface.
With the advent of horizontal wells, consternation around determining who owns the minerals has become exacerbated. Horizontal wells and fracking have made severed interests, even small ones, a matter of animated debate. Furthermore, any time the legislature tries to decide who wins, the loser is bound to argue that the Constitution requires restitution. As Justice Oliver Wendell Holmes Jr. said in one of his famous dissents, “Great cases, like hard cases, make bad law.” Northern Securities Co. v. United States, 193 U.S. 197 (1904). The severed mineral interest issue pits two fundamental principles against each other: the certainty title to land vs. the need to extinguish dormant claims so that development can proceed.
The objective of this series of articles is to trace the history and evolution of Ohio’s Dormant Minerals Act (DMA), and to examine current issues related to its implementation.
The DMA was enacted in 1989 as part of the Ohio Marketable Title Act (MTA), which itself became law in 1961. The MTA is best understood not in the abstract, but (at least for this writer) in the context of actual facts. A recent case from Licking County is illustrative. Continue Reading
Businesses active in Ohio’s current oil and gas boom should be aware of how oil and gas leases are treated in bankruptcy. Unsettled Ohio law regarding whether a debtor owns unextracted oil and gas as part of the debtor’s real property can make this a difficult issue. This eBook discusses recent court opinions and examines the question of just who owns unextracted oil and gas in a bankruptcy context. Download Oil and Gas Leases in Bankruptcy.
Siblings at odds before the North Dakota Supreme Court
Reservations of mineral interests in deeds is tricky business. A particular case in North Dakota was resolved only after five years of litigation — including a trial and an appeal to the state supreme court. As we have written previously, whether in Ohio or North Dakota, shale source rock and horizontal drilling seem to make mineral interests worth fighting for — even between siblings.
George Tank and his wife owned property in McKenzie County, North Dakota. After his wife had passed away, George executed a quitclaim deed conveying his interest in part of his property to one of his five children — his son, Greggory Tank, who had stayed on the farm to work with his parents.
George’s quitclaim deed was captioned “(Life Estate Reserved)” and contained the following reservation clauses: Continue Reading
The right, but not the obligation, to renew an existing lease
As we discussed previously, state and federal courts in Ohio have been asked to interpret the meaning of “paragraph 14” in oil and gas leases. On Oct. 30, 2013, the Sixth Circuit Court of Appeals held that paragraph 14 does not require a lessee to match a third-party offer or have the lease terminated. The federal court opinion issued in Stewart v. Chesapeake Exploration, L.L.C., 2013 U.S. App. LEXIS 22302, 2013 FED App. 0928N (6th Cir.), 2013 WL 5832343 (6th Cir. Ohio 2013) is consistent with other holdings interpreting this lease provision.
The court found the landowners’ interpretation “strange at best,” “implausible” and in conflict with several other provisions in the lease.
The court closed by holding:
“In summary, we agree with the district court that, by its terms, Paragraph 14 does not grant the landowners a right to terminate their leases, but instead grants Chesapeake a ‘preferential right to renew’ them.”
The plaintiffs in this case are a group of landowners in Nobel County who, from 2008 to 2010, entered into oil and gas leases, some of which were assigned to Chesapeake Exploration, LLC. Some of the leases had a three-year primary term, some five years, with typical provisions to extend the primary term. However, the lease provision really at issue was titled “Preferential Right to Renew,” referred to as “paragraph 14.” Both the plaintiffs and defendants filed motions for summary judgment. Judge Edmund A. Sargus Jr. of the federal District Court in Columbus decided the case on Sept. 26, 2013. Wiley v. Triad Hunter LLC, 2013 U.S. Dist. LEXIS 143058 United States District Court for the Southern District of Ohio, Eastern Division.
Paragraph 14 provides, in summary, that if during the primary term and one year thereafter, the lessor receives an acceptable, bona fide third-party offer to lease, the lessor would provide the lessee with the particulars. The lessee then would have 30 days to advise the lessor of its agreement to match the offer. Also, any lease “granted by lessor in contravention of the purposes of this paragraph shall be deemed null and void.”
The plaintiffs received a bona fide offer to lease their land. At this point, let me digress. Hoping that an existing lease will expire, third parties will offer a new lease to the landowner, sometimes called a “top lease,” that will take effect upon the existing lease’s termination. Paragraph 14 would seem to protect the lessee by giving, in effect, a right of first refusal on equal terms.
Picking up the story and summarizing for brevity, apparently the new leases were a better deal. So, despite the fact that the existing leases were within their primary terms, the plaintiffs forwarded the offered lease to the lessee. In one of the letters to the lessee, the plaintiffs informed the lessee that the lease had in fact been forfeited based on the plaintiff’s interpretation of paragraph 14. The lessee responded by saying that it disagreed with the plaintiff’s interpretation and taking the position that it need do nothing pursuant to paragraph 14. Continue Reading
For estate planning purposes, in 2005 Willard and Ruth Liggett put real estate they owned into a revocable trusts with themselves as trustees. In 2008, the Liggetts signed an oil and gas lease in their personal capacity. In 2012, Plaintiffs Willard and Ruth Liggett, co-trustees under 10/10/05 Liggett Trusts, filed a complaint in Tuscarawas County. The Lessee, Chesapeake Exploration, L.L.C., counterclaimed. The case was removed to federal court in Youngstown, Ohio. See Liggett v. Chesapeake Exploration, L.L.C., 2013 U.S. Dist. LEXIS 147392, United States District Court for the Northern District of Ohio, Eastern Division.
The Liggetts claimed the lease was unenforceable because it was signed by them personally, not as trustees, and asked for summary judgment. Chesapeake asked for a declaratory judgment that the lease is valid and enforceable, and filed counterclaims.
On Oct. 11, 2013, Judge Benita Y. Pearson ruled that the lease is valid and enforceable. Chesapeake’s motion for summary judgment for its claims against the Liggetts remain pending for trial. They are: Continue Reading
An essential function of the law is to provide predictability as questions arise. When legal questions arise in the oil field regarding ownership rights, a consensus in the law — especially in the common law — is crucial. With that consensus, the attributes of conveyances related to those hydrocarbons (rights) can be examined. Specifically, what are the landowner’s rights with regard to the hydrocarbons under a piece of land in Ohio? Does he or she actually own them, or do they just have the right to capture them? If he or she would grant a lease to an oil company, what does the oil company own — is it an interest in real estate or is it simply a right to search? And, if found, what is the nature of the interest owned by the oil company pursuant to the lease? These fundamental questions have not been answered clearly in Ohio despite the fact that courts have struggled with them for over a century.
This ambiguity in the law puts federal courts in a potentially difficult position. Absent a clear indication of state law, federal judges deciding these issues under Ohio law are required to consider how the Ohio Supreme Court would decide the issue. Recently, a federal judge weighed in on the nature of an oil and gas lease in the case of Wellington Resource Group LLC v. Beck Energy Corporation, Case No. 2:12-CC-104 in the United States District Court for the Southern District of Ohio, Eastern Division, Sept. 20, 2013.
Whether the interest granted in the lease is an interest in real estate, or is something other than that, has implications in a variety of laws and contexts. Does the lease need to be in writing? Does the lease need to be recorded? Is a mechanics’ lien able to attach to it? How is the lease characterized in a bankruptcy context? (Read more in previously published articles about bankruptcy and mechanics’ liens.) Continue Reading
We wrote previously about the United States District Court for the District of Columbia vacating Securities and Exchange Commission Rule 13q-1, which required certain companies to disclose payments made to foreign governments in connection with the commercial development of oil, natural gas or minerals. The SEC announced Sept. 3, 2013 that it would not appeal the court’s decision and would instead redraft the rule, taking into account the court’s concerns, and restart the rulemaking process.
The court had found that:
- The SEC erroneously read the statutory language as requiring public disclosure of these payments; and
- The SEC’s decision to deny any exemption to the disclosure requirements, specifically in the case of countries that prohibit disclosure of these payments, was arbitrary and capricious.
The SEC has not provided a timetable for the redraft of the rule.