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Contradiction In The Ohio Dormant Minerals Act

Posted in Contracts and Leases, Mineral Interest, Ohio, Real Estate, Regulatory

Inconsistencies and ambiguities in the Ohio Dormant Minerals Act, Ohio Revised Code § 5301.56 (the “ODMA”), set the stage for legal battles that are just beginning.  Oil and gas operators may get caught in the crossfire.

Operators need to be aware of at least one glaring inconsistency in the current version[1] of the ODMA that sometimes makes it difficult to determine who owns a mineral interest that has been severed from the surface estate.  This inconsistency could render a lease meaningless, and make a lessee a trespasser, if the lease is not signed by the right party. 

A General Description of the ODMA

The current version of the ODMA became effective June 30, 2006.  It outlines how and when surface owners may declare old, severed mineral interests “abandoned” and have the mineral interests reunified with the surface estate. The ODMA refers to the owner of a surface estate as “Owner,” and to the owner of a severed mineral interest as “Holder.”

The statute imposes a twenty (20) year “use it or lose it” rule for severed mineral interests.  A Holder must use, or file something to preserve, a mineral interest within a twenty year look back period or the mineral interest becomes ripe for abandonment proceedings.   The ODMA exempts coal interests and mineral interests owned by government entities from ever becoming abandoned.

Abandonment proceedings begin when an Owner serves a Holder with a notice of the Owner’s intent to declare the old, unused mineral interest abandoned.  Thereafter, the Owner can file an “affidavit of abandonment” in the county recorder’s office that effectively declares the severed mineral interest abandoned.

However, a Holder can keep a mineral interest from being abandoned by recording a ”claim to preserve a mineral interest.”  ORC § 5301.56(C).  When the mineral interest Holder can file its claim to preserve a mineral interest is not clear under the ODMA.

When to Beware of Possible ODMA Problems

The ODMA only applies to mineral interests that are severed from the surface estate.  Consequently, oil and gas lessees should exercise caution anytime a title search reveals a mineral interest that is, or was, severed from the surface estate.

Next, an operator needs to be extremely careful anytime a title search reveals an affidavit that attempts to preserve a severed mineral interest.  Ambiguity in the ODMA over the timing of an affidavit to preserve a mineral interest could spell trouble for an oil and gas lessee. 

What is Inconsistent

The ODMA provides, “any mineral interest . . . shall be deemed abandoned and vested in the owner of the surface . . . if [the Owner serves the Holder with a notice of intent to abandon, and timely records an affidavit of abandonment] and . . . [the mineral interest has not been used or preserved in the twenty years immediately preceding the date when notice was served].”  ORC §5301.56(B).

The above-cited provision establishes an Owner’s right to declare a mineral interest abandoned and it establishes a cut-off date for the twenty year look back period: the date is when the Owner serves the Holder with the notice of intent to declare the mineral interest abandoned.

However, ORC §5301.56(H)(1)(a) seems to contradict this cut-off date by permitting a Holder to file a claim to preserve a mineral interest after being served with the Owner’s notice of intent to abandon.  ORC §5301.56(H) provides:

(H)(1)  If a holder . . . claim[s] that the mineral interest that is the subject of [a notice of intent to declare the mineral interest abandoned] has not been abandoned, the holder . . ., not later than sixty days after the date on which the notice was served . . ., shall file in the office of the county recorder . . . one of the following:

(a)        A claim to preserve the mineral interest . . . ;

(b)        An affidavit that identifies an event described in division (B)(3) of this section that has occurred within twenty years immediately preceding the date on which the notice was served or published . . . .

The inconsistency between ORC §5301.56(B) and ORC §5301.56(H) has caused Holders to record claims to preserve a mineral interest even after having been served with the Owner’s notice of intent to abandon the mineral interest.  Of course, those Holders then often attempt to lease their property to unsuspecting lessees.

Operators May Be Taking Worthless Leases

Oil and gas lessees who clear title without a full investigation of the facts surrounding a claim to preserve a mineral interest are assuming the risk that they may be taking leases from lessors who do not own a mineral interest.

A lessee who takes a lease in reliance on a claim to perserve a mineral interest may be in for quite a shock if/when the Owner files suit to quiet title to the mineral interest.  Faced with such a lawsuit, an operator should have counsel try to prove (1) why the mineral interest was not ripe for abandonment, (2) how the requirements of the ODMA were breached, (3) why the Owner should be estopped from denying the lease, or (4) what damages can be recovered from the lessor.

Who will prevail in an action to quiet title depends upon the facts of each case and a careful analysis of the ODMA.  But, an operator can avoid the uncertainty and cost of litigation by exercising caution and consulting with an attorney anytime it discovers a claim to preserve a mineral interest in the chain of a potential lessor’s title.

[1] We will leave the problems associated with the application of the previous version of the statute for another blog.