Ohio Dormant Mineral Act does not automatically transfer oil and gas mineral rights to surface owners

Photo by RonnieB on Morguefile

Ohio Dormant Mineral Act does not automatically transfer oil and gas mineral rights to surface owners

Photo by RonnieB on MorguefileIn a trio of decisions dated Sept. 15, 2016, the Ohio Supreme Court clarified the provisions of Ohio’s Dormant Mineral Act (ODMA) as it applies to the rights of surface and oil and gas mineral rights owners.

First and foremost, the Court ruled that the 1989 version of the ODMA did not operate to automatically vest abandoned oil, gas and mineral rights in the surface owner. Instead, a surface owner seeking ownership of abandoned mineral interests must be proactive by obtaining a court order declaring the mineral rights abandoned. The Court also decided that surface owners seeking abandoned mineral interests subsequent to the 2006 amendment to the ODMA must follow the notice requirements contained in the amended statute. These rulings are critical as surface owners can no longer assume oil and gas mineral rights automatically vest in their ownership.

Corban v. Chesapeake Exploration, LLC

The crux of the Court’s analysis is set forth in Corban v. Chesapeake Exploration, LLC.1 In Corban, the Ohio Supreme Court decided that the 1989 ODMA was not self-executing and that the 2006 amendment to the ODMA applies to all claims asserted after 2006 to declare the mineral rights abandoned. The ODMA, enacted in 1989 and amended on June 30, 2006, generally provides that severed oil and gas interests are deemed abandoned and vested in the surface owner if certain “savings events” do not take place within a 20-year period.

The Court noted that, pursuant to Ohio common law, mineral rights severed from surface rights are not subject to abandonment if the mineral owner failed to produce oil or gas or to extract other minerals. Evidence must be shown that the mineral owner intended to abandon its interest, and abandonment could not be presumed from mere nonuse.

The 1989 ODMA was intended to provide a method for the termination of dormant—i.e. undeveloped—oil and gas mineral rights. The 1989 ODMA provided that if dormant for a 20- year period, the oil and gas mineral rights held by a person other than the surface owner would be “deemed abandoned” and transferred to the surface owner absent certain “savings events.” Savings events include, but are not limited to, actual production of the minerals, the underground storage of gas, and whether the mineral interest has been the subject of a sale or other title transaction recorded in the office of the county recorder.

The Corban Court focused on the phrase “deemed abandoned.” It concluded that the language requires judicial action before mineral rights can be forfeited. The Court equated this term with a “conclusive presumption,” which is an evidentiary device, and explained that by “deeming” dormant mineral rights abandoned, the ODMA created an evidentiary assumption that a mineral rights owner abandoned the rights if the 20-year period passed without a savings event. The Court noted that this procedure offered a fair and effective method of terminating abandoned mineral rights by requiring a quiet title action in favor of the surface owner. The Court clarified that because the presumption is only an evidentiary device, the 1989 ODMA does not automatically transfer the oil and gas mineral interest to the surface owner by operation of law. Instead, a surface owner must file a civil action to quiet title and obtain a court order that oil and gas rights have been forfeited.

In addition to the 1989 ODMA, the Corban Court also elaborated on the notice requirements set forth in the 2006 amendments to the ODMA. The ODMA as amended requires a surface owner seeking to quiet title to comply with specified notice provisions before an interest can be deemed abandoned. In effect, the 2006 ODMA gives the mineral rights owners an opportunity to prove they preserved their interests in any undeveloped minerals. The Court concluded that the 2006 ODMA notice requirements apply to all claims asserted after June 30, 2006, seeking to declare mineral rights abandoned—even if the mineral rights were abandoned prior to the amendment.

Albanese v. Batman

The Court applied its ruling in Corban to Albanese v. Batman.2 In Albanese, which was published the same day as Corban, the Court held that a surface owner’s failure to comply with the notice requirements of the 2006 ODMA prevented the mineral interest at issue from being deemed abandoned.

Albanese involved a consolidated appeal in which two landowners filed separate lawsuits seeking to quiet title to certain oil and gas mineral rights and oil and gas leases on their property. The Court, relying on Corban, explained that all claims to quiet title in dormant mineral interests must follow the 2006 ODMA notice requirements to declare the mineral rights abandoned, even if the mineral rights were abandoned prior to 2006. Here, the Albanese surface owners failed to comply with the notice provisions in the 2006 ODMA. As such, the severed oil and gas interests were preserved and not abandoned.

Walker v. Shondrick-Nau

In a third decision, Walker v. Shondrick-Nau,3 the Court applied Corban again to find that the owner of a severed mineral estate preserved his rights. In Walker, Noon severed the oil and gas rights by deed recorded in 1965. In 2009, Walker acquired the surface of the land and, after becoming aware of the 1965 deed, sent a “notice of abandonment of mineral interests” to Noon’s last known address. Walker then filed an affidavit of abandonment in the county recorder’s office. Thereafter, Noon filed a claim to preserve his mineral interests. The trial and appellate courts held that the mineral rights were abandoned and vested in the surface owner.

The Ohio Supreme Court reversed. The Court held that, in accordance with Corban, the 2006 ODMA’s notice requirements controlled because the property was purchased in 2009—i.e. three years after the amendment. The Court explained that, under the 2006 ODMA, a mineral interest holder may file a claim to preserve his or her interests within 60 days after notice of the surface owner’s intent to declare those interests abandoned. Since the mineral interest holder in Walker had filed his notice, the Court held that his interests were properly preserved and not abandoned under the 2006 ODMA.

These rulings clarify the application of the ODMA to claims arising before and after the 2006 amendment. Specifically, it is now clear that the 1989 ODMA does not automatically vest dormant minerals in the surface owner without judicial action and the 2006 ODMA notice requirements apply to all claims asserted after June 30, 2006.

The practical effect of these determinations cannot be understated. The Court precluded any interpretation of the 1989 ODMA that ownership of dormant mineral rights transfer to the surface owner by operation of law. This holding overturns the analyses of multiple state appellate courts, which held that the 1989 ODMA was self-executing and required no judicial action. In addition, the holding that the 1989 ODMA applies only until the 2006 amendment, essentially renders the 1989 statute moot to all claims asserted after the 2006 ODMA. These holdings will affect litigation involving hundreds of properties in numerous counties across Ohio and will dictate the outcomes of multiple disputes involving the ownership of severed oil and gas interests in the state.

These rulings also speak to the Court’s apparent recognition of the value in the Utica Shale mineral deposits and reflect an unwillingness to allow owners to forfeit their property rights in such deposits without the benefit of notice and judicial action. Corban, Albanese and Walker emphasize the importance in protecting the chain of title, as well as the Court’s implied concern that mineral owners could forfeit valuable interest without notice and the opportunity to defend their claims. As a result of these rulings, surface owners that did not undertake a quiet title action and obtain a judgment entry confirming abandonment of the mineral interest prior to June 30, 2006, must take action and comply with the forfeiture requirements of the 2006 version of the ODMA. Anything less is insufficient to conclusively vest ownership in the surface holder.


Endnotes

1(2016-Ohio-5796).
2(2016-Ohio-5814).
3(2016-Ohio-5793).

This article originally appeared in the 2017 March/April issue of Ohio Lawyer. It was reposted here with permission on 3/2/2017 by Gregory Brunton/Justin Koterba. [View source]

Photo by RonnieB at Morguefile

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