Ohio Dormant Minerals Act. Very good read…

Ohio Dormant Minerals Act. Very good read…

By Jeff Ubersax

The boom in shale gas drilling has led to an enormous increase in the value of mineral rights where shale gas and oil are present. When mineral rights go from worthless toward priceless, they are suddenly worth fighting over.

That is why we’re seeing more lawsuits that involve Ohio’s Dormant Mineral Act.

The act basically says “use it or lose it” if you own a severed mineral interest. An owner who does nothing with his interest for 20 years is deemed to have “abandoned” the interest, and the owner of the surface land gets it back. But if there has been any “savings event” — which could include any of a list of specified activities, from simply filing a statement of claim to obtaining a drilling permit to actual production — the interest is not abandoned. If the minerals are the “subject of a title transaction,” that also is a savings event.

The statute was enacted in 1989 and amended in 2006 with major changes. For example, the original version did not require the surface owner to take action, or even to notify the mineral rights owner, if he intended to claim that the rights were abandoned. Under the law’s newer version, surface owners must first notify the mineral owners that they intend to declare the mineral rights abandoned, and then file an affidavit to support their claim.

The 2006 act also armed mineral rights owners with a whole new means of contesting claims of abandonment by filing, after the surface owner’s notice, either a claim to preserve their interest, or an affidavit identifying a savings event that took place in the last 20 years.

But important questions remain over how to interpret the act in specific situations — and even over which version of the act applies. The answers are going to come from hard fights in a legal arena in which there is so far very little case law, but increasingly large amounts of money at stake. Several new issues have already been brought up by surface owners, and others can be expected to arise.

For example, can a claim of abandonment still be made under the 1989 act? The original act became effective March 22, 1989, with a three-year grace period. Let’s assume that there was no savings event during the period March 1972 to March 1992, or any subsequent 20-year period before the act was amended in 2006. What if, now that new drilling techniques have emerged, the mineral rights owner wants to develop a gas well? Can the surface owner claim that under the 1989 act, the oil and gas already reverted to him automatically? Or must he follow the notice and affidavit procedures of the amended act?

Today, in Ohio, that could be a billion-dollar question, and the courts have not clearly answered it. There are recent unreported common pleas decisions going both ways.

Other key questions involve “title transactions” as savings events. Has the mineral interest been the “subject of a title transaction” if there is a recorded oil and gas lease? Surface owners say no; the lease is just a license and does not affect title. Mineral owners say yes; the lease conveys an estate in the oil and gas. One court agreed with the mineral owners in a March decision.

What about a sale of the surface where the deed does not convey any minerals, but mentions the original mineral reservation? When that happens, is the mineral interest the “subject of” the title transaction? Courts have split on this question, in decisions that came out last October and as recently as March 20, 2013.

Yet another key issue is how the 2006 procedures work.

Assume that the surface owner serves a notice under the amended act, and there has been no savings event in the preceding 20 years. Can the mineral owner still preserve this interest by filing a claim?

Surface owners have argued that under the amended act, the mineral interest “shall be deemed abandoned” if no savings event has occurred “the twenty years immediately preceding the date on which notice is served;” if a claim to preserve a mineral interest is not filed within the 20 years before the notice, it is too late, they say, and a finding of abandonment is mandatory.

But the amended act gives the mineral rights owner 60 days — after receiving notice — to file not just evidence of a previous savings event, but a new “claim to preserve the mineral interest.” Why would the legislature specifically provide for filing a claim after the notice, if the claim would have no effect? Its intent seems to have been to give mineral owners a last chance to hold on to their interest.

We will see all of these questions and many others answered more than once in cases to come.

For landowners and the holders of mineral rights, it is now crucial to review all documents of record concerning any shale property, determine the status of the mineral rights under applicable law, and file whatever notices, claims or affidavits are required to gain or retain ownership of these valuable minerals.

Jeff Ubersax is a business and tort litigation partner in Jones Day’s Cleveland office. He represents mineral rights owners in a variety of shale-related disputes, including suits by surface owners to enjoin the removal of natural gas by horizontal drilling and “fracking.”

 

 

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