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Mineral Reservations Prior to 1986 Called Into Question

Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A.

In Ohio, owners of real estate have the opportunity to reserve certain rights in real estate even though they are transferring the surface of the real estate to another.  One common reservation is an oil and gas reservation.  An oil and gas reservation allows the transferring landowner to reserve all of the oil and gas under the surface of the property.  Therefore, the reserving party has the right to all royalties associated with the production of oil and gas from the property and additionally has the exclusive right to enter into a lease for the oil and gas reserved.  Due to the increased leasing activity associated with the Utica Shale in Northeastern Ohio, many landowners have a renewed interest in the status of their oil and gas rights.  Unfortunately, some landowners have learned that they do not own the oil and gas rights under their property due to a prior oil and gas reservation.

However, reservations of all minerals, other than coal, which occurred in and prior to 1986 are being called into question under the Ohio Dormant Mineral Title Act ("Act").  The Act, originally effective in 1989, provides that an individual who owns mineral rights through a reservation, or prior severance, will be deemed to have abandoned their mineral rights (other than coal) if certain events have not occurred within the prior 20 years.  These events are commonly referred to as savings events and generally include a lease and production of the reserved minerals, assignment of a tax parcel number to the reserved minerals, or the occurrence of a title transaction in which the reserved minerals are the subject of the title transaction.  If the minerals are deemed abandoned under the Act, the reserved mineral interest becomes vested in the surface owner.

In 2006, the Act was modified to require notice to the mineral owner prior to the abandonment occurring.  The 20-year look back period under the current Act commences upon the notification to the party who holds the reserved mineral interest ("Holder").  Under the current Act, prior to the abandonment occurring, notification to the Holder, and its successors and assigns, is to be made by certified mail.  If certified mail cannot be completed then the notification may be published in the newspaper in the County in which the minerals at issue are located.  In many instances, upon receiving the certified letter, the Holder will file an Affidavit of Preservation to preserve the mineral interest.  Unfortunately for the surface owner, under the current version of the Act, the Affidavit of Preservation prevents the reserved minerals from being abandoned and vested in the surface owner.

However, prior to 2006, notification to the Holder was not necessary under the Act.  Rather, the Pre-2006 Act simply provided that if a savings event did not occur within the prior 20 years the Holder's mineral interest was abandoned and vested in the surface owner.  Unlike the current version of the Act, the Pre-2006 Act did not specify any action that the surface owner must take to have the mineral interest deemed abandoned, including any notification to the Holder.  Thus, many presume that under the Pre-2006 Act the abandonment of the minerals occurred automatically without any notice or documents being recorded.

Many question the constitutionality of the Government's ability to simply deem a property interest abandoned.  No Ohio Court has addressed the constitutionality of the Pre-2006 Act's automatic abandonment of reserved mineral interests.  However, similar mineral lapse statutes in other states have withstood these same constitutional challenges.  Additionally, in 1982 the United States Supreme Court in Texaco, Inc. v. Short, 454 U.S. 516, concluded that Indiana's Mineral Lapse Statute was constitutional and effective.  The opinion can be read at http://supreme.justia.com/cases/federal/us/454/516/

The Ohio Pre-2006 Act was closely modeled upon Indiana's Statute, leading some to conclude Ohio's Pre-2006 Act will be upheld if challenged.  The effect of the lack of notification in the Pre-2006 Act is significant.  Essentially any reservation that occurred in and prior to 1986 (20 years prior to the Act's 2006 modification to include a notice requirement) are subject to the surface owner's claim that the mineral interests were automatically abandoned under the Pre-2006 Act.  Further complicating the matter is the fact that there is nothing recorded in the Recorder's Office evidencing this "automatic" transfer of the abandoned mineral interests under the Pre-2006 Act.  Thus, many out of state oil companies unfamiliar with Ohio Law may be disappointed to learn that they have entered into and paid for a lease of the mineral rights with the wrong party.

The general remedy to address the issue is the filing of a Quiet Title Action.  As a result, litigation among surface owners and Holders is on the rise and there is a growing divide in the interpretation, application and constitutionality of the Pre-2006 Act.  Absent a decision by Ohio's Supreme Court in the near future, one can expect a cloudy forecast on the validity of mineral reservations occurring in and prior to 1986. 

NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.

 
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