Due to the recent leasing activity associated with the Utica Shale, many landowners are looking into the chain of title for their property to determine if they are subject to an oil and gas lease. Upon review many landowners are surprised to learn that they have one or more oil and gas leases referenced in their chain of title. In some cases these references could prevent the landowner from entering into a new oil and gas lease.
To the extent the oil and gas lease has expired and does not have a producing oil and gas well on the original leased acreage, landowners have two options to attempt to clear their chain of title. First, under Ohio Revised Code §5301.332, a party can utilize the Notice of Forfeiture procedure to have the oil and gas lease cancelled. In order to use the Notice of Forfeiture procedure, there cannot be a producing oil and gas well on any portion of the original leased acreage. The landowner commences the procedure by serving a Notice of Forfeiture on the lessee(s), by certified mail, or publication if the lessee cannot be located. The Notice of Forfeiture advises the lessee of the landowner’s intent to deem the oil and gas lease forfeited and is required to provide certain background information about the lease in question as well as the reason for the forfeiture.
After serving the notice upon the lessee, the landowner is required to record an Affidavit of Forfeiture in the County Recorder’s office in which its real estate is located, advising that it has served the Notice of Forfeiture upon the oil and gas lessee. The Affidavit of Forfeiture must be filed more than 30 days, but less than 60 days after serving the original Notice of Forfeiture. Thereafter, the oil and gas lessee has a period of 60 days in which to file an Affidavit in the County Recorder’s office advising that the lease has not been forfeited. If the oil and gas lessee timely files its Affidavit then the lease will remain of record, and the landowner’s remedy would be a lawsuit to have a court determine if the lease is still valid.
However, if the oil and gas lessee fails to file its Affidavit within 60 days of receiving the Notice of Forfeiture, then the landowner owner has the ability to request the County Recorder to note the lease as “Cancelled pursuant to Affidavit of Forfeiture recorded in Lease Volume . . ., Page . . . .” Successfully utilizing the Notice of Forfeiture procedure will provide the best remedy for landowners to clear their title of expired oil and gas leases.
A landowner’s second option is the filing of an Affidavit of Noncompliance. Unlike the Notice of Forfeiture procedure, the Affidavit of Noncompliance is simply an affidavit filed in the County Recorder’s office advising third parties that the landowner believes the oil and gas lease is no longer valid. The Affidavit will be considered by the abstractor reviewing title to your oil and gas rights to determine whether or not you have clear title to enter into a subsequent oil and gas lease. Unlike the Notice of Forfeiture procedure, the Affidavit of Noncompliance does not result in the oil and gas lease being deemed null and void.
The Notice of Forfeiture procedure is the preferred way to remove an expired oil and gas lease in one’s chain of title, however, the Notice of Forfeiture procedure is more costly than the Affidavit of Noncompliance as it requires the title search to determine the current lessee(s) of the lease. The determination of whether to use the Notice of Forfeiture procedure or Affidavit of Noncompliance will be based upon the facts and circumstances of each landowner’s chain of title, as well as the risk tolerance of future lessees.
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.
If you have any questions about this article, feel free to contact Gregory W. Watts at 330-497-0700.