Source: https://www.oilandgaslawreport.com/mineral-interest/
Timestamp: 2019-04-19 00:16:50+00:00

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This week, the Ohio Supreme Court issued key decisions on its pending Dormant Mineral Act (DMA) cases. The Supreme Court Announcement itemized the various decisions released this morning, which were further detailed in Court News Ohio . Only three cases received full opinions: Corban v. Chesapeake Exploration, L.L.C., Walker v. Shondrick-Nau and Albanese v. Batman, while the remaining cases were disposed of based on the authority of those three opinions.
Overall, the Corban opinion addresses the issues that were most anticipated by oil and gas lawyers around the state, finding that the 1989 version of the DMA applied a fixed look back from its effective date, and that it was only operative until its amendment in 2006. Critically, the Court also held that the 1989 DMA is not self-executing and that a surface owner was required to obtain a judicial determination of abandonment of a severed mineral interest under the 1989 DMA. However, now that the 2006 version of the DMA has completely displaced any right to proceed under the 1989 DMA, only the 2006 version applies today.
Last year we reported on the flood of appeals pouring in to the Ohio Supreme Court raising dozens of questions about the Ohio Dormant Mineral Act (DMA), which can be found at R.C. 5301.56. A year later we finally have a few answers and the surge of new DMA appeals seems to have subsided.
Litigation over Ohio’s Dormant Mineral Act, R.C. 5301.56, (DMA) began as a trickle in 2012 and turned into a flood in 2014 that continues to confound mineral title attorneys and challenge judges. Questions about the DMA have all but paralyzed oil and gas companies still looking to acquire and develop mineral leases. Now all eyes are on the Ohio Supreme Court for guidance on myriad questions regarding the validity and application of the statute. This post provides an update of DMA appeals and issues pending before the Ohio Supreme Court to date.
Though the Ohio Supreme Court hasn’t yet issued any decisions related to DMA, that is about to change. The court has accepted five DMA cases for review — all accepted in 2014. These five cases present a total of 15 questions of DMA law. Only two of these cases (Dodd and Buell) have been argued, at least in part (the question accepted sua sponte in Dodd was not argued). The other cases have yet to be scheduled for oral argument. In addition, six more cases present another 20 questions of law that have been appealed to the Ohio Supreme Court but are not yet accepted for review.
In Eastham v. Chesapeake Appalachia, L.L.C., 6th Cir. No. 13-4233, 2014 U.S. App. LEXIS 10531 (June 6, 2014), the Sixth Circuit court of appeals considered whether a provision in a 2007 oil and gas lease that granted Chesapeake the option to “extend or renew under similar terms a like lease” was ambiguous and whether it required Chesapeake to renegotiate the lease when it expired. The court held that the plain language of the lease allowed Chesapeake to “extend” the lease on the same terms. The decision contains insights about Ohio law and important lessons in contract drafting and interpretation.
Upon the expiration of this lease and within sixty (60) days thereinafter, Lessor grants to Lessee an option to extend or renew under similar terms a like lease.
Is the recorded lease of a severed subsurface mineral estate a title transaction under the Ohio Dormant Mineral Act, R.C. 5301.56(B)(3)(a)?
Is the expiration of a recorded lease and the reversion of the rights granted under that lease a title transaction that restarts the 20-year forfeiture clock under the ODMA at the time of the reversion?
Landowner enters into an agreement to sign an oil and gas lease, finds outs there may be a better deal elsewhere and tries to get out of the first deal. A federal court in Ohio says, “No, a deal is a deal.” Bruzzese v. Chesapeake Exploration, LLC, U.S. District Court for the Southern District of Ohio, Eastern Division (Feb. 13, 2014).
A group of landowners in eastern Ohio had engaged attorneys to negotiate oil and gas leases on their collective behalves. They signed an Agreement to Accept Lease Offer from Chesapeake Exploration, LLC. About 75 members of the group later sued Chesapeake Exploration, LLC, claiming that the agreement was unenforceable. Chesapeake settled with all the landowners except Stephen and Elizabeth Albery.
In the previous three parts of this series (read part 1, part 2 and part 3), we reviewed the Ohio Marketable Title Act (MTA), its application to severed minerals, and the experience of neighboring states, all of which played a role in the development of the Ohio Dormant Minerals Act (DMA).
The MTA was enacted in 1961 to make land titles marketable, i.e., free of stale claims. It included a grace period and did not require notice before a chain of title was extinguished in favor of another.
The MTA generally applies to any property interest (presumably still including oil and gas interests) where no conveyance or claim to preserve has been filed during the past 40 years.
The MTA does not necessarily extinguish all old severed mineral interests, even those with a root of title more than 40 years old, because the severed interest may be a separate chain of title.
The Illinois DMA was found unconstitutional by the Illinois Supreme Court in 1980 as violating due process because it did not require severed mineral owners to be given notice and an opportunity to be heard.
In part 2 of this series, we reviewed the application of the Marketable Title Act (MTA) in a 1982 case involving a severed mineral interest and two independent chains of title. The Ohio courts appeared to struggle with the application of the MTA to the facts of that case. Courts and legislatures in neighboring states also struggled with how to handle dormant severed minerals. Those states’ case law and statutes played a role in the formulation of the Ohio Dormant Minerals Act, which was enacted in 1989 as part of the MTA. Examples of such influential laws and cases from Illinois and Indiana follow.
In Illinois, at common law, once a mineral estate has been severed from the surface estate, it cannot be terminated by mere nonuse or abandonment. Uphoff v Trustees of Tufts College, 351 Ill 146, 155, 184 NE 213, 216 (Ill 1932). Thus, mineral interests can lie dormant, even through several transfers of title. This situation, over time, can result in missing or unknown owners. The difficulty in ascertaining and locating severed mineral owners had a substantial deterrent effect on would-be gas and oil developers.
In a case involving the assignment of oil and gas leases from one company to another, an Ohio appellate court enforced an anti-assignment provision in the original lease. Harding v. Viking Internatl. Resources Co., Inc., 4th Dist. Washington No. 13CA13, 2013-Ohio-5236.
The rights of the Lessor may be assigned in whole or in part and shall be binding upon their heirs, executors and assigns. The rights and responsibilities of the Lessee may not be assigned without the mutual agreement of the parties in writing.
In the first part of this series, we reviewed a 2010 Licking County case, which held that Ohio’s Marketable Title Act (MTA) extinguished an adjoining landowner’s claim against former railroad property. This article discusses how the MTA was used to reconcile competing claims to a severed mineral interest before Ohio’s Dormant Minerals Act was passed.
We are in the process of posting a series of articles on the Ohio Dormant Minerals Act (DMA), in which we’ll provide analysis about Dahlgren-v-Brown, Carroll C.P., 13CVH27445, (Nov. 5, 2013). However, today we wanted to share news about this Carroll County opinion and what it may portend for future cases.
This is the first in a series of articles delving into the history and influence of the Ohio Dormant Minerals Act since it was enacted in 1989.
The oil boom at the turn of the last century led property owners selling their land to reserve from the sale, for themselves, “the oil and gas and other minerals” — thus creating severed mineral interests. During the next 40 to 50 years there were two world wars, divorces, deaths and myriad other family-changing events. In many cases, the ownership of severed mineral interests became clouded. Through the years, legislatures in the Midwest have worked to address the situation through mineral lapse acts or dormant minerals acts, whereby the severed interest is reunited with the surface.
With the advent of horizontal wells, consternation around determining who owns the minerals has become exacerbated. Horizontal wells and fracking have made severed interests, even small ones, a matter of animated debate. Furthermore, any time the legislature tries to decide who wins, the loser is bound to argue that the Constitution requires restitution. As Justice Oliver Wendell Holmes Jr. said in one of his famous dissents, “Great cases, like hard cases, make bad law.” Northern Securities Co. v. United States, 193 U.S. 197 (1904). The severed mineral interest issue pits two fundamental principles against each other: the certainty title to land vs. the need to extinguish dormant claims so that development can proceed.
Who owns oil and gas when people (or businesses) go bankrupt?
Is a reservation of oil and gas ambiguous?
Reservations of mineral interests in deeds is tricky business. A particular case in North Dakota was resolved only after five years of litigation — including a trial and an appeal to the state supreme court. As we have written previously, whether in Ohio or North Dakota, shale source rock and horizontal drilling seem to make mineral interests worth fighting for — even between siblings.
George Tank and his wife owned property in McKenzie County, North Dakota. After his wife had passed away, George executed a quitclaim deed conveying his interest in part of his property to one of his five children — his son, Greggory Tank, who had stayed on the farm to work with his parents.
As we discussed previously, state and federal courts in Ohio have been asked to interpret the meaning of “paragraph 14” in oil and gas leases. On Oct. 30, 2013, the Sixth Circuit Court of Appeals held that paragraph 14 does not require a lessee to match a third-party offer or have the lease terminated. The federal court opinion issued in Stewart v. Chesapeake Exploration, L.L.C., 2013 U.S. App. LEXIS 22302, 2013 FED App. 0928N (6th Cir.), 2013 WL 5832343 (6th Cir. Ohio 2013) is consistent with other holdings interpreting this lease provision.
The court found the landowners’ interpretation “strange at best,” “implausible” and in conflict with several other provisions in the lease.
An essential function of the law is to provide predictability as questions arise. When legal questions arise in the oil field regarding ownership rights, a consensus in the law — especially in the common law — is crucial. With that consensus, the attributes of conveyances related to those hydrocarbons (rights) can be examined. Specifically, what are the landowner’s rights with regard to the hydrocarbons under a piece of land in Ohio? Does he or she actually own them, or do they just have the right to capture them? If he or she would grant a lease to an oil company, what does the oil company own — is it an interest in real estate or is it simply a right to search? And, if found, what is the nature of the interest owned by the oil company pursuant to the lease? These fundamental questions have not been answered clearly in Ohio despite the fact that courts have struggled with them for over a century.
Part 3: Who owns the minerals under Ohio Township Section 16?
In our previous two segments on Section 16 lands — Part 1 and Part 2 — we examined the dedication, by Congress, of one section in each Ohio township, usually Section 16, for the support of public education. Initially, while retaining title to such lands in trust, Ohio vested administrative control in township trustees. However, the allocation of authority to the townships did not go well and in 1914 and 1917 the legislature reallocated responsibility to the Auditor of State as administrator of school lands remaining in state hands.
From 1827 to 1917, when the township trustees were authorized to sell or lease school land to private individuals, mineral title typically passed with the fee simple title. However, this practice ended in 1917 when the auditor assumed authority.
Whether an oil and gas lease is a “lease” is significant in the bankruptcy context, because the Bankruptcy Code has several provisions regarding the treatment of leases.
Part 2: Who owns the minerals under Ohio Township Section 16?
In our first post about Section 16 lands, we provided background on such public lands here in Ohio. We summarized that in 1785, a Federal land ordinance granted one square mile — usually Section 16 — out of every six square mile township to be held in trust by the state and to be dedicated to support public education pursuant to federal law. The Ohio Legislature then began leasing the land, and in 1827 it authorized sale of the land with proceeds going to the “Common School Fund.” Interest from the fund was to be paid to the schools within the townships. See, Dr. George W. Knepper, The Auditor of State, The Official Ohio Lands Book, 2002. (“Knepper”).
This is the second post in a two-part series examining ownership of minerals located under bodies of water and roads. See part I discussing the ownership of minerals under adjoining waters.
What ownership interest does the state, county, or township have in the land underlying the road?
What is the rule for abutting landowners in the event the government owns less than a fee simple absolute?
This post is the first of two articles examining ownership of minerals located under bodies of water and roads.

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