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Ohio’s Dormant Minerals Act: Terminating and preserving oil and gas rights

The recent focus on Ohio in the Utica Shale play and the potential to use horizontal drilling and hydraulic fracturing, or “fracking,” to develop Ohio’s untapped oil and gas reserves has caught the attention of both landowners and oil and gas companies. However, dealing in oil and gas rights is not new to Ohio. People have been developing Ohio’s mineral resources, including coal and oil and gas, for many years. Since the late 1800s, landowners have been selling their mineral rights to the oil and gas underlying their land. As a result, the rights to those mineral interests often are held by a person other than the surface owner of the property. When a landowner tries to lease the rights to develop the oil and gas underlying his or her land, the landowner may be surprised to discover that they do not own oil, gas and other “minerals” below the surface. In some cases, those mineral rights may never have been developed, or production may have ceased long ago. Further, the landowner may not be able to identify the current owner of the mineral rights, which may have been severed from the surface rights decades earlier.

Mineral estate vs. surface estate

When the “mineral estate” has been severed from the “surface estate” and the mineral estate, for all intents and purposes, has been abandoned, the efficient development of the mineral resources is placed at risk. Therefore, the Ohio legislature enacted the Dormant Minerals Act to establish a process for reuniting the mineral estate with the surface estate after 20 years of nonuse. At the same time, however, the Ohio legislature enacted safeguards to prevent legitimate mineral interests from being extinguished by the Dormant Minerals Act.

Ohio Revised Code (O.R.C.) Section 5301.56, known as Ohio’s Dormant Minerals Act, sets forth the process for deeming fee ownership of a mineral interest in property to be abandoned, placing title to the minerals back into the hands of the surface owner. Unless the holder of the mineral rights takes action to protect those rights, the law will deem the mineral rights abandoned and reunite the mineral estate with the surface estate.

The statute establishes the steps a surface owner must take for the mineral interest to be declared abandoned. Essentially, the surface owner must serve the mineral interest holder notice of intent to declare the mineral interest abandoned, and then file an affidavit of abandonment in the county recorder’s office in accordance.

Declaring a mineral interest abandoned

The surface owner must serve each mineral interest holder notice of the owner’s intent to declare the mineral interest abandoned. If the mineral interest holder is unknown, or service by mail cannot be completed, the statute provides that notice may be published in a newspaper. After notice is perfected by either mail or publication, the surface owner must file an affidavit of abandonment with the county recorder no less than 30 days and no later than 60 days after the date on which the notice was served or published. To be effective, both the notice and the affidavit must conform to the requirements of the statute. If the record owner of the mineral interest fails to file a claim to preserve the mineral interest within the time period prescribed by the statute and in accordance with the requirements of the statute, the filing of the affidavit will cause the mineral interest to be deemed abandoned and vested with the surface owner.

Preserving a mineral interest

The Dormant Mineral Act provides several means by which the holder of a mineral interest may preserve such interest. A mineral interest holder that has received notice of a surface owner’s intent to declare abandonment can file a claim to preserve the mineral rights. However, even if a mineral interest holder has not received a notice of intent to declare abandonment, the holder may preemptively file an affidavit to preserve the mineral interest. The affidavit of abandonment must strictly comply with the requirements of the statute to be effective. When more than one person or entity owns a particular mineral interest, not all holders of a mineral interest need to file a claim to preserve their collective interest. An affidavit filed by any holder of the mineral interest will preserve the rights of all holders of the mineral interest in the same land.

In addition to a filing made by the mineral interest holder, the Dormant Mineral Act sets forth certain other events that can prevent abandonment of a mineral interest. A mineral interest will not be deemed to have been abandoned if the mineral interest has been the subject of a title transaction within the last 20 years. A common example of a title transaction is the recording of a deed transferring the mineral interest. In addition, a mineral interest will not be deemed to have been abandoned if actual production of minerals or underground storage of natural gas has occurred on the property in the preceding 20 years. Likewise, if the mineral interest is listed as a separate tax parcel number on the county auditor’s tax list, no abandonment will be deemed to have occurred.

A mineral interest may be preserved indefinitely by the occurrence of one of the events that prevent abandonment every 20 years. Therefore, the holder of an interest in oil and gas should file an affidavit to preserve the interest at least every 20 years. Filing an affidavit in response to a notice of intent to declare abandonment has the same effect as an affidavit filed preemptively.

It is worth noting that the Dormant Minerals Act cannot be used to declare certain mineral interests abandoned, including a mineral interest held by the government or a mineral interest in coal. However, if the mineral interest includes both coal and other minerals, such as oil and gas, the Dormant Minerals Act may be used to terminate the interest in all of the minerals that are not coal.

The attorneys of McDonald Hopkins’ Energy Development Team can help you determine whether you own the rights to the minerals under your property and, if not, whether they can be reunited with your surface estate so that you can lease those mineral rights to a third party. Likewise, we can assist clients with preserving their existing mineral interests to protect their economic expectations in those mineral assets.

For more information, please contact:

Michael L. Snyder
Co-Chair, Energy Practice
216.348.5754
msnyder@mcdonaldhopkins.com

Michael W. Wise
Co-Chair, Energy Practice
216.430.2034
mwise@mcdonaldhopkins.com

Jeffrey R. Huntsberger
216.348.5405
jhuntsberger@mcdonaldhopkins.com

Adam N. Saurwein
216.348.5718
asaurwein@mcdonaldhopkins.com

Click here for more information regarding oil and gas leasing.

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© 2012 McDonald Hopkins LLC All Rights Reserved. This Alert is designed to provide current information for our clients, friends and their advisors regarding important legal developments. The foregoing discussion is general information rather than specific legal advice. Because it is necessary to apply legal principles to specific facts, always consult your legal advisor before using this discussion as a basis for a specific action.