An ancestor owned oil and gas rights – how do I get title to them?

We are seeing a lot of situations where our clients have learned that they own mineral rights that were earlier reserved by an ancestor.  They typically learn of this through an oil and gas company who has researched title on a parcel they are interested in leasing (or sometimes on a parcel that has already been drilled).  The company discloses who reserved the minerals and describes its efforts in establishing a family tree for that person.

Based upon the company’s research (using Probate records, and other tools) it determines those persons presently living who would have ownership of the minerals and the percentage of the minerals each such person owns.  Oil and gas leases are then prepared for those persons and recorded.   The parties signing the leases are paid a signing bonus based upon the “net” acreage they owned.  For example, if Grandpa Jones reserved one half the minerals under 100 acres, and he has two living grandchildren, each would own:  50% x 100 / 2 = 25 net acres.

Most companies seem to be satisfied with the above process as far as getting leases in place, even though they are obtained from persons who do not hold “record” title.  That is, there is no chain of title at the courthouse from Grandpa Jones to his 2 grandchildren.

Some companies, when it pertains to payment of royalties generated by production of oil and gas, want greater comfort that they are paying the proper persons.  They sometimes require mineral owners to firm up their title to the minerals.  This seems  even more likely when the party who signed the lease has passed away; they want the next generation to get something on record at the courthouse establishing their ownership of the minerals.

So, exactly how does an heir get Granddad’s minerals properly titled in their name?  There would seem to be two ways to skin that cat in Ohio.  The simplest way, which may or may not be acceptable to the lessee for purposes of paying out royalties, would be using Ohio Revised Code 317.22.  It allows an heir to record an affidavit about the family history, who died, and who the living heirs are.   At the same time, the heir can prepare and record a deed to the living descendants of the person who reserved the minerals .While this is a fairly simple process and causes such descendants to be the presumed owners of the mineral interests, their interest remain subject to attack from others — for example, if the affidavit failed to include a living ancestor, he could step up later and claim a share of ownership.  Under Ohio’s Marketable Title Act, if no one puts something on record to challenge the affidavit or related deed within 40 years after they were recorded, the ancestors filing same would then have clear title.

The second way of transferring ownership involves the use of Probate Courts.  In the example above, a Probate estate would be opened for Grandpa Jones (or re-opened if an estate had been opened in the past).  A certificate of transfer would be issued by the court to Grandpa’s heirs, which effectively functions like a deed and which is recorded in the county where the minerals are located.  If Grandpa had a wife that survived him, her estate would also need to be opened.  Estates for her children would need to be opened and ultimately we would end up with a chain of tile from Grandpa to his 2 grandchildren.  If any of the above resided outside of Ohio, estates would need to be opened in the State of residence.  Even where all the parties reside in Ohio, they may have lived in different counties and the Probate estates would need to be opened in the various counties where the decedents resided.

The Probate process described above can easily escalate depending up on the number of generations involved, the number of children in each generation and the States or counties of residence.  If the subject mineral interest covered a small tract and if the person trying to solve the problem is one of 16 grandchildren, it simply may not make sense to expend the filing, recording, and legal fees necessary to go forward with the Probate process.

In effort to avoid the above problems for future generations, some clients decide to title the minerals in an entity such as a Limited Liability Company or a trust.  This avoids having to later probate the asset.