Implied Covenant to Reasonably Develop - Geologic Formations

In a previous post I wrote about certain terms that are implied in all mineral leases: the covenant to reasonably develop.  In that article I described how a judge might cancel a certain area of an oil and gas lease if the producer hadn't reasonably developed all of it.This same idea can be applied to unused geological formations.  Let's assume an energy company (the "lessee") takes a lease for a 200 acre farm.  Let's also assume that the lessee successfully drills five 40-acre wells on the acreage thirty years ago.  These five wells are all relatively shallow, and seek to produce oil and gas from the Clinton Sandstone geological formation.  Now, it should be pretty clear that the lessee has reasonably developed all of the farm's 200 acres (5 wells x 40 acre units = 200 acres).  But, what can be said about the lessee's duty to develop other geologic formations? Does the lessee have a duty to produce from the Utica/Point Pleasant shale?  A landowner might want to know: Can I break my lease if the energy company doesn't drill a Utica well?The answer to this question, like many things in the law, is "maybe."  Recall that breaking a portion of an oil and gas lease for failure to reasonably develop acreage involved proving that any reasonable driller would have drilled additional wells to utilize the entire acreage.  A similar test applies for geologic formations:  would a reasonable driller have drilled a Utica well?  Though it might seem that any company with a lease would drill a Utica well, there are a number of considerations to take into account.  All of these considerations will be different depending on the land's location.  Has another energy company drilled a Utica well nearby?    Was that nearby Utica well profitable?  How reasonable is it to require a small, regional producer to drill multi-million dollar wells typically drilled by vast multi-national corporations?With all of the above in mind, it still may be that a landowner can cancel their oil and gas lease if the driller has operated old wells for many years and hasn't taken steps to access any other geological formations such as the Utica Shale.

Implied Covenant to Reasonably Develop - Acreage

Many of my clients come to me hoping that I can help break their oil and gas lease.  As a general proposition, oil and gas leases are hard to terminate.  Given that they are drafted by oil and gas companies, it should not be surprising that they often favor the oil and gas companies themselves.  Every landowner's situation will be different, but as long as the lessee to the oil and gas lease (the producer) pays a royalty to the lessor (the landowner), the lease is nearly bullet-proof.However, there might be other ways to terminate an oil and gas lease even if the lessee is paying a royalty to the landowner.  One particular method to cancel an oil and gas lease has to do with implied covenants to reasonably develop the entire leasehold.  This method doesn't cancel the lease in its entirety, but only cancels it to those lands that have not been drilled or included in a drilling unit.  Ohio has long held that a mineral lease includes an implied covenant to reasonably develop the land.  (see Ionno v. Glen-Gery Corp., 2 Ohio St. 3d 131, 132-133)For example, consider an oil and gas lease taken on 200 acres.  Let's say that thirty years ago one well was drilled on the 200 acre lease, and that this well unit only included 40 acres.  Under the implied covenant to reasonably develop, a judge may very well cancel the lease to the remaining, unused 160 acres (200 acres - 40 acres = 160 acres).  How could a judge do that?  The basic question that needs to be answered is whether or not the oil and gas producer has behaved as a reasonable oil and gas producer would in similar circumstances.  If any reasonable producer would have drilled more than one well on the 200 acre lease, then a reviewing judge might void the lease to the remaining 160 acres.  However, if the existing well was not a very good well, then it might be that the producer did behave reasonably when they decided not to drill additional wells.This same concept can be applied to unused geological formations (i.e. the Utica shale), as well as unused acreage.This covenant to reasonably develop is nice in theory, but in practice is not as favorable to the landowners as it might seem.  Most new leases contain provisions that effectively waive the implied covenant to reasonably develop the subject land.  In other words, leases with such language impose no duty on the producer to reasonably develop the land.  Many Ohio courts have found this language legitimate, effectively eliminating the landowner's efforts to void the lease for a failure to reasonably develop.

Class Action Landowner Royalty Litigation

Twice I have successfully represented large groups of landowners regarding the proper calculation of landowner royalties.  The first case was Charton v. MB Operating Co. Inc., (1990 CV 110417), which involved about two thousand landowners in Tuscarawas County, Ohio; the matter was filed as a class action.  In that case, it was alleged that MB Operating was deducting about 25% of landowner's natural gas royalties to cover its costs of transporting and marketing same.  Because MB Operating used a number of different lease forms, and because those forms did not have consistent language which addressed how royalties were to be calculated, there was a concern that the class members claims might not meet the commonality requirement under class action rules.  The Court did ultimately certify the class and the matter was settled eventually.  The class members received checks representing a significant percentage of the deductions that had been made over a period of several years.More recently, I filed another class action suit on behalf of about 800 landowners who were disputing the manner in which their landowner royalties were being calculated.  This case was Campbell v. Equitable Production Co. (2004 CV 993), and was filed  in Mahoning County, Ohio.  This case, rather than dealing with deduction of transportation or marketing costs, dealt with the issue of whether a  price set out in a long term sales agreement entered into by the lessee was equivalent to the "field market" or "wellhead" prices mentioned in the leases.  Again, this matter was settled, with significant benefits being paid out to the class members.Future Utica Landowner Royalty Class Action Litigation  It is almost certain that the royalties Utica drillers pay landowners will become the subject of lawsuits like the ones I handled above.  Those cases involved a tremendous amount of effort and time.  The lawsuits I see on the horizon will involve considerably more work for a number of reasons.  The first reason has to do with geology: because the oil and gas produced from shallower wells is immediately marketable, it didn't require significant processing or transfer from one party to another before it was ultimately sold.  Only a few parties would have relevant documentation about costs and fees they may have deducted from landowner royalties.  Compare that to the gas and liquids coming from deeper Utica wells.  This product needs to be transported significant distances and then treated and fractionated before it can be sold, and as a result, it might change hands several times before it is ultimately sold.  This makes proving costs and fees much more time-consuming and difficult.Making matters even more complicated, it seems apparent that the products from shale wells may be sold at various points between the wellhead and points of sale by the downstream buyers of the refined products.  This practice, particularly where the seller is selling to an entity that it has an ownership interest in, should cause one to be concerned that the sale is not an "arms length" transaction and not a true indicator of the price upon which the landowner's check should be calculated.Chesapeake Energy recently settled a lawsuit for nearly $8 million for improperly paying landowner royalties in Pennsylvania.  I expect we will be seeing similar suits filed on these issues here in Ohio once we have significant amounts of landowners receiving their royalty checks.

Ohio's Dormant Minerals Act - Ohio's Courts Weigh In

Below is an excerpt from a presentation I gave on November 8, 2013 for the Ohio Association of Justice Seminar.  A broader overview of Ohio's Dormant Mineral's Act can be found here.I.  IntroductionCommencing in the spring of 2010, eastern Ohio experienced an unprecedented oil and gas leasing boom due to the discovery of the Utica Shale.  In the recent past, Ohio landowners might expect to receive $10-20/acre for signing an oil and gas lease.  Presently, prices in the range of $3,000-6,000 have become the norm.  Hundreds of wells have now been drilled throughout eastern Ohio into the Utica shale, with some being prolific producers.Private ownership of lands in Ohio began around the mid 1800’s when grants were given out by the government.  Due to the fact that oil and coal has long been produced in Ohio, it is not unusual to find a situation where minerals were severed from the surface sometime during the last 150 years.Often, a landowner will take title to property knowing that the minerals have been severed, however, many landowners, who assumed that they were acquiring the related minerals, later discover that an earlier reservation of the minerals had been made by a prior owner.  Such knowledge is often gained after a landowner has signed an oil and gas lease and is later told by the lessee, after its due diligence, that a prior mineral severance has been made.Due to the value of gas and oil rights in the Utica shale (and other formations that may be produced with newly available technologies) there has been a flurry of litigation concerning such minerals.  As an example, a 100 acre farm in a “hot” area of leasing could be leased presently for $6,000/acre.  Additionally, the rights owned by the landowner pursuant to that lease could also be sold for an equivalent amount.  Thus, there is $1,200,000 at stake for this hypothetical landowner. II.  How Mineral Severances are Dealt with in Many Other StatesIn many oil and gas producing states (e.g., Texas), when a mineral severance is made it is permanent.  If rancher Jones reserves the oil and gas rights on 1,000 acres, that interest remains in his name unless he assigns it of record.  It is not unusual, particularly where a mineral interest is inactive (i.e., not generating any income), that the executor of party who dies owning mineral rights is unaware of the asset.  When this occurs, things can get a bit complicated.Assume rancher Jones reserves the oil and gas rights on 1,000 acres in 1900 and dies in 1920.  No mention of the asset is made in his probate estate.  Rancher Jones is survived by his wife and five children.  By 1999, when drilling interest has heated back up in the area, there are several generations of Jones’ who have a claim to the oil and gas rights that are still titled in rancher Jones.  An oil and gas company interested in drilling on that 1,000 acres must (an often will) go to great lengths to establish the family history, and review probate estates and wills so that the proper parties can identified to sign an oil and gas lease.  Only then can drilling occur. III.  How Ohio and Some Other States Deal with Severed MineralsIn an effort to somewhat streamline the process of dealing with severed mineral interests, Ohio and some other states have enacted what are referred to as dormant mineral laws.  The general idea behind these laws is that where a severed mineral interest has remained ‘dormant’ or unused for a period of time, a process is used to allow the surface owner to acquire title to the minerals.  When that occurs, an oil and gas company need not worry about determining and tracking down the heirs to the record owner of the minerals and may simply deal with the current landowner in lease negotiations.   This would tend to make development of minerals throughout the State more likely. IV.  Ohio’s Dormant Minerals StatuteExceptions:  Does not apply to coal, nor to interests held by federal, state or local government.Section (B)(3) - Twenty year look-back to determine whether any of the following have occurred concerning the severed mineral interest (i.e., has the interest been dormant).

i. the mineral interest was subject to a ‘title transaction’ – query whether this would apply where a mineral severance is carried from deed to deed.

ii.  there has been actual production – either from the subject lands or from a drilling unit that incorporates the subject lands.

iii.  land is used for underground storage purposes.

iv.  a drilling permit has been issued to the holder of the severed interest and the holder has recorded an affidavit to that effect in the county where the land is recorded.

v.  a “claim to preserve the mineral interest” has been recorded in appropriate county.  Such a claim merely requires holder to set out the interest owned and recite that he does not intend to abandon same.  Note when there are multiple owners of the severed mineral interest, a claim filed by one owner would cover all other owners.

vi.  the mineral interest has been set up as a separate parcel by the auditor and is being taxed as such.

Section (E)(1) - If twenty year look-back is satisfied, next step is to serve notice.

i.  Certified mail is to be used to notify each holder of the severed mineral interest or each holder’s successors or assigns at the last known address of each.  Does not permit serving less than all owners with notice (i.e., cherry picking only those interests you think are easily obtainable).

ii.  Notice can be published in a local newspaper in the county where the land is located where “service of notice cannot be completed to any holder.”  This would seem to apply where the holder cannot be located or is out of business.  Probably also applies where someone has refused to accept certified mail.  Query, what level of effort is required by the landowner to find the current owners or heirs?

iii.  Required contents of notice (whether by letter or newspaper) are clearly set out in the statute.

 Section (E)(2) – Next step is to record an affidavit of abandonment.

i.  Timing is critical here – needs to be done 30-60 days after the above notice is served or published.

ii.  Required contents of affidavit are clearly set out in statute.

 Section (H)(1) -  What if Severed Mineral Holder Objects to Process

i.  Holder can file an affidavit setting out that 20 year look-back was satisfied or, lacking that, simply file a “claim to preserve mineral interest.”

ii.  Either of above must be recorded in proper county within 60 days of receipt of notice.  Holder also has to copy the landowner on this filing.

iii.  Timely filing by any holder effectively shuts down landowner’s attempt to re-claim minerals via the County Recorder discussed below.

 Section (H)(2)  Final step in the process

i.  Where no holder of the severed mineral has timely recorded a claim or affidavit as provided above, Landowner, after the 60 day period has expired, “shall cause the county recorder of each applicable county to memorialize the record on which the severed interest is based” with a notation that the mineral interest was abandoned pursuant to the affidavit of abandonment recorded in volume ____ page ____. “ This would be a marginal notation on the original deed that contained the mineral severance.

ii.  This section also indicates that, in any subsequent litigation concerning the mineral interest, the court shall not allow introduction of the original deed as evidence.

iii.  Section also indicates that the process only applies to lands owned by the party who filed the affidavit of abandonment – so, for example, an old conveyance of minerals on 200 acres of ground would not be completely knocked out by a claim made by a present owner of 50 of those acres.  Makes sense to approach neighbors in these situations to clean it all up in a group effort.

 Recourse Where a Holder files a Claim to Preserve Mineral Interest

i.  Prior version of O.R.C. 5301.56 (first enacted in 1989) was significantly different than today’s version.  It had same 20 year look-back and the same look-back items (‘savings events’).  It stated, simply, that if nothing was done by mineral holder in a 20 year period, the interest “shall be deemed abandoned and vested in the owner of the surface.”   This earlier version did not, however, provide the notice/affidavit/cancellation by the recorder process in the current statute.

ii.  The new statute contains the same language as that underlined above, however, at part (E) it says “Before a mineral interest becomes vested under (B)” the owner has to give notice to the mineral holder and file an affidavit of abandonment.  The new statute also allows the holder to file a claim after the landowner’s affidavit is filed.

 V. Major Issues Involving Ohio’s Dormant Mineral Statute

1.   Which version of ORC 5301.56 can/should be used in a presently filed case?

      Under the present version of the statute, an inquiry is made into whether a savings event occurred within the twenty years preceding the landowner’s required notice to the mineral owner of their intent to recapture the minerals.  In situations where a savings event had clearly occurred within such time frame, a landowner would be out of luck under the new statute – thus a creative argument was made by such landowners that they could, nevertheless, use the older version of the statute to acquire their minerals.  Proponents of this theory say that the prior version of the statute “deemed” the mineral to be abandoned in the absence of a savings event; thus, if a 20 year dormant period is shown to have occurred prior to the passage of the new statute, the minerals “automatically” reverted to the surface owner under the old statute.  Opponents of this theory argue that a quiet title suit filed presently should use the current statute (not the old one) to determine the rights of the parties.

2.  Assuming that the old version of the statute applies, what 20 year period is to be examined for savings events?

     Under the prior version of the statute, quoted above, the look back period is less clear – it indicates that no savings event could have occurred “within the preceding twenty years.”  The question that arises is:  Preceding what?  Some argue that the landowner must have filed a lawsuit claiming the minerals and the look back period is 20 years from the date the complaint is filed.

3.   Pursuant to the new statute, how much effort need by made by a landowner to track down and notify all persons who may claim an interest in the minerals?

      The statute requires that certified mail notice be sent to “each holder or each holder’s successors or assignees, at the last known address of each…”  Though “holder” is defined in the statute (the record holder or any person who derives their rights from the record holder), “successors” and “assignees” are not defined.  The notice requirements are thus unclear.  For example, where a mineral reservation was made by Jones in 1900, and there are no assignments of that interest of record and no probate estate shown for Jones in the county where the land is located, what is required as far as notice?  The statute does make provision for notice by publication where certified mail service is not achieved.  Under the above example, does that get the job done?  Or, is a landowner required to do an exhaustive investigation into Jones’ family history and heirs to determine all possible claimants and their present location?  Query, whether the requirement of such an investigation defeats the whole purpose of the statute?

4.   What is the effect of a mineral owner (or an heir to a mineral owner) timely responding to a notice of intent to recapture minerals by a landowner?

      Under the statute, such a response clearly prevents the county recorder from voiding the mineral interest, but does the response have any additional effects?

 VI.  Cases Interpreting Ohio’s Dormant Mineral StatuteThough the statute became effective 24 years ago, it was infrequently used and very little case law existed at the time the Utica shale boom took off in 2010.  There was one appellate decision (Riddel, out of the Fifth District) that had been issued which dealt with the initial version of the statute.  There was also one common pleas decision (Wiseman) that dealt with the new version of the statute that was enacted in 2006.  No other case law was available.  Presently there are thought to be dozens of cases pending at the trial court level.  Within the last couple of years there have been several common pleas decisions issued as well as a recent appellate decision (Dodd, out of the Seventh District).  The above referenced decisions are discussed below.

 1.  Riddel v. Layman

The first known case involving the statute ended up in the Fifth District Court of Appeals - Riddel v. Layman, No. 94CA114, 1995 WL 498812.  The primary issue for the Court to determine in that matter was whether a deed recorded in 1973 fell under the definition of a “title transaction” under the original DMS.  The case was decided when the old statute was in effect and the parties did not appear to contest the issue of when the 20 year look back period was triggered.  The Court held that the subject deed was a title transaction and, without any analysis, further held that the statute required that “the title transaction must have occurred within the preceding twenty years from the enactment of the statute which occurred on March 22, 1989.”

2.  Wiseman v. Potts

 The next known decision on the issue occurred many years later and after the DMS had been amended in 2006.  In the case of Wiseman v. Potts, Morgan Co. Common Pleas No. 2008CV145 the parties all agreed via their filings that 20 year look back would be from the effective date of the original dormant mineral statute (March 22, 1989).   They also agreed that the 1989 version of the DMS should be used to govern this case, notwithstanding the fact that it was filed after the new version of the DMS became effective.  Thus, the parties were only contesting whether any of the savings events cited under the original statute had occurred within the agreed time frame.  With that agreement in place, the Court then rendered its very brief decision on that basis.

3.  Wendt v. Dickerson

 Following the Riddel and Wiseman decisions came Wendt v. Dickerson, Tuscarawas Co. Common Pleas, No. 2012 CV 02 0135.  This case had a number of issues and a lengthy opinion was issued on cross motions for summary judgment.  The court initially found that the prior version of the statute could be used in the case, finding that the landowner’s rights had vested thereunder and could not be taken away by an amendment of the statute.  Additionally, since the landowner’s claim was based upon the old statute (which had no notice provision) it was not necessary for the landowner to comply with the notice provisions under the new statute.

Notwithstanding its length, the opinion devoted little discussion to the issue of when the 20 year period should be measured from under the old statute.  It first declared that it should be measured from the DMS effective date of 3/22/1989 and cited the Riddel decision in support of that holding.  It later indicated that the 20 year period should be measured within the twenty years preceding 3/22/1992 (See page 15)  It is noted that, under the old statute at part (B)(2), “a mineral interest shall not be deemed abandoned… until three years from the effective date”  One might surmise that the Court considered (B)(2) in citing a second measurement date, but this is not fleshed out in the opinion.  Nor was it made clear which 20 year period should apply.

Wendt also held that a mineral reservation set out in a recent deed that simply repeated a reservation in an earlier deed was void and therefore did not qualify as a title transaction under the statute.  There were additional claims in the case that were not finally resolved and the matter is not presently under appeal.

4.  Walker v. Noon

 The next known decision on the issue was Walker v. Noon, Noble Co. Common Pleas No. 2012-0098.  Though the matter was filed in 2012, long after the DMS had been amended, the Court nevertheless applied the prior version of the DMS and ruled that the mineral interest had been abandoned.  In support of that ruling the Court relied solely upon Wendt v. Dickerson, supra.  The court also held that a deed which referenced a third party’s reservation of minerals was not a title transaction under the statute.  This case is presently under appeal.

 5.  Marty v. Dennis

 In the case of Marty v. Dennis, Monroe Co. Common Pleas, No. 2012-230, the landowner initially recorded an affidavit claiming ownership of the minerals based upon the old version of the statute.  A month later, the landowner commenced the process of notice/affidavit required under the new statute.  The mineral owner did respond to this second process by recording a timely notice to preserve.  The Court issued a ruling indicating: (1) though the reserved interest was for royalties only, it could be recaptured via the statute; (2) the prior version of the statute could be applied; (3) that the 20 year look back period under the prior version of the statute should be measured from the effective date of the statute, though no authority was cited for this holding; and (4) that, under the new version of the statute, when a mineral owner timely files a response, a lawsuit is required to determine ownership of the minerals, wherein a mineral owner must prove the existence of a timely savings event.

 6.  Bender v. Morgan

 In Bender v. Morgan, Columbiana Co. Common Pleas, No. 2012-CV-378, one issue before the court was whether an oil and gas lease qualified as a title transaction under the statute.  The court answered this question in the affirmative.  The court also ruled that the prior version of the statute could be used, and that the look back period under the prior version commenced with the effective date of the statute, citing Riddel in support of such conclusion.  This opinion also suggests, at page 6, that a Court interpreting the 1989 DMS could look “prospectively” forward in time from the date of a title transaction.

7.  Shannon v. Householder

 Another recent case on this issue is Shannon v. Householder, Jefferson Co. Common Pleas No. 2012 CV 226.  That decision is notable because it varies from the rule laid down in Riddel that the 1989 DMS applies only to the period of 1969-1989.  Instead, Shannon, at page 6, indicates that the 20 year period should be measured after the last known savings event.  That is, the statute should be read to move forward in time.  While that makes sense on its face, one must remember that the 1989 statute reads: “within the preceding twenty years, one or more [savings events] has occurred.”

8.  Tribbett v. Shepherd

 This case was handled by the Belmont County Common Pleas Court  (12 CV 180).  Here the mineral owner claimed the 1989 version of the statute should not apply as it was superseded by the new version enacted in 2006.  On this issue, citing Wendt, the court held that the old statute did apply.  The court also held that the applicable look back period was 20 years from the effective date of the statute.  Another issue was whether the heirs of the record mineral owner could be deemed “holders” so as to allow them to file responses to the landowners notice of intent to recapture.  The court held that such persons did qualify as holders under the statute.  Last, the court held that a deed that merely references an earlier mineral reservation in the chain of title is not a title transaction under the statute.

9.  Dodd v. Croskey

This case was filed in Harrison County (CVH 2011-0019) and then appealed to the Seventh District who issued a decision on 9/23/13 (case Number 12 HA 6).  Dodd had a number of interesting issues that were raised on appeal. The first was whether a deed in the chain of title that was recorded within the last 20 years could be deemed a savings event “title transaction” because it restated the existence of a prior mineral reservation.  The Court of Appeals overruled the trial court’s decision holding that such a deed was a title transaction.  It based such holding on the fact that the definition of a title transaction is one that “affects” the interest.  Here, the grantor of the recent deed did not own the mineral interest; thus he could not affect it.  Reference to a prior mineral reservation in a new deed, therefore, did not qualify as a title transaction.

Another issue in Dodd was whether sufficient notice had been given by the landowner to the mineral owner claimants.  Here, the evidence indicated that the record owners of the mineral interest were long deceased and a title search showed no transfer of record.  There was also a contention made that a search showed that the record owners did not have probate estates opened in the subject county.  No certified mail was sent by the landowner – only notice by publication was made.  The mineral owners claimed that this did not meet the requirements of the statute, and the trial court agreed.  The Court of Appeals avoided the issue of whether the landowner satisfied the notice requirements and instead found that, because some of the mineral owners did receive actual notice of the claim via the newspaper notice, lack of service by certified mail was “harmless error.”

 The most significant holding in Dodd concerned the ramifications of a mineral owner timely responding to a landowner’s notice of intent to recapture minerals.  Here, certain heirs of the record mineral holder did file “claims to preserve” their interests under 5301.56(C).  This was done within the 60 day window set out in 5301.56(H).  Via a lengthy analysis of the various provisions of the statute, the Court held that such a filing does qualify as a savings event under the statute, notwithstanding the fact that it was recorded outside of the 20 year window defined in 5301.56(B)(3).

10.  Dahlgren v. Brown Farm

 This is the most recent decision issued on dormant minerals and came out of Carroll County (2013 CVH 27445).  This case involved a claim by landowners that they had acquired their minerals via the 1989 version of the dormant mineral statute.  The Court ruled that the 1989 statute “provided no procedure for the holder of the subsurface rights to contest their alleged abandonment, and no procedure for anyone to record the abandonment anywhere.”  The Court further ruled that, based upon the history of the dormant mineral statute and considering issues of due process, the theory of ‘automatic’ vesting of those rights in the landowner did not have merit.  Instead, the Court ruled “that the 1989 version impliedly required implementation before it finally settled the parties’ rights, at least by a recorded abandonment claim that permitted the adverse party to challenge its validity, if not by an appropriate court proceeding to confirm that abandonment.”  Finding that the landowners had failed to pursue either of these two options, the Court found the minerals were properly owned by the holders.

Pipeline Negotiations

Since most of the leasing has slowed down in the Utica play here in eastern Ohio, many midstream companies are now approaching landowners about pipeline rights-of-way.  Pipeline agreements are typically drafted as a permanent easement, by which the pipeline company is granted a permanent right to access a strip of land on which to install and maintain a pipeline.  Because pipeline agreements can last a very long time, it is essential that landowners retain a lawyer who can interpret the language and negotiate with the pipeline company to change the terms.  Most of the agreements landowners receive from the pipeline company contain many terms that don't adequately protect the land, and generally aren't very favorable to the landowner.  On top of this, most landowners are offered a pretty low price in exchange for these unfavorable terms.Our pipeline attorneys have substantial experience in reviewing, drafting, and negotiating pipeline agreements.  On behalf of landowners, we have negotiated with companies like BP, Halcon, Sunoco, NiSource, and Bluegrass.  Each of these companies have different agreements, and each has their own negotiating personality.  We are very well-versed in which terms these companies prefer, and even their preferred negotiating strategy. As a result, our pipeline lawyers are positioned very well to successfully negotiate better terms for the landowner.

Mineral Rights, Survivorship, and Probate

I am regularly surprised at how our estate planning practice overlaps with our oil and gas practice.   Lately I have helped a number of clients navigate the re-titling of an ancestor's mineral interest by working through the probate courts.  When an individual dies, the probate court takes all of the real property titled in the deceased person's name and determines the new owner.  The same is true of oil, gas, and mineral interests, as they are real property.This process is fairly straightforward if the individual had a will that clearly stated where they wanted these interests to go.  Even so, the probate court must approve of the transfer.  This can be a lengthy process and is subject to court costs and attorney's fees.Alternatively, the mineral interests can pass automatically if they are part of a deed containing survivorship language.  These deeds provide that when one of the landowners dies, their interest passes automatically to the remaining landowners.  This process avoids the probate court, but still requires some additional paperwork for it to be valid.Landowners seeking to reclaim abandoned mineral interests pursuant to Ohio's Dormant Minerals Act are also likely to deal with the probate court.  If a surface owner records a notice of their intent to declare a mineral interest abandoned, it puts the mineral owner's heirs on notice that they have to defend their title to the minerals.  Many times it is not clear just who the heirs of the mineral owner are.  A thorough search of the county's probate records can help identify them.  Our attorneys have frequently been called upon to conduct this research.Similarly, we often help clients "clean up" their title to a mineral interest they have inherited.  Oil and gas companies like to be 100% certain that the landowner who signs a lease actually owns their minerals.  To that end, they typically require a thorough title search showing with absolute certainty that this individual owns their minerals.  Regrettably, deeds and leases aren't always adequately drafted, and that can create confusion or uncertainty about someone's ownership of a mineral interest.  The lawyers in our firm draw on decades of experience with probate courts, as well as oil and gas law, and are very well-suited to resolving these issues.

Ohio's Dormant Minerals Act - Overview

This is the first part of a series of articles about Ohio's Dormant Minerals Act.  Click here for a more detailed description of how Ohio Courts interpret Ohio's Dormant Minerals Act.Oil and gas companies go to great lengths to determine if the person who signed a lease is in fact the true owner of the minerals.  It is not uncommon for a landowner to sign a lease and only be paid for 1/2 of what was originally promised, simply because the landowner only actually owned 1/2 of the minerals underneath her land.  At that point, the oil and gas company tracks down the other 1/2 mineral owner so they can enjoy the full benefits of leasing a 100% mineral interest.  Many of the landowners who contact our office have been paid for only a portion of the minerals underlying their land for this same reason: they don't own 100% of the minerals underlying their land.  They usually want to know, as surface owners: "is there a way for me to obtain the remaining mineral rights under my land?"In most states, the surface owner would have to buy the mineral interest from the person who technically owns it.  Even though the deed that created the mineral interest is very old, and the person reserving the mineral interest is long deceased, the mineral interest is still very much alive.  In this instance, the surface owner would have to track down the mineral owner's holder's heirs in order to purchase the mineral interest from them.  This process likely involves the probate courts, and can become quite messy.  This process also likely involves the probate court.  Texas, for example, operates this way.The procedure described above is still widely practiced in Ohio.  But, Ohio also affords surface owners additional options to regain title to abandoned mineral interests.  These procedures are largely known as Ohio's Dormant Mineral laws (O.R.C. 5301.56).   These laws are fairly unique to Ohio, and have recently been amended.  Because of these recent changes, Ohio courts are still interpreting the statute.  Adding to this confusion is the fact that there are two versions of the statute: one that applies prior to 1989, and another that applies after 1989.  Both statutes describe instances in which a surface owner can recapture mineral interests that, by statute, have been abandoned.  These statutes are highly technical and often don't provide for a clear-cut answer.  As a result, I will be writing a series of articles hoping to explain them, while offering updates on how Ohio courts have interpreted these laws.  Please check back soon for further discussion.

Oil and Gas update - October 2013

We have been quite busy since our last update.  Most -if not all- of the most valuable lands have already been leased, and energy companies have essentially staked out their positions.  An incredible 169 wells are currently producing from the Utica shale in eastern Ohio.  Chesapeake Energy is far and away the biggest producer in the region, as they operate 114 of these 169 wells.  The lion's share of these producing wells are in Carroll county.  Carroll saw such a boom due to its underlying geology, but also because it had never seen significant oil and gas development.  As a result, energy companies like Chesapeake did not need to navigate around already existing wells and older leases: it had a relatively blank canvas with which to operate.Many more wells have been permitted and drilled.  The Ohio Department of Natural Resources reports that more than 700 lateral wells have either been drilled or permitted within the last few years.  Even so, there are limits to the development of the Utica shale play.  Unfortunately, what comes out of the wellbore can't immediately be put to use and first needs processed to remove impurities and fractionate natural gas liquids.  Two plants have recently come online in Ohio to address this problem: one in Kensington (operated by Utica East Ohio), and another in Cadiz (operated by Mark West).  Four other plants are expected to be built in Ohio to process Utica gas and gas liquids.Of course, the gas first needs to get to these processing facilities.  Pipeline projects by various companies are evolving every day.  We have represented countless landowners who have been approached by entities such as Halcon, BP, and Sunoco, just to name a few.  My niece, Atty. Molly Johnson Phillips, has been handling the vast majority of these pipeline agreements and she has quickly become an expert in the field.   She will be instrumental in the installation of the Bluegrass pipeline which will take Utica natural gas liquids to Kentucky on their way down to the Gulf Coast.We continue to be amazed at how quickly this has developed.  The more information we obtain the more encouraged we are that this play has staying power.