Ohio Dormant Mineral Act is stirring up questions
The Ohio Supreme Court currently has several cases involving application of the Ohio Dormant Mineral Act to decide in the upcoming months. At the 6th Law of Shale Plays conference, McDonald Hopkins’ Jeffrey Pollock spoke about the decision in Dodd v. Croskey and discussed the four primary issues regarding the 1989 and 2006 versions of the Dormant Mineral Act:
- Is the 1989 Dormant Mineral Act self-executing or does the surface owner need to initiate an action to quiet title for declaratory judgment before the severed mineral rights are abandoned?
- Is the 20 year look-back period of the 1989 Dormant Mineral Act (i) fixed preserving all severances with a savings event within the 20 year look-back period from March 22, 1989 or (ii) rolling - mineral severances require a savings event every 20 years to be preserved?
- Is the severed mineral interest the "subject of" any title transaction that conveys only the surface but which identifies the severed mineral interest?
- Is an oil and gas lease a title transaction?
A decision on any of the issues above will settle countless disputes across oil and gas producing counties in Ohio, but the fourth issue is particularly interesting regarding future potential litigation under the 1989 Dormant Mineral Act.
If an oil and gas lease is held to be a title transaction, then the lease will constitute a savings event from the date the lease is recorded. The bigger question arises as to whether a savings event occurs upon (or after) the expiration of the lease.
For example, assume that the Ohio Supreme Court rules that the 1989 Dormant Mineral Act is self-executing and that the 20 year look-back period is rolling. Say the minerals were severed on Aug. 1, 1968 and the owners of the severed mineral interest executed and recorded an oil and gas lease on Jan. 1, 1982 in favor of Drilling Co. If the Ohio Supreme Court holds that a lease constitutes a title transaction, then the severed mineral interest would be preserved until Jan. 1, 2002, unless an additional savings event occurred.
If the Ohio Supreme Court holds that a lease is a title transaction, then in theory, the court should also hold that a release of that oil and gas lease would be considered a title transaction. This is where the issue gets complicated – would a release have to be recorded during the primary term of the lease? What if the lease provides for delay rentals and Drilling Co. fails to pay any delay rentals or only pays delay rentals for the first year? Does the automatic reversion of rights granted under the lease count as a title transaction despite no additional recordings in the recorder’s office?
Continuing the example above, if the lease has a five year primary term with yearly delay rentals due and payable to the owners by Drilling Co. The rights granted to Drilling Co. under the lease could revert back to the owners on either of the following dates:
- January 1, 1983 - If Drilling Co. failed to pay delay rentals after year one
- January 1, 1987 - If no operations were ever conducted on the lands covered by the lease and Drilling Co. timely paid all delay rentals
Would the Supreme Court view the reversion of rights granted under the lease as a title transaction even if nothing is filed of record? Drilling Co. could file for record in the office of the county recorder of the county in which the lands are located a release of the lease after Jan. 1, 1987. If this were to happen, would courts view the release as a savings event even though Drilling Co. was not a "holder" of the mineral interest due to the automatic reversion of rights on or before Jan. 1, 1987?
While we are all anxiously awaiting decisions regarding the four issues before the court, the next round of disputes that arise as a result of their decisions could keep the Supreme Court busy for many years to come.