22Jun

Utica Update: The Supreme Court of Ohio Weighs In On the Dormant Mineral Act

The Supreme Court of Ohio has begun to resolve the confusion surrounding Ohio’s Dormant Mineral Act (“DMA”) as it issued its first decision on the DMA in Dodd v. Croskey on June 18, 2015.  The Court held that, under the 2006 version of the DMA, a claim to preserve that was filed after the expiration of the 20-year window but within 60 days of service of the surface owner’s notice of abandonment was sufficient to preserve a severed oil and gas interest.

The confusion results from two very different versions of the statute that co-exist – one enacted in 1989 and the other enacted in 2006.  The main difference between the two versions, aside from each focusing on different 20-year windows to determine when a severed oil and gas interest should be deemed abandoned, is that the 1989 version provides that a severed oil and gas interest will automatically revert to the surface owner without any notice afforded to the owner of that severed interest whereas the 2006 version sets forth a procedural vehicle that the surface owner must initiate before a severed oil and gas interest can be deemed abandoned.

Background

In August 2009, Phillip Dodd and Julie Bologna (“the Dodds”) acquired the surface estate of a tract of land in Harrison County, Ohio.  The deed to the Dodds clearly excepted the oil and gas estate that was previously reserved by Samuel A. Porter and Blanche Long Porter in 1947.

On November 27, 2010, in a local newspaper, the Dodds published a notice of abandonment addressed to “Samuel A. Long and Blanche Long Porter, their unknown successors and assigns.”  Generally, the purpose of a notice of abandonment is to put the current owners of a severed oil and gas interest on notice that the surface owner intends to declare the severed oil and gas interest abandoned.  On December 23, 2010, John William Croskey filed and recorded an affidavit (“Croskey Affidavit”), in which he outlined a history of transactions affecting the oil and gas underlying the Dodds surface estate.  In addition to Croskey, the Croskey Affidavit identified an additional 36 owners of the oil and gas estate who “do not intend to abandon their rights to the mineral interest, but intend to preserve their rights.”

The Dodds filed a declaratory judgment action to quiet title against Croskey and the individuals identified in the Croskey Affidavit.  The Dodds argued that the Croskey Affidavit was insufficient to preserve the oil and gas interest because it was filed after they (the Dodds) published notice of their intent to declare the oil and gas abandoned.

The trial court concluded that the severed oil and gas interest was preserved in light of the recording of the 2009 deed to the Dodds and the recording of the Croskey Affidavit.  The Seventh District Court of Appeals affirmed the trial court’s decision, but agreed with the trial court on only one point:  the Croskey Affidavit.

Analysis & Holding

Both versions of the DMA set forth various savings events which, if performed during the respective 20-year windows, would prevent a severed oil and gas interest from being deemed abandoned and reverting to the surface owner.  Among the enumerated savings events is the following:  “a claim to preserve the mineral interest has been filed in accordance with division (C) of this section.” [1]O.R.C. §5301.56(B)(3)(e).  The two versions of the statute are very different.  The 1989 version appears to focus on the 20-year window preceding the enactment of the statute (1969 to 1989 plus a three year grace period) while the 2006 version focuses on the 20-year window preceding the date of notice of abandonment from the surface owner.  Additionally, the 1989 version provides for automatic reversion of the severed oil and gas interest to the surface owner without affording the oil and gas owner any notice and without requiring any action on the part of the surface owner.  The 2006 version sets forth a procedure to be initiated by the surface owner before a severed oil and gas interest can be deemed abandoned.  Despite these dramatic differences, both versions of the statute set forth the same savings events.   A claim to preserve is essentially a statement, to be recorded in the county recorder’s office, that states the nature of the mineral interest and that the mineral interest holder does not intend to abandon, but instead intends to preserve the severed interest.

The Supreme Court of Ohio was faced with a single issue:  whether a claim to preserve a severed oil and gas interest that was filed after the 20-year window could effectively preserve that interest.  The 2006 version of the statute provides that, if a claim to preserve a severed oil and gas interest is filed within 20 years preceding the date of notice from the surface owner, said claim would effectively preserve that oil and gas interest.

If the surface owner believes that the severed oil and gas interest has been abandoned, he/she must initiate the following procedural vehicle set forth in the 2006 version:

  1. The surface owner must serve notice (by certified mail or by publication in a newspaper) to the oil and gas owner (or their successors and assigns) that the surface owner intends to declare the severed oil and gas interest abandoned;
  2. Between 30 and 60 days after the notice is served, the surface owner shall file an “affidavit of abandonment” in the county recorder’s office;
  3. Not more than 60 days after the date of service, the oil and gas owner shall file one of the following in the county recorder’s office:
    1. A claim to preserve the oil and gas interest; or
    2. An affidavit that identifies a savings event that occurred within the 20-year window preceding the date of notice from the surface owner.

In its analysis, the Court relied upon the plain language of the statute and concluded that a claim to preserve serves two different but similar functions:  1) to serve as a savings event if it is filed within the 20-year window preceding the date of service from the surface owner and 2) to prevent the oil and gas interest from being deemed abandoned when the claim is filed within 60 days of the date of service from the surface owner.  The Court added that nothing in the DMA requires that the claim to preserve must identify a savings event that occurred during the preceding 20 years.  The Court held that the Croskey Affidavit precluded the severed oil and gas interest from being deemed abandoned because the Affidavit was filed within 60 days of the notice from the surface owner.

Conclusion

So, what does this decision mean?  The 2006 version of the DMA could be viewed as much more forgiving than the 1989 version because it does not absolutely require the existence of a savings event in the preceding 20-year window.  Generally, the 1989 version provides for automatic reversion if there is no savings event.  The 2006 version does not lead to the same harsh results as the 1989 version because it tolerates the nonuse of a severed oil and gas interest if the oil and gas holder timely files a claim to preserve after receiving notice from the surface owner.  In other words, it does not have the same “use it or lose it” approach employed by the 1989 version.

There are three other DMA cases pending before the Supreme Court of Ohio.

Image courtesy Global Reactionssome rights reserved.

Ian McNeill
Ian McNeill's practice focuses on the oil and gas industry advising clients on division orders, title defects, curative requirements, royalty and rental issues as well as lease maintenance provisions and assignments analysis. Ian has also rendered division order opinions and title opinions involving complex ownerships, leases held by production, depth and mineral severances and pooling agreements in Texas and Ohio.
Ian McNeill

Footnotes   [ + ]

© Copyright 2012-2018, McGinnis Lochridge LLP. All Rights Reserved. DISCLAIMER: The information in this article is for general information purposes only. This article should not be substituted for legal advice and should not be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or reading this article does not constitute, an attorney-client relationship. You are encouraged to contact an attorney for legal advice concerning the information provided in this article.
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