The year is 1880, and Mr. and Mrs. Smith own a 160 acre farm in the rolling, green hills of Harrison County, Ohio. A landman strolls up the dirt lane to their home, and offers Mr. and Mrs. Smith a a lease for their oil and gas. It doesn’t make them rich, but every bit counts on a 19th century farm. Eventually Mr. and Mrs. Smith are ready to sell the farm and move in with one of their children ten years later. They decide to sell the surface, but reserve and keep their mineral rights.
No one ever approaches Mr. and Mrs. Smith after their first lease expires. Years pass, then decades. The family forgets the minerals exist. Eventually, Mr. and Mrs. Smith die. Here, as is usually the case, no one ever bothers to run a title search for any mineral rights or other real estate that they might have owned at the time of their death. Mr. and Mrs. Smith had four children, who have children of their own, who also have children of their own, and so on. And by the time the year is 2024, Mr. and Mrs. Smith have over a thousand different heirs. Most of the individual heir owns only a small fragment of the total amount. But 160 acres in Harrison County in 2024 might lease for over a million dollars as a signing bonus for a lease, or over three million dollars cash in a mineral sale.
The Modern-Day Problem
Mr. and Mrs. Jones own the surface of the 160 acre farm. The news hits them like a punch to the gut. How could they lose title to their minerals, due to something that happened over a hundred and forty years ago? The oil and gas company also faces a huge challenge to secure signatures from the heirs and provide proper notice. If they fail, it could delay their unit from going forward. Meanwhile, one of the heirs, Bob Smith owns a 25% interest in the minerals.
What steps each of them take next, and how quickly they act, will determine who controls this long-forgotten, vulnerable multi-million dollar asset, and who is left in the cold.
Two Roads to Abandonment
Surface owners have two primary legal options to declare minerals abandoned. If successful, this allows them to seize the minerals back from the original owners. The two primary methods of doing so are the Ohio Dormant Minerals Act (ODMA), and the Ohio Marketable Title Act (OMTA).
The first step in declaring minerals abandoned is a thorough public record search. The search covers the records in the county where the minerals are located. If the owners either know the location of the heirs, or find traces of the heirs, they must attempt to send notice via certified mail to the last known address of the owners/heirs. If they are unable to send notice via certified mail to any known owners/heirs, the surface owner may instead file a notice of publication in a local newspaper.
Once the appropriate steps are complete, the surface owners can file an affidavit of abandonment. An attorney can draft and file the affidavit in the recorder’s office, taking care that it meets the technical requirements. However, either the oil and gas driller or the original owner/heirs might not recognize the affidavit. In that event, a court must approve the steps taken to declare the minerals abandoned in a quiet title action. Unfortunately, such quiet title actions can sometimes be very costly, based upon some of the problems described in the following section.
Pernicious Incentives
There are some obvious issues with this system. The first is that the surface owners stand to benefit most from NOT finding the heirs, the tune of to the tune of five, six, seven, or eight figures. Nevertheless, the surface owners are in charge of performing a “diligent” search.
The definition of a “diligent search” is a second major problem. The court have intentionally left this issue vague and unclear. Their belief is that the legislature should act to clarify the standard, so that the courts do not exceed their authority. According to current case law, most of the time a search of the public records in that county will be sufficient. Sometimes, clues founds in the public record require an expanded search. What circumstances will trigger that obligation to search elsewhere continues to be an evolving and hotly contested area of law at the time of this writing.
Another significant irony is that a capable title researcher can easily track down most of the heirs at law. The internet offers significant advantages for tracking heirs beyond the county records. However, only county records matter for abandonment. As a result, many owners/heirs are in the frustrating position of receiving a certified mail notice of a lawsuit from the surface owners, which describes how they could not possibly be sent a certified mail notice that the minerals were abandoned (through a search of the county records only). And in turn, some surface owners might be placed in the frustrating position of having to expend significant time and resources, only to notify third parties that they are now the lucky owners of some extremely valuable minerals that the surface owner had hoped to be able to reclaim for themselves.
Defending Mineral Interests
The Ohio Dormant Mineral Act lays out the details for how the system works. The original owners/heirs (“holders”) also have steps that they can and should take to preserve their rights.
The three primary methods the original owners/heirs can use to defend their minerals are:
- Request a separate auditor’s tax parcel number for your minerals.
- Periodically file Affidavits of Preservation in the recorder’s office. Affidavits of preservation can protect minerals from abandonment for twenty years. The Affidavits must be filed on time, before the minerals are considered abandoned due to a filing by the surface owner.
- Put the minerals into production by signing a lease.
As a practical matter, an original owner/heir could also sidestep the issue altogether by selling their mineral interest. We do not recommend this option for everyone due to the loss of long-term earning potential.
There are several other exceptions that protect minerals from abandonment. These exceptions are much less practically useful.
- Utilizing the land for underground gas storage.
- Coal interests are exempt.
- A mining or drilling permit was granted.
- When the U.S. government, the State of Ohio, or any of their subdivisions or agencies hold title.
OMTA – The Second Path
Surface owners may still be able to utilize the alternative method, the Ohio Marketable Title Act, to seize minerals. Identification of owners/heirs does not stop the OMTA from operating. The Ohio Marketable Title Act protects buyers of real estate from hidden title defects. Many title problems can be buried far back in the mists of time, early within a chain of title.
For instance, if there are no recent deeds in the chain of title that mention anything about the minerals not being included in the sale, then the buyer may have a good claim to own those minerals. That claim may hold even against the current record owner/heirs, who likely had nothing to do with the most recent sale. This question would need to be carefully studied and researched to determine if the chain of title is susceptible to an OMTA claim or not, as the application of the rule is somewhat complex in practice.
To defend against an OMTA claim, original owners/heirs should use an Affidavit of Preservation. Actual extraction of the minerals could delay the effective use of an OMTA claim. However, due to the inherent unpredictability regarding the duration of oil and gas operations, this is not necessarily a permanent or reliable solution to the issue.
Need for Speed
In a potential dispute over abandoned minerals, you should move quickly to seek help. Speed is a decisive factor in these situations. The first to act often has a tremendous advantage.
Due to the importance of acting quickly, it’s important for an attorney’s office to begin work on such cases promptly, as the title research involved in such projects can take several weeks. A reasonable completion time frame might be within four to twelve weeks for the entire process, depending on the complexity of the title.
Conclusion
Once the minerals are secured, consult with counsel regarding the most effective way of monetizing the mineral interest through either a lease, mineral sale, or through intentional force pooling. If you wish not to have the minerals enter production, you should also consult with an attorney on your options.
Because lease and mineral sale negotiations have a massive disparity in results depending on the effectiveness of your legal counsel, it is critically important to educate yourself about the leasing and mineral sales processes. While there are certain areas of the law that we sometimes encourage laypersons to handle simple tasks to reduce costs, oil and gas negotiations are not one of them.
The overwhelming majority of landowners who seek to negotiate their own leases and mineral sales sign deals without understanding the devastating implications of the language in their leases, or the colossal sums of money that they left on the table. Simply because the asking price doubled, tripled, or quintupled from what was originally offered, you cannot assume that it has become a fair offer, as it may or may not need to triple or quintuple yet again before reaching a reasonable price point. The party you are dealing with also might not even be authorized to offer you a fair and competitive price. For more information on common missteps and pitfalls in the lease negotiation process, please refer to our landowner’s guide.
Greg
Greg is the founder of McCleery Law Firm, and opened his own practice several months after passing the bar. His primary areas of practice are oil and gas and family law. In the early phases of the Utica and Marcellus shale, Greg assisted both both major industry players and local landowners with title research, leasing negotiations, sales of minerals and royalties, and curative title work, and acted as the title supervisor for an oil and gas brokerage firm, overseeing all title operations and leading a team of experienced abstractors. Next, Greg focused on expanding the firm and adding new areas of practice, with an emphasis on family issues.