On September 15, 2016, there was a sudden, dramatic and unexpected shift in ownership rights of mineral interests when the Ohio Supreme Court issued its ruling in Corban v. Chesapeake Exploration, LLC, 2016-Ohio-5796. To recap, the Court held that the 1989 version of the Ohio Dormant Mineral Act (“DMA”) was not self-executing; rather, surface owners were required to first file a lawsuit and obtain a court order that the severed mineral interests were abandoned. More importantly, Corban also held that the 2006 version of the DMA (2006 DMA) applies to all claims to abandon severed mineral interests asserted after the effective date of the 2006 DMA on June 30, 2006. The primary difference between the 1989 and 2006 DMA is that the 2006 DMA contains a mandatory notice procedure that surface owners must follow before abandonment proceedings can be initiated.
Prior to the Corban ruling, surface owners were often able to rely on the self-executing provisions in the 1989 DMA, as interpreted by many lower courts, to file lawsuits and obtain court orders that severed minerals were abandoned under the 1989 DMA and had automatically vested in the surface owners. As a result of Corban, surface owners can no longer use the 1989 DMA and must instead follow the statutory abandonment procedures set forth in the 2006 DMA if they wish to obtain ownership of minerals previously severed from their surface property.
The 2006 DMA abandonment procedure is difficult for surface owners to accomplish and easy for severed mineral owners to defeat. All that severed mineral owners need to do in response to a surface owner’s 2006 DMA abandonment notice is to file an Affidavit of Preservation. Based on recent Supreme Court case law, an Affidavit of Preservation cures the lack of any prior savings event and preserves all of the severed mineral interests of any mineral owners in the same property. In other words, the 2006 DMA allows one severed mineral interest owner to preserve the interest of all of the severed mineral interest owners regardless of whether those owners know they have an interest. Therefore, all it takes is one severed mineral owner to come forward in response a surface owner’s 2006 DMA abandonment notice and the severed mineral interests are preserved as to all owners.
This does not mean that severed mineral interest holders are in the clear. In fact, severed mineral interest owners still face a number of challenges. First, surface owners are only required to attempt notice by certified mail, return receipt requested, to the last known address of the mineral interest holders of record. That means that, if severed mineral interest owners do not have a current address or documentation in the county in which the mineral interest is located setting forth their claim of interest, a surface owner may still be able to complete the statutory abandonment process without the severed mineral interest holder having any knowledge of what is occurring.
Second, severed mineral interest holders must still properly publish Affidavits of Preservation within a limited period of time following their receipt of notice. This can be much more complicated than many anticipate as the statutory requirements for an Affidavit of Preservation are detailed. This is particularly true in instances where old reservations were not properly transferred of record to the current generation of mineral owner heirs.
Third, severed mineral interest owners must still preserve their interests against potential claims from surface owners under Ohio’s Marketable Title Act (“MTA”). While these claims can often be easily defeated by proactively filing a Preservation Notice under the MTA, failing to address these issues at all could lead to complete extinguishment of reserved rights.
Finally, severed mineral interest owners will almost certainly face potential litigation going forward as a result of potential claims under the 2006 DMA or the MTA. In fact, given the history of large producers regarding potential 2006 DMA issues, severed mineral interest owners will likely be required to initiate litigation prior to producers recognizing their right to receive royalties or bonus payments at all. This 2006 DMA litigation will focus on two things: 1) the surface owners’ compliance with the mandatory 2006 DMA abandonment procedures; and 2) the severed mineral interest owners’ compliance with the 2006 DMA preservation requirements.
Filing this litigation will almost certainly be more complicated than mineral interest owners will likely anticipate. As many severed mineral owners are second or third generation heirs of the original severed mineral owners, a considerable analysis will need to take place prior to initiating a lawsuit to determine the names and addresses of all of the heirs with an interest in the property. Once those heirs are identified and located, severed mineral interest owners will need to assure that they are actually the owners of the interest under either the descent and distribution or testamentary laws of both Ohio and the state in which the deceased owners died. Such considerations could result in drastic changes in ownership depending on the laws of descent between generations and the contents of any will setting forth who will inherit what interests. Once this analysis is completed, these severed mineral interest owners will need to act in concert to document their ownership of the mineral interests to assure the preservation of the ownership interests going forward. In some cases, this could involve more than 100 family members, depending on the age of the original severed mineral interest and the genealogy of the family.
Even if litigation has already been initiated respecting severed mineral interests, severed mineral owners who are parties to existing DMA lawsuits that were stayed by the lower courts in anticipation of a ruling in Corban, must now amend their pleadings to focus on the 2006 DMA and instead of the 1989 DMA, which is no longer effective.
Of course, severed mineral interest owners are not the only individuals facing new challenges. While some producers who were proactive and sought to obtain protection leases from severed mineral owners have avoided significant liability as a result of the Corban ruling, others are not so lucky. Other producers who made leasing decisions based on the 1989 DMA will either be forced to obtain new leases from severed mineral owners or face potential mineral trespass cases from severed mineral interest owners. These new leases will likely require the payment of lease bonuses and potentially unpaid royalties. Of course, producers operating existing Utica wells who have paid royalties based on what was thought to be the self-executing provision of the 1989 DMA will likely be forced to pay those royalties over again to severed mineral interest owners. Finally, surface owners who signed leases with producers containing warranties of title may face claims against the producers to recover bonus and royalty payments made in reliance of the 1989 DMA.
In short, the landscape regarding title and ownership to mineral interests in Ohio has significantly changed. Although there is more clarity under the 2006 DMA, the Corban ruling has also created many new challenges for severed mineral owners, surface owners and producers alike. These new issues are complicated and parties should rely on the advice of experienced oil and gas counsel before making decisions and signing documents that could affect their mineral rights. 10950939 _2
David J. Wigham is a second-generation Ohio oil and gas attorney with more than 25 years of experience in the industry. He practices at the law firm of Roetzel & Andress and maintains offices in Akron and Wooster, Ohio. He can be reached at 330-762-7969.