Ohio Oil & Gas Case Law Update - Steptoe & Johnson PLLC

Ohio Oil & Gas Case Law Update

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Keynote Speakers

Jason Lucas Wheeling, WV

Timothy M. McKeen Wheeling, WV

Ohio Oil & Gas Case Law Update

Introduction

• Ohio case law is still

in its infancy • The Ohio Dormant

Mineral Act has been the hot topic thus far

• Certain lease language has caused issues

• The Future?

Babies born during Michigan week in Columbus

Let’s Begin

Marietta, Ohio

Dodd v. Croskey Ohio Court of Appeals, 7th Circuit, 2013 WL 5437365. (September 23, 2013)

Facts: 1. August 2009, appellants acquired property

subject to a mineral reservation. 2. November 27, 2010, appellants filed Notice of

Intent to Claim Abandonment of O&G. 3. December 23, 2010, appellees filed a document

titled “Affidavit Preserving Minerals.” 4. February 9, 2011, appellants filed an action to

quiet title.

Issues: 1. Is the transfer of the surface estate a title

transaction under ODMA, and therefore a savings event?

2. Is strict compliance with notice requirements necessary?

3. Will the mere filing of a “claim to preserve a mineral interest” prevent the minerals from being abandoned?

Dodd v. Croskey Ohio Court of Appeals, 7th Circuit, 2013 WL 5437365. (September 23, 2013)

Answers:

1. Is the transfer of the surface estate a title transaction under ODMA, and therefore a savings event?

No. A transaction involving the transfer of the surface estate, with a deed mentioning a reservation of minerals, is not a title transaction. To constitute a savings event, a mineral interest must be the “subject of” a title transaction. A mineral interest is the “subject of” a title transaction when it is affected. Because a transfer of the surface does not affect a reserved mineral interest, it is not a savings event.

Dodd v. Croskey cont.

Answers: 2. Is strict compliance with notice requirements

necessary? No, but….

Dodd v. Croskey cont.

Answers: 3. Will the filing of a claim to preserve prevent the

minerals from being abandoned? Yes. Although appellee filed an affidavit, it was

not supported by any facts. Therefore, the court construed the affidavit as a claim to preserve. The court then determined that a timely filing of a claim to preserve will prevent abandonment.*

Dodd v. Croskey cont.

Two Monroe County Cases

Blackstone v. Moore Court of Common Pleas, (Monroe) Case #2012-166. (January 22, 2014)

Facts: 1. Plaintiff acquired property in 1969 subject to a

NPRI reservation. 2. May 9, 2012, plaintiffs filed an Affidavit of Facts

Relating to Title stating that no savings events occurred in the 20 year period prior to June 30, 2006.

3. July 6, 2012, defendant filed a claim to preserve the NPRI.

Blackstone v. Moore Court of Common Pleas, (Monroe) Case #2012-166. (January 22, 2014)

Issues: 1. Was defendant’s NPRI extinguished under the

1989 version of ODMA? 2. Was defendant’s NPRI extinguished under the

Ohio Marketable Title Act?

Answers: 1. Was defendant’s NPRI extinguished under the

1989 version of ODMA? Yes. The court determined that the 1989 version

of ODMA is self-executing and that the surface owner does not need to take any action before a mineral interest is deemed abandoned. The court next stated, that a surface owner can use the 1989 version even after the 2006 version has been enacted.

Blackstone v. Moore cont.

Answers: 2. Was defendant’s NPRI extinguished under the

Ohio Marketable Title Act? Yes. The court determined that the reservation

was not specific because the language in the deed did not contain a specific reference that would enable a title examiner to locate the deed without checking the indexes. Therefore, because the reference was not specific, the deed in question did not preserve the defendant’s interest under the Marketable Title Act.*

Blackstone v. Moore cont.

Gentile v. Ackerman Court of Common Pleas, (Monroe) Case #2012-110. (January 13, 2014)

Facts: 1. Plaintiff acquired property in August, 2011,

subject to a NPRI reservation. 2. April 17, 2012, plaintiff brought an action to

have minerals abandoned.

Gentile v. Ackerman Court of Common Pleas, (Monroe) Case #2012-110. (January 13, 2014)

Issues: 1. Was defendant’s NPRI extinguished under the

1989 version of ODMA? 2. Was defendant’s NPRI extinguished under the

Ohio Marketable Title Act?

Answers: 1. Was defendant’s NPRI extinguished under

the 1989 version of ODMA? No. The court determined that subject to

Dodd v. Croskey, plaintiff could not bring an action under the 1989 version.

Gentile v. Ackerman cont.

Answers: 2. Was defendant’s NPRI extinguished under

the Ohio Marketable Title Act? No. The root of title reference was

specific because it listed a deed book and page number for the reservation.

Gentile v. Ackerman cont.

Not one of the pack? Dahlgren v. Brown Farm Properties

Dahlgren v. Brown Farm Properties Court of Common Pleas, (Carroll) Case #13CVH27445. (November 5, 2013)

Facts: 1. Minerals were last conveyed in the year 1978 and

no drilling, production, or storage had taken place

2. In 2009, severed mineral owners signed a lease 3. In March 2012, defendant surface owner sent

notice of intent to declare abandonment to plaintiff

4. Plaintiff severed mineral owner filed suit against defendant landowners to quiet title

Dahlgren v. Brown Farm Properties Court of Common Pleas, (Carroll) Case #13CVH27445. (November 5, 2013)

Issues: 1. Does the 2006 version of ODMA supersede

the 1989 version?

Answer: 1. Does the 2006 version of ODMA supersede the 1989

version? Yes. The court held that the even under the 1989 act the mineral owner was entitled to some notice, and that the 1989 act was not self executing. The notice must be given at least through a recorded abandonment claim. If no actions, such as the filing of an abandonment claim, have taken place before the enactment of the 2006 ODMA, then the party seeking forfeiture of minerals must comply with the 2006 version.

Dahlgren v. Brown Farm Properties cont.

Marty v. Dennis (Winkler) Court of Common Pleas, (Monroe) Case No. 2012-203. (April 10th, 2013)

Facts: 1. P’s predecessors in title reserved 1/2 of the oil

and gas royalty, 1/16th of all oil, and 1/2 of all monies received from the sale of gas.

2. On February 3, 2012, P filed an affidavit declaring that the reserved royalty interest was abandoned pursuant to the 1989 version of 5301.56.

3. On February 9, 2012, P published notice pursuant to the current version of 5301.56.

Marty v. Dennis (Winkler) Court of Common Pleas, (Monroe) Case No. 2012-203. (April 10th, 2013)

Facts: 4. On March 14, 2012, P filed an Affidavit of

Abandonment and declared the royalty interest abandoned.

5. April 5, 2012, D filed a Notice to Preserve Mineral Interests.

6. P brought suit asking the Court to declare that D’s royalty interest was abandoned under both versions of the 5301.56.

Issues: 1. Is a royalty interest exempt from forfeiture? 2. Is the mere filing of a preservation notice

effective to establish that a mineral interest has not been abandoned?

Marty v. Dennis (Winkler) Court of Common Pleas, (Monroe) Case No. 2012-203. (April 10th, 2013)

Answers: 1. Is a royalty interest exempt from forfeiture? No. A royalty interest is real property until

minerals have been severed or removed from the land. Therefore, a royalty interest can be real property and is subject to forfeiture under both versions of ODMA.

Marty v. Dennis cont.

Answers: 2. Is the mere filing of a preservation notice effective

to establish that a mineral interest has not been abandoned?

No. Upon the filing of a preservation notice, the surface owner has exhausted his remedies and must file suit. The holder of a severed interest must “show the existence of one of the savings conditions under 5301.56(B).” Mere filing of a preservation notice is not enough to demonstrate that a mineral interest has not been abandoned.

Marty v. Dennis cont.

Belmont County

Facts: 1. P filed a complaint to quiet title and for

declaratory judgment on April 16, 2012, against D, a severed mineral owner.

Tribett v. Shepherd Court of Common Pleas, (Belmont) Case No. 12-CV-180. (July 22nd, 2013)

Issues: 1. Is the 1989 Dormant Mineral Act Constitutional? 2. Is the 1989 version superseded by the 2006

version? 3. Is the Ohio Dormant Mineral Act subject to the

restrictions of Marketable Title Act?

Tribett v. Shepherd Court of Common Pleas, (Belmont) Case No. 12-CV-180. (July 22nd, 2013)

Tribett v. Shepherd cont. Answers: 1. Is the 1989 Dormant Mineral Act Constitutional? Yes. The 1989 version is constitutional. In Texaco v. Short, 454

US 516 (1982), the US Supreme Court declared that a harsher Indiana statute was constitutional. Therefore, the less strict Ohio statute is Constitutional.

2. Is the 1989 version superseded by the 2006 version? No. If the severed minerals have been abandoned and vested

in the surface owner under the 1989 version, the vesting of the minerals is valid under the 2006 version.

3. Is the Ohio Dormant Mineral Act subject to the restrictions of Marketable Title Act?

No. The specific language of the Dormant Mineral Act controls over the more general language of the Marketable Title Act.

Facts: 1. A reservation was made in 1971 reserving an undivided ½

interest in all the oil and gas in and underlying the property. 2. Property was leased in 1975. 3. Property was then sold to the defendants. 4. Party that reserved the minerals died in 1993, but estate was not

probated until May 2011. 5. During probate the decedent's minerals were transferred. 6. October 29, 2007, surface owners signed a lease. Result: Minerals transferred to surface owner under the 1989 version of the ODMA in 1995 (20 years after the 1975 lease).

Taylor v. Crosby Court of Common Pleas, (Belmont) Case No.#12-CV-422. (September 16th, 2013)

Taylor says: Keep It Simple

Facts: 1. Half of oil and gas was reserved in 1932,

and no other transfers of minerals were made.

2. Subsequent deeds carried forth the same reservation as recently as 1986 to the surface owner.

3. Surface owner attempted to cure under 2006 version of ODMA.

Hendershot v. Korner Court of Common Pleas, (Belmont) Case No.#12-CV-453. (October 28th, 2013)

Issues: 1. Did the 1986 reservation act as a “title

transaction”? 2. Did the surface owner’s attempt to use

the 2006 version preclude him from arguing the 1989 version applied?

Hendershot v. Korner Court of Common Pleas, (Belmont) Case No.#12-CV-453. (October 28th, 2013)

Answers: 1. Did the 1986 reservation act as a “title

transaction”? No. The recitation of the same mineral

reservation is not a title transaction. 2. Did the surface owner’s attempt to use the 2006

version preclude him from arguing the 1989 version applied?

No. The court applied the 1989 version of the ODMA and ruled in favor of the surface owner.

Hendershot v. Korner cont.

Walker v. Noon Court of Common Pleas, (Noble) Case No. 212-0098. (March 20th, 2013)

Facts: 1. D, who owned the fee, conveyed the

surface and reserved the minerals in 1965.

2. Subsequent deeds in 1970 and 1977 conveyed the surface, noting that the oil and gas had been reserved.

Issue: Under the definition section of the Marketable

Title Act, ORC 5301.47, does the transfer of the surface count as a title transaction?

Answer: No. To be a title transaction, the transaction

must affect an interest in the land. In the instant case the land is the mineral fee. Because the land is a reserved mineral fee, the transfer of the surface parcels would not “affect” the interest.

Walker v. Noon Court of Common Pleas, (Noble) Case No. 212-0098. (March 20th, 2013)

Walker says…

• Title Transactions must actually affect an interest in land

• Chuck Norris was born May 6, 1945

• Germans surrendered May 7, 1945

• Coincidence?

Shannon v. Householder Court of Common Pleas, (Jefferson) Case No. 12CV226. (July 17th, 2013)

Facts: 1. Grantors received a 1/2 mineral interest from their

predecessor in title via a certificate of transfer. 2. P received a deed from Grantors on April 9, 1976,

containing the following language, “These exceptions and reservations are limited to those property rights which have been excepted and reserved in Grantor’s chain of title.”

3. On March 17, 1978, Grantors executed an oil and gas lease, but no activity was commenced.

4. On July 12, 1979, Grantors re-conveyed the subject real estate.

Issues: 1. Did the surface owner hold a 1/2 interest in the

oil and gas? 2. Was the lease in 1978 a savings event that

prevented abandonment of the minerals? 3. Was the re-conveyance of the subject surface

property a savings event that prevented the abandonment of the minerals?

Shannon v. Householder Court of Common Pleas, (Jefferson) Case No. 12CV226. (July 17th, 2013)

Answers: 1. Did the surface owner hold a 1/2 interest in the

oil and gas? Yes. The court determined that the previously

quoted language was not effective to reserve the mineral rights. The court reasoned that because there were no mineral reservations when title was conveyed to the Grantor, and that Grantor had not made any mineral reservations prior to conveyance to P, no mineral rights were reserved by Grantor.

Shannon v. Householder cont.

Answers:

2. Was the lease in 1978 a savings event that prevented abandonment of the minerals?

No. The primary reason given by the court was that because no actions on the lease were commenced, the lease was not a savings event.

3. Was the re-conveyance of the subject surface property a savings event that prevented the abandonment of the minerals?

No. When the property was re-conveyed, P’s predecessors had no interest in the land.

Shannon v. Householder cont.

Columbiana County

Bender v. Morgan Court of Common Pleas, (Columbiana) Case No. 12-CV-378. (March 20th, 2013)

Facts: 1. D, owner of the property in question, deeded land to

P’s predecessor in interest in March 1947, reserving the oil and gas rights.

2. P is the undisputed surface owner.

3. Oil and gas was leased in 1976, 1981, 1985, and 1988.

4. P published notice of intent to declare the mineral interest abandoned on August 18, 2011.

5. P filed her affidavit of abandonment 61 days after publication.

Issues: 1. Were the leases “title transactions” that

saved the minerals from abandonment? 2. Was P’s affidavit timely filed?

Bender v. Morgan Court of Common Pleas, (Columbiana) Case No. 12-CV-378. (March 20th, 2013)

Bender v. Morgan cont. Answers: 1. Were the leases “title transactions” that saved

the minerals from abandonment? Yes. To qualify as a “title transaction”, a

conveyance does not have to take place. The transaction must merely affect the interest. Because an oil and gas lease is a conveyance of a fee simple determinable, a lease therefore affects a mineral interest.

Bender v. Morgan cont. Answers: 2. Was P’s affidavit timely filed? No. In reading the plain language of

5301.56(E)(2), the court stated that “the affidavit of abandonment must be filed not later than sixty days after the publication or service of notice.” When P filed 61 days after publication, and not 60, the court determined that the filing was ineffective.

Hupp v. Beck Energy Corporation Court of Common Pleas, (Monroe) Case #2011-345. (July 12, 2012)

Facts: 1. Plaintiff lessor brought suit against

defendant lessee seeking declaratory judgment and to quite title in plaintiff’s favor.

Issues: 1. Was defendant’s lease a “perpetual lease”? Answers: Yes. The court determined defendant’s lease was a “perpetual

lease” and was therefore void ab initio, due to being against the public policy of the state of Ohio . In determining the lease was perpetual, the court looked at the language and particularly noted the following: A. The lease stated that the term “paying quantities” was

determinable by the lessee. B. Under paragraph 13, failure to pay rental or royalty does not

void the lease. C. There are no definitions of what constitutes “commencing

operations” or other key terms.

Hupp v. Beck Energy Corporation cont.

The Road Ahead

Dodd v. Croskey is on appeal to the Ohio Supreme Court • What is a title transaction? • Is strict compliance required? • Does an affidavit to save or claim prevent

abandonment?

Chesapeake v. Buell is a certified question to the Ohio Supreme Court • Is a lease a title transaction? • What is the nature of an oil and gas lease? ‒ Is it fee simple determinable (as in most O&G states)

• Is the expiration of a lease a title transaction?

The Road Ahead

The Road Ahead Do either version, or both versions of ODMA apply to NPRIs? • 1989 version doesn’t appear to define mineral

interest. • 2006 version defines mineral interest as a “fee

interest”, which might exclude NPRIs. Is the 1989 Version’s self executing provision Constitutional?

Thank You!

Jason Lucas Wheeling, WV

jason.lucas@steptoe-johnson.com 304.231.0464

Timothy M. McKeen Wheeling, WV

timothy.mckeen@steptoe-johnson.com 304.231.0473

These materials are public information and have been prepared solely for educational purposes to contribute to the understanding of energy and oil and gas law. These materials reflect only the personal views of the authors and are not individualized legal advice. It is understood that each case is fact-specific, and that the appropriate solution in any case will vary. Therefore, these materials may or may not be relevant to any particular situation. Thus, the authors and Steptoe & Johnson PLLC cannot be bound either philosophically or as representatives of their various present and future clients to the comments expressed in these materials. The presentation of these materials does not establish any form of attorney-client relationship with the authors or Steptoe & Johnson PLLC. While every attempt was made to insure that these materials are accurate, errors or omissions may be contained therein, for which any liability is disclaimed.

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