On November 5, 2015, the Supreme Court of Ohio ruled on its second case concerning the Ohio Dormant Minerals Act, O.R.C. 5301.56 (the “ODMA”) in Chesapeake Exploration, L.L.C. et al., v. Buell et al., 2015-Ohio-4551.
The case came to the Supreme Court of Ohio on certified questions from the United States District Court for the Southern District of Ohio. Those questions, both of which presented cases of first impression, were:
1. Is an oil and gas lease a “title transaction” which would prevent a mineral interest from being deemed abandoned under the ODMA, and
2. Is the unrecorded expiration of a recorded oil and gas lease also a “title transaction” which would prevent a mineral interest from being deemed abandoned under the ODMA.
The majority of the Court held that yes, an oil and gas lease is a “title transaction” under the ODMA, but the mere unrecorded expiration of a recorded oil and gas lease is not.
The ODMA provides that a severed oil and gas interest will be deemed abandoned and vested in the surface owner if certain savings events, enumerated at O.R.C. 5301.56(B)(3), have not occurred within a twenty (20) year look-back period. Originally enacted in 1989, the ODMA was amended in 2006 to provide procedural measures which a surface owner must follow before the interest is deemed abandoned. One of the enumerated savings events, and the savings event at issue in Chesapeake, was O.R.C. 5301.56(B)(3)(a):
the mineral interest has been the subject of a title transaction that has been filed or recorded in the office of the county recorder of the county in which the lands are located.
The pertinent definition of “title transaction” which controls the ODMA is found in the Marketable Title Act (of which the ODMA is a part) at O.R.C. 5301.47(F):
a “title transaction” is any transaction affecting title to any interest in land, including title by will or descent, title by tax deed, or by trustee’s, assignee’s, guardian’s, executor’s, administrator’s, or sheriff’s deed, or decree of any court, as well as warranty deed, quitclaim deed, or mortgage.
Notably, a lease is not described in the list of “title transactions.” Emphasizing the word “any” in the definition to describe “transaction” and “interest,” the Court concluded that the list in Section 531.47(F) is not exhaustive, and unambiguous in that regard.
Turning then to the nature of an oil and gas lease to determine whether it is a transaction that affects any interest in land, the Court discussed a recent amendment to O.R.C. 5301.09, which provides that leases and licenses create an interest in real estate. The Court also examined a number of Ohio precedents which characterize an oil and gas lease as a fee simple determinable subject to the possibility of reverter. Other Ohio cases, the Court noted, also recognize that an oil and gas lease not only grants an interest in the extracted minerals, but also grants a vested possessory interest in the land for their extraction. Because an oil and gas lease affects title to the surface and mineral interests in a number of ways, the Court concluded that an oil and gas lease is a “title transaction” and is a savings event under the ODMA.
As to the second question, whether the expiration of a recorded oil and gas lease is a “title transaction,” the Court recognized that indeed, the interest in the mineral estate reverts to the lessor upon termination of an oil and gas lease. The savings event at issue, O.R.C. 5301.56(B)(3)(a), however, requires not only a “title transaction,” but that the “title transaction” be recorded in the office of the recorder of deeds where the property is located. The purpose of the recording requirement effectuates the legislative purpose of the MTA to simplify and facilitate land title transactions. Without a recorded release or surrender of an oil and gas lease, a third party cannot tell from the record alone whether the lease is still in effect. Therefore, the mere unrecorded expiration of a recorded oil and gas lease cannot be a “title transaction” that prevents a mineral interest from being deemed abandoned under the ODMA.
Justice Pfeifer filed an opinion concurring in part and dissenting in part, which Justice O’Donnell joined. Justice Kennedy filed a concurring opinion.
Thirteen other cases concerning the ODMA are now pending before the Ohio Supreme Court. The Court’s ruling in Chesapeake settles the dispute over whether an oil and gas lease is a title transaction, but questions with broader implications concerning the application of the ODMA are still looming, notably, which version of the statute, the 1989 ODMA or the 2006 ODMA, applies to cases brought after 2006, and if the 1989 ODMA still applies, and whether the twenty (20) year look-back period is static or rolling.
To read the Court’s opinion, click here.
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