Ohio’s Dormant Mineral Act: Questions After Corban
- November 8, 2016 | By Alan D. Wenger | Oil & Gas
On September 15, 2016, the Ohio Supreme Court issued its lead opinion in Corban v. Chesapeake Exploration, L.L.C., along with numerous decisions in Supreme Court cases questioning whether the 1989 Ohio Dormant Mineral Act (ODMA) was “self executing,” allowing minerals owned separately from surface rights to automatically be merged with the surface rights after 20 years of inaction by the mineral owner.
Owners of severed minerals (oil & gas) had argued that the strict notice requirements in the 2006 version of the ODMA had to be followed before the minerals and surface rights could merge. The Ohio Supreme Court ruled that the 2006 notice procedures are required. Thus, “automatic merger” under the 1989 ODMA is basically dead.
This finally gives firm direction for the many lower court cases pending on this issue. But it raises uncertainties for lessors and lessees in split mineral/surface rights situations who have relied upon the 1989 “automatic merger” theory, which seemed prevalent at the time under prior lower court decisions.
Here are some examples of situations that could raise uncertainties:
- A lessor has provided warranties of title and ownership to the lessee in most form oil and gas leases. If the lease was entered under a belief that the 1989 “automatic merger” theory applied so that the surface owner/lessor held the mineral rights, is the lessor now in breach of its title warranty, and subject to damages to the lessee? Or might such warranties be excused because both the lessor and lessee relied on a now- debunked interpretation of the 1989 ODMA?
- Is the lessor going to be required to refund lease bonuses (signing bonus, advance royalties, advance rentals) as well as production royalties and delay rentals received by the lessor?
- Will the severed mineral owner, who perhaps was completely unaware of its rights, going to now be able to claim all lease compensation previously paid to the surface owner, and be able to make demands for such payment against the surface owner and the lessee?
- Since the Supreme Court says that the 2006 ODMA must be followed, uncertainties exist as to the degree of diligence and effort that the surface owner must use in locating and give notice to any and all potential owners of the severed mineral rights.
While the Ohio Supreme Court’s September 15, 2016 decisions have given new clarity, likely many declaratory judgments and quiet title lawsuits will be the result.
Any parties to a lease where the mineral rights had earlier been separate from the surface rights, and where the lease was subsequently entered with the surface owner as lessor, will need to carefully review their facts and be prepared for potential claims.