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The Supreme Court of Ohio rendered its second decision on Nov. 5, 2015, regarding Ohio’s Dormant Mineral Act in the case of Chesapeake Exploration LLC v. Buell, with significant implications for oil and gas producers as well as landowners and owners of mineral rights involving Utica Shale.

Background

The Dormant Mineral Act governs the ownership rights of minerals that have been severed from the surface lands. It is a common practice for landowners to retain mineral rights when they sell their land. The Dormant Mineral Act established conditions and procedures by which the ownership of mineral rights are preserved with the mineral holder or abandoned to the owner of the surface lands. Under the original 1989 statute, the conditions (referred to as “savings events”) by which a mineral holder could preserve the mineral interest from being deemed abandoned included, for example, actual production or withdrawal of minerals or the issuance of a drilling or mining permit. 

Definition of a title transaction

One of the enumerated savings events in the statute occurs if the “mineral interest has been the subject of a title transaction.” If the mineral interest has been the subject of any recorded transaction affecting title to any interest in land, the mineral interest is preserved as a savings event and not abandoned.

Oil and gas lease

The court first concluded that the definition of a title transaction is not limited only to transactions that transfer an ownership interest in minerals. The court then analyzed the oil and gas lease at issue, concluding that the recorded lease granted the exclusive right to use the minerals to produce oil and gas. Because the lease affects title to both the surface and mineral owners’ interests in land, the court determined that the recorded oil/gas lease constituted a title transfer. As a result, the court held that the recorded oil and gas lease was a savings event under the Dormant Mineral Act.

The court then addressed the issue of whether the expiration of a recorded oil and gas lease and reversion of the rights granted under the lease likewise constitutes a separate savings event, restarting the 20-year protection period under the Dormant Mineral Act. The court answered that question in the negative, concluding that the mere unrecorded expiration of a recorded lease and the reversion of rights does not by itself constitute a savings event under the statute that would restart the 20-year clock.

Awaiting more decisions

This decision is the second opinion to date from the Supreme Court regarding the Ohio Dormant Mineral Act. The first case—Dodd v. Croskey, Slip Opinion No. 2015-2362—was issued on June 18, 2015. There are two other important cases before the Supreme Court regarding the Dormant Mineral Act which have not yet been decided.

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