Do You Have Severed Oil and Gas Interests on Your Property?

Q: What is a “severed mineral interest”?
A: If you buy a property, you may find you don’t own everything on that property. For example, a past owner may have sold the house and land, but kept an interest in minerals that might be found underneath the property. This is called a “severed mineral interest.” While it could be a reservation of gold or silver, today such an interest is usually in oil and gas. This severed interest may take different forms. A past owner may have reserved all mineral rights, all the oil and gas rights, half of the oil and gas royalty rights, the oil and gas leasing rights and part of the royalty rights, or some variation of these.

Q: How do I know if my property has a severed mineral interest?
A: Your deed may spell this out, but to be certain, you should have a qualified person do a complete oil and gas mineral search. This would involve an examination of public records going back to the 1880s.
Q: Should I simply assume that I have the right to sign an oil and gas lease?
A: If you sign, and later it is determined that you do not own all of the oil and gas rights, you will be notified and told to eliminate any outstanding oil and gas interests. However, eliminating those interests after signing a lease may be more difficult or costly. 

For example, if a severed oil and gas interest was only for part of the royalty interest, then the owner of that interest has no right to lease the property. That royalty interest would mean something only if oil and gas were being produced on the property. If you are currently leasing the property, the potential value of that royalty interest is automatically more valuable, so the owner of the interest would likely fight to keep that interest.

Q: Should I sign an oil and gas lease if I do not own all of the oil and gas rights? 
A:   If you do not own all of the oil and gas rights, it may be unwise to sign a lease for the reasons stated above.
Q: If my property has an oil and gas problem, should I fix the problem or wait to see if the oil and gas company takes care of it?
A: An oil and gas company will rarely take the legal action needed to eliminate an outstanding oil and gas interest affecting your property. Let’s say you own only half of the oil and gas leasing rights, while a previous owner has reserved the other half for his or her heirs. The oil and gas company may approach those heirs instead of you, and acquire their signatures on the lease. To avoid such a scenario, you should attempt to eliminate the severed minimal interest before signing a lease. Most of the time, however, the company will simply give you a “Defect Notice” and suggest that you contact an attorney to remedy the problem.

Q: What can I do to eliminate any outstanding severed oil and gas interests on my property?
A: The most commonly used option is based on the Ohio Dormant Minerals Act (Ohio Revised Code 5301.56), which was amended effective June 30, 2006, and requires that notice be given to the holder of the severed mineral interest. Several recent court decisions have held, however, that it is sufficient to use only the original 1989 version of the Dorman Minerals Act, which does not require the giving of notice if there is a 20-year period between March 22, 1969 and June 30, 2006 when no savings event has occurred. An example of a savings event would be the recording of a claim to preserve that interest or a title transaction, where that interest was the subject of that transaction.

You may also be able to use the Ohio Marketable Title Act, depending on the wording used in the deeds in the chain of title, beginning with the most recent deed that has been of record for at least 40 years. This option would require you to file a Quiet Title Action in court, which involves more time and costs than the first option. This remedy is probably not available if there has been oil and gas production on your property in recent years.

If the severed mineral interest was created using “words of inheritance” (such as “heirs and assigns”) in a deed made before June 13, 1925, you may be able to argue that the reservation was valid only during the lifetime of the individual who made the reservation, unless the deed includes words of inheritance or succession. After June 13, 1925, words of inheritance were no longer required to create a fee simple estate.

This “Law You Can Use” column was provided by the Ohio State Bar Association. It was prepared by Woodsfield attorney Richard A. Yoss of the Yoss Law Office.

Articles appearing in this column are intended to provide broad, general information about the law. This article is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from a licensed attorney.



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