Obtaining Unexpected Profits from Ohio’s Dormant Minerals Act
Written by Nils Peter Johnson about Ownership and Transfers on February 26, 2015
Ohio’s dormant minerals act (DMA) is designed to rejuvenate abandoned oil and gas reservations by granting them to the surface owner (a more detailed explanation of the DMA can be found here).
A basic DMA process with one oil and gas holder:
In a very basic scenario, the Surface Owner notifies the oil and gas Holder that their rights will be declared abandoned in 60 days. In order to retain their interests, the Holder must record a claim form prior to the 60th day. A timely filed claim form shuts down the whole process: the Surface Owner cannot re-capture the Holder’s interests.
A complex DMA process with several oil and gas holders:
In a more typical scenario, there are several oil and gas Holders, frequently the heirs to a very old reservation. Here, the Surface Owner notifies all of the Holders that their rights will be declared abandoned in 60 days. The Holders can preserve their interests by filing a claim form prior to the 60th day, just like described above. However, not each Holder must file a claim form. A single claim form filed by a single Holder preserves all of the rights of the other Holders.
Unexpected Benefits to the Mineral Holder
That a single claim form preserves the rights of all Holders presents a tall hurdle for the Surface Owner faced with several Holders. It also presents a real opportunity for an individual Holder if all other Holders don’t timely file a claim form. In this situation, the individual Holder might strike a deal with the Surface Owner: the Holder will agree to not file a claim form in exchange for a percentage of the rights Surface Owner obtains at the conclusion of the DMA process.
Surface Owner owns 100 acres of property. The property is subject to a one-half mineral reservation (or 50 acres) made many years ago. Surface Owner identifies 10 Holders (heirs) to the one-half reservation, with each Holder entitled to 5 acres (50 acres / 10 Holders). Surface Owner cannot identify the mailing addresses for any of the 10 Holders (this is fairly common). Surface Owner publishes in their local newspaper notice to all 10 Holders that their interests will be declared abandoned in 60 days (the DMA permits notice by publication). An Individual Holder sees the notice and contacts Surface Owner. Together, they determine that the remaining 9 Holders are unlikely to timely file a claim form. Individual Holder then strikes a deal with Surface Owner:
- If no Holder timely files a claim form, the 50 acre reservation will vest with Surface Owner
- Individual Holder agrees to not file a claim form
- As compensation, Surface Owner will issue a deed to Individual Holder for 1/3 of the 50 acres described above
Win / Win
This is a benefit to Surface Owner and Individual Holder. If Individual Holder files a claim form, he is only entitled to 5 acres of minerals, while Surface Owner gets nothing. By contrast, if the deal proceeds as described, Individual Holder will receive 16.67 acres of minerals, while the Surface Owner gets 33.33 acres of minerals. Even if one of the 9 Holders does timely file a claim form, Individual Holder hasn’t lost anything: he is still entitled to his 5 acres.
In reality, this fact pattern arises fairly frequently. There are often many heirs to oil and gas reservations, and it is usually no easy task to locate them. Striking such a deal with Surface Owners is not always guaranteed: it is not a very simple concept to grasp. Even so, our firm has handled such transactions successfully. Contact us if you have been served with a Dormant Minerals notice and you believe the remaining Holders are unlikely to respond.
About Nils Peter Johnson
NILS PETER JOHNSON attended Western Reserve Academy, received his BA in philosophy from Bates College, and his JD from Vermont Law School where he studied environmental law. He is active in the Mahoning County Bar Association’s Taxation/Estate Planning Committee and volunteers regularly with the Canfield Rotary Club. He oversees Johnson & Johnson’s website, as well as GasandOilLaw.com.