Friday, November 6, 2015

High Court Rules on Oil And Gas Leases

 A recorded oil and gas lease is a title transaction, whereas the unrecorded expiration of an oil and gas lease is not, the Ohio Supreme Court ruled Thursday.  The court, in a unanimous decision written by Chief Justice Maureen O'Connor, found that under Ohio law, the unrecorded expiration of an oil and gas lease does not amount to a title transaction.  "It is self-evident that the termination or expiration of a lease returns the lessor and the mineral estate to the status quo prior to the lease," Chief Justice O'Connor wrote in the court's decision. "Upon expiration, the lessee loses his status as lessee by virtue of the terms of the agreement and no longer has an exclusive, vested right to the mineral estate.
Thus, the expired or terminated lease no longer affects the lessor's title in the mineral estate."
The case stems from a 90-acre parcel of land in Harrison County from which mineral rights were leased to a mining company in 1958, according to the court. Since that time there have been several transactions involving the mineral rights and surface property.  The court's determination is based on the state's Dormant Minerals Act, adopted in 1989 and amended in 2006, its news arm reported.

Under the law, a mineral interest severed from the surface property rights is deemed abandoned and reunited with the surface rights unless at least one of six "saving events" has occurred in a 20-year period.  "Construing the mere expiration of a lease as constituting a saving event would not contribute to the clarity of the record of title that the Dormant Mineral Act seeks," Chief Justice O'Connor wrote. "Likewise, allowing the mere existence of an oil and gas lease to toll the 20-year time period for abandonment during its life does not further the purpose of the statute."

The court, however, was more divided on the question of whether a recorded oil and gas lease constitutes a title transaction.  Chief Justice O'Connor, along with three other justices, found that because the Dormant Minerals Act defines a title transfer as "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, quit claim deed, or mortgage," a recorded oil and gas lease does meet that standard.  "If the General Assembly wanted to limit the qualifying title transactions to those transactions transferring title to ownership of land, it could have said so. Instead it defined a 'title transaction' as 'any' transaction affecting title to 'any' interest in land," the chief justice wrote for the majority.

Justice Sharon Kennedy concurred with the court's answer to the question, however, dissented in its analysis.  Justice Paul Pfeifer and Justice Terrence O'Donnell found that an oil and gas lease is not a title transaction.

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