Before a landowner can sign a lease for the rights to extract minerals from shale formations under their ground, they have to make sure someone else doesn't already have a claim.
In some cases, leases signed decades ago can provide a foothold to the minerals companies are clamoring for, but Ohio law provides a means to remove those outdated agreements.
Having an old lease on record, even if it wasn't fulfilled, can prevent someone from signing a new lease and receiving the substantial bonuses some landowners have been receiving as companies buy up rights to oil, natural gas and other minerals in the Utica and Marcellus shale formations made accessible by advances in hydraulic fracturing and horizontal drilling technology.
"They're going to say to you, the landowner, 'Why should we be dealing with you instead of this company that seems to have a valid lease?'" said local attorney Tom Webster.
Webster said his office has worked with 75 to 100 clients over the last six months to clear old mineral leases from their property before the time comes to sign a lease.
Old leases
Fact Box
Mineral rights lease forfeiture process
Identification - The original holder of the lease might no longer be in business, or the lease may have changed hands. Assignments of leases are usually handwritten in the margins of the original lease document on file at the county recorder's office.
Notification - Notice must be served by certified mail, return receipt requested, to the lessee that the lease is to be terminated. If notice cannot be served by certified mail, it should be published in a local newspaper of general circulation.
Response - If the company releases the lease, the landowner is free to pursue other leasing options. If the company claims the lease remains in full force, the landowner must consider whether to challenge the lease through litigation. If there is no response, after at least 60 days, the landowner can ask the county recorder to add a notice of cancellation in the margin of the lease on file, at which point the lease is terminated.
Source: Matt Warnock, Bricker and Eckler LLP; Ohio Revised Code section 5301.332.
Many leases have a primary term and will terminate at the end of that period if a well isn't drilled, said Matt Warnock, a Columbus attorney who has worked on lease issues with residents of Washington, Monroe, Morgan, Noble and other counties in southeast Ohio. But if that well is drilled, there often isn't a secondary termination date and continued production or other factors may be enough to keep the lease in effect.
"We've seen handwritten leases where a well was drilled in the 1890s and it's still being held," he said.
Dale Arnold, director of energy policy for the Ohio Farm Bureau Federation, said people should be careful not to inadvertently renew an old lease. Individual documents vary, but common provisions involve the lease renewing if the landowner accepts payment for it or if they allow any "production activity."
"Read the lease provisions carefully," Arnold said. "Many things are considered a production activity and trigger renewal of the lease."
For example, a survey or environmental assessment on a site could be classified as a production activity, he said.
Sometimes, a new holder will send a landowner a check, saying they are owed a payment after a long period of inactivity. But cashing that check could also extend the lease, Arnold said.
Lease forfeiture
The process of having an old lease forfeited begins with identifying who actually holds the lease. While people may have a copy of an old lease signed by a family member - sometimes with additional provisions handwritten in the margins, Arnold said - the only enforceable copy is the one on file in the county recorder's office.
Washington County Recorder Tracey Wright said some landowners recently have come in to get their lease documents, but she cautioned the process isn't that simple.
"It's a big misconception that you can come in here and we can just hand that information over to you," she said.
"We highly recommend an attorney, because there's so much involved," Wright said. "There's so many rules; there's so many laws."
The company that originally signed the lease may not even be in existence anymore, but the lease could have been assigned to another entity.
"A lot of these old leases have multiple assignments," Warnock said. "Some have five, some have 10, some have one, some have 15."
Once the holder has been identified, state law requires notice to be served via certified mail. If no one signs for receipt of the certified mail, the notice can be published in a local newspaper of general circulation.
A company can respond in one of three ways.
"Easiest and least painful is getting a release of that lease from the oil and gas company," said Warnock, adding that doesn't happen very often.
The other response is notification by letter that the lease remains in full force.
At that point, a landowner's "only real remedy is filing a lawsuit," Warnock said.
The third response is silence. If the company does not respond within 60 days of receiving the notice or its publication, the landowner can ask the county recorder to note the cancellation of the lease on the original document.
"From a legal standpoint, by filing that, the lease is terminated," Warnock said.
Marietta attorney Ethan Vessels said he's accepted some forfeiture cases recently involving non-producing wells.
"Some leases say (they'll last) as long as oil or gas is being produced," he said.
Others remain in effect if they're producing in "paying quantities," Vessels said. The question of what constitutes a "paying quantity" will have to be decided by a court, he said.
"It's really a nebulous thing," he said.
While oil and gas leases have been common in Ohio for more than a century, Vessels said he expects the courts to be dealing with more and more cases like this.
"People didn't care about their non-productive leases until the Utica shale thing came up," he said.
Reserved rights
In some cases, the owner of the land may not have ever owned the rights to the minerals beneath it. A previous owner may have reserved the rights, or at least a portion of them.
"If you had someone reserve the rights 100 years ago, it would have followed to the heirs," said Marietta attorney Jennifer Garrison. The current property owner "would be trying to merge their mineral rights with the land rights."
Under the Ohio Dormant Minerals Act, a mineral interest can be declared abandoned if none of the following has happened in the previous 20 years - actual production or withdrawal of minerals, issuance of a drilling or mining permit, underground storage of gas, creation of a separate tax parcel number or transfer of the title of the mineral interest.
If those conditions are met, the process is similar to that of forfeiture, with the landowner required to serve notice to each holder of the lease, or their successors or assignees. If a holder does not file a claim on the interest within 60 days of the notice being served or published, it can be declared abandoned.
