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Oil&Gas

Do you own them?

Conceptually, when one owns a piece of land entirely, i.e., in “fee simple,” he owns everything from the center of the earth below the parcel to the heavens above it. That includes ownership of oil, gas and other minerals unless some past owner of the parcel conveyed away such ownership. The only way to determine if that has happened (typically, in NW Ohio, during the oil boom days) is to do a “title search” for the parcel at the county recorder. While for some purposes a title search need only go back forty years to determine “marketable title,” ownership of oil and gas is a separate “root of title” to the effect that ownership of a “severed mineral interest” is not extinguished after forty years. That is, to be safe, one needs to search the title all the way back to when title was granted by the government. Often, the landowner would sell the farm but retain ownership of the minerals, thus severing the minerals from the surface. The problem, then, is that it is difficult to determine who now owns the minerals if they were severed. To address this problem, Ohio, like other oil and gas producing states, enacted a dormant mineral statute that, if certain conditions are met, will establish that the earlier-severed interest has been “abandoned” thus reuniting the minerals with the surface. See ORC § 5301.56. If there has been an oil well on the property, or one nearby, the title search should also look for oil and gas leases that may have been granted by an earlier surface (or severed mineral interest) owner. An old lease may have expired according to its terms. As the price of crude oil rises, perhaps NW Ohio will again become a valuable source of oil and gas, and title disputes.

Leases

Oil and gas leases are complicated and sophisticated documents with a mountain of law interpreting each provision. Have an experienced attorney review and negotiate the lease – someone who has been on both sides. For example, does the lease say when the first well must be drilled? How long after a dry hole must the second well be drilled? Can your land be tied up by the lease when the well is on some else’s property? When and how does the lease terminate? How much land can the lessee use?