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Ohio Dormant Mineral Act: How Much Diligence is Required?

By October 2, 2018Oil and Gas

By: Dick Emens, Cody Smith, and Heidi Kemp

If you’ve been paying any attention to the oil and gas world over the last several years, it’s likely you’ve heard of the Ohio Dormant Mineral Act. This statute provides a mechanism for surface owners to have severed mineral interests deemed abandoned after providing the claimed severed mineral holders with notice of the opportunity to preserve their interests. Many surface owners went through this abandonment process in hopes of having the minerals vested back with the surface. There is a lot of litigation going through the court systems at this time attempting to interpret and clarify some aspects of this statute. One of the main issues is how much due diligence and searching must be done by the surface owner and his or her counsel in their attempt to serve notice of the abandonment on the holders of the severed mineral interest.

Recently, in Shilts v. Beardmore, 2018-Ohio-863 (7th Dist.), the Court of Appeals for the Seventh District of Ohio affirmed a decision from the Common Pleas Court of Monroe County, Ohio, holding that a surface owner attempting to utilize the 2006 version of the Ohio Dormant Mineral Act (“2006 DMA”), O.R.C. Ann. § 5301.56, to reclaim abandoned oil and gas minerals, need only exercise “reasonable diligence” when attempting to locate potential holders of the mineral interests to serve notice by certified mail.

Under the 2006 DMA, before a severed mineral interest is deemed abandoned and vested in the surface owner of the land, “the owner of the surface of the lands subject to the interest shall . . . serve notice by certified mail . . . to each holder” of the surface owner’s intent to declare the severed mineral interest abandoned. O.R.C. Ann. § 5301.56(E)(1) (emphasis added). “If [certified mail] cannot be completed to any holder, the [surface] owner shall publish notice . . . in a newspaper of general circulation . . . [where the land] is located.” Id. One of the severed mineral owners argued that because the 2006 DMA states that a surface owner “shall serve” notice by certified mail prior to publishing notice, the statute requires certified mail be sent. She urged that the statute requires a “whatever it takes” standard where, in all cases, certified mail must be sent. Conversely, Shilts argued that Ohio law permits notice by publication once the addresses of potential holders of the severed mineral interest cannot be located through reasonable diligence.

Ultimately, the Court of Appeals for the Seventh District of Ohio concluded that because certified mail could not be completed to all potential holders after reasonable diligence, notice by publication satisfied the statutory language. In a strongly worded opinion, the appellate court stated “[i]t would be absurd to absolutely require an attempt at notice by certified mail when a reasonable search fails to reveal addresses or even the names of potential heirs who must be served.” Id. at ¶ 15.

Shilts is a significant win for surface owners and for oil and gas companies who hope to avoid having to track down large numbers of heirs of oil and gas reservations when the surface owner(s) attempted to use the 2006 DMA. The scope of this decision is much more limited than the Corban decision by the Ohio Supreme Court in 2016 involving the 1989 DMA, and it could still be appealed. If the Seventh District Court of Appeals held surface owners to the “whatever it takes” standard of diligence, it would significantly impair their ability to utilize the 2006 DMA and would cause a greater number of prior attempts to use the 2006 DMA to come under attack. This decision at least provides an example of what the Seventh District Court of Appeals considers reasonable diligence.

Those involved in oil and gas, including landowners, oil and gas attorneys, and oil and gas companies, will continue to monitor and watch the outcome of these cases as the results will likely have a profound effect going forward.