On November 5, 2015, the Ohio Supreme Court issued its opinion in the Chesapeake Exploration, L.L.C. v. Buell1 case. The Buell case arose before the court upon the request of the U.S. District Court for the Southern District of Ohio to certify two questions of Ohio law: (1) is the recorded lease of a severed subsurface mineral estate a title transaction under the Ohio Dormant Mineral Act (“Ohio DMA”), Ohio Revised Code 5301.56(5)(3)(a)?; and (2) is the expiration of a recorded lease and the reversion of the rights granted under that lease a title transaction that restarts the 20-year forfeiture clock under the ODMA at the time of the reversion? In a divided opinion, the court held that a recorded oil and gas lease is a title transaction under the Ohio DMA. The court was unanimous in its ruling that the unrecorded expiration of an oil and gas lease is not a savings event under the Ohio DMA.
Factual + Procedural Background
The mineral rights at issue in Buell underlie approximately 90 acres of land located in Harrison County. In 1958, the oil, gas, coal and other mineral rights were severed from the surface estate by virtue of a deed reservation. The mineral rights owners executed and recorded oil and gas leases in 1973 and 1984. Both leases expired by their own terms, and the expiration of those leases were not recorded. In 2008, the mineral rights were transferred by quitclaim deed and subsequently leased in 2009. An action to quiet title to the mineral interests was filed in 2012 before the U.S. District Court for the Southern District of Ohio.
As the case proceeded before the District Court, the parties moved for summary judgment on issues requiring the interpretation of the Ohio DMA.2 The current surface owners argued that no savings event occurred in the 20 years before the DMA went into effect and, thus, the mineral interests were “deemed abandoned” and vested with the surface owners. The mineral interest owners, on the other hand, argued that a number of savings events, including the recording of oil and gas leases and assignments, occurred in the 20-year period prior to the effective date of the DMA.
Having found no controlling precedent, the District Court certified questions of law to the Ohio Supreme Court to determine whether the recording and expiration of oil and gas leases constitute “title transactions” under the Ohio DMA.
Analysis of the first certified question of law: Is the recorded lease of a severed subsurface mineral estate a title transaction under the ODMA, Ohio Revised Code 5301.56(5)(3)(a)?
In its opinion, the court conducted a two-part analysis to reach its conclusion to the first certified question of law: (1) What is a title transaction? and (2) Is a recorded oil and gas lease a transaction that affects title to any interest in land?
What constitutes a “title transaction”?
The meaning of “title transaction” has been the subject of much disagreement, because, as the court states in its opinion, neither the 1989 version nor the 2006 version of the Ohio DMA specifically defines “title transaction.” Although “title transaction” is undefined in the DMA, it is defined in R.C. 5301.47(F) of the Ohio Marketable Title Act, which provides that a “title transaction” is
“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, administrators, or sheriff’s deed, or decree of any court, as well as any warranty deed, quit claim deed, or mortgage.”3
The court concludes that the definition of “title transaction” contained in the Marketable Title Act is applicable to the DMA, because the DMA is expressly encompassed within the Marketable Title Act. The court further opines that the plain language of the statute is unambiguous, and that the statutory language “any transaction affecting title to any interest in land”4 does not limit possible savings events to only those events enumerated in the statute.
Is a recorded oil and gas lease a transaction affecting title to an interest in land?
Key to the determination of the above inquiry is whether an oil and gas lease is “an interest in land.” But the nature of the interest created by an oil and gas lease has been the subject of some discord as a result of the Court’s decisions in Harris v. Ohio Oil Co.5 and Back v. Ohio Fuel Gas Co.6 These two cases have created confusion in the industry regarding whether an oil and gas lease creates a fee simple determinable interest or a mere license.7
In the Buell opinion, the court acknowledges this dissonance, but opines that the two decisions are not in direct conflict. Without distinguishing between Harris and Back, the court notes that the General Assembly recently clarified that an oil and gas lease creates an interest in real estate, regardless of whether it creates a lease or a license.8
The court ultimately concludes that an oil and gas lease does affect title to an interest in land and, thus, an oil and gas lease constitutes a title transaction. In reaching this conclusion, the court cites analyses contained in Eisenbarth v. Reusser,9 Kramer v. PAC Drilling Oil & Gas, L.L.C,10 and Bender v. Morgan,11 which discuss the nature of the interest created by an oil and gas lease. Moreover, the court analogizes HHHHhHarris v. Ohio Oil Co., which results in its determination that an oil and gas lease affects title as it affects the possession and custody of the mineral and surface estates. Accordingly, the court held that a recorded oil and gas lease constitutes a savings event under R.C. 5301.56(B)(3)(a).
Analysis of the second certified question of law: Is the expiration of a recorded lease and the reversion of the rights granted under that lease a title transaction that restarts the twenty-year forfeiture clock under the ODMA at the time of the reversion?
In reaching its conclusion that the unrecorded expiration of an oil and gas lease does not constitute a savings event under the DMA, the court declined to utilize the analysis contained in the Michigan Supreme Court case, Energetics, Ltd. v. Whitmill.12 The Energetics case, which construed a similar provision contained in the Michigan Dormant Minerals Act (“MDMA”), held that a savings event occurred at both the recording of the oil and gas lease and at its expiration. In Buell, the court distinguishes the savings language contained in the Ohio DMA and that found in the MDMA and concludes that enough significant differences exist that the Energetics case is not persuasive or instructive. Additionally, the court notes that while the Ohio General Assembly considered adopting language similar to that which is found in the MDMA, the General Assembly declined to do so.
Finally, the court addresses petitioner’s argument that the Ohio DMA’s recording requirement is satisfied by the recorded lease, because the recording of the lease provides notice of both the lease term and the expiration. In rejecting petitioner’s argument, the court notes that even though the oil and gas lease may enumerate circumstances under which expiration can occur, the lease itself does not provide notice of the actual occurrence of expiration. Accordingly, the court concludes that the expiration of a recorded oil and gas lease does not satisfy the statutory requirement for a title transaction sufficient to constitute a savings event under the Ohio DMA.
To read more about other Dormant Mineral Act cases currently pending before the Ohio Supreme Court, view our previous blog post: “Ohio Dormant Mineral Act Litigation: An Update.”
- Slip Opinion No. 2015-Ohio-4551.
- This case involves the interpretation of the 1989 version of the DMA.
- R.C. 5301.47(F). Emphasis added.
- 57 Ohio St. 118, 48 N.E. 502 (1897).
- 160 Ohio St. 81, 113 N.E.2d 865 (1953).
- For a more in-depth discussion of the nature of an oil and gas lease, read “What is this Thing Called Lease?”
- The Court cites R.C. 5301.09, which states “[i]n recognition that such leases and licenses create an interest in real estate…”
- 2014-Ohio-3792, 18 N.E. 2d 477 (7TH Dist.)( an oil and gas lease affects title because it is an encumbrance on title that runs with the land).
- 197 Ohio App.3d 554, 2011-Ohio-6750, 968 N.E.2d 64 (9TH Dist.) (an oil and gas lease conveys a fee simple determinable interest).
- Columbiana C.P. No. 2012-CV-378 (Mar. 20, 2013) (an oil and gas lease conveys a fee simple determinable interest).
- 442 Mich. 38, 497 N.W.2d 497 (1993).