As oil and gas rights have become more valuable in Ohio we are often asked several questions. Are there oil and gas leases encumbering my land? Can these leases be cancelled? If so, how do I cancel them?
The answer to these questions is not simple and begins by conducting an examination of the records of the County Recorder and of the Ohio Department of Natural Resources, Division of Oil and Gas Resources Management (“ODNR”). The search of the County Recorder’s records will reveal oil and gas leases encumbering your land. The search of the ODNR records will reveal oil and gas drilling activity on or near your land and whether any wells are currently producing oil and gas.
You should not rely on an owner’s title insurance policy insuring your land to determine whether oil and gas leases encumber your land. All owner’s title insurance policies issued in Ohio now include the following exclusion from coverage: “Coal, oil, natural gas, or other mineral interests and all rights incident thereto now or previously conveyed, transferred, leased, excepted or reserved.” What this means is that the title insurance company does not insure that your land is free and clear of oil and gas leases. Because of this broad general exclusion from coverage, the title company may not search for or include oil and gas leases on your owner’s title insurance policy.
A title examination answers the first question and reveal whether oil and gas leases encumber your land. Now what, if anything, do you do about the oil and gas leases revealed by the title examination? There are basically three options: (1) do nothing; (2) file a lawsuit to have the oil and gas leases removed; or (3) attempt to remove the oil and gas leases using what is known as an affidavit of forfeiture.
Doing nothing is an option, especially if the search of the ODNR records does not reveal oil and gas drilling activity close to your land and the oil and gas leases are beyond their primary term (basically the time an oil and gas lease remains enforceable without producing oil and/or natural gas from your land). My experience is that most companies leasing land for oil and gas purposes are not concerned about leases beyond their primary term where there are no producing oil and gas wells on your land or on a drilling unit which includes your land. However, most large regional lenders get quite nervous over oil and gas leases, so taking steps to remove the oil and gas leases can still make sense, especially if you plan to develop your land in the future.
Filing a lawsuit to have a court order the cancellation of the oil and gas leases encumbering your land because the oil and gas leases have terminated is an option and, depending on the history of your land, may be the only option.
Another option is to attempt to remove the oil and gas leases from your land using the affidavit of forfeiture procedure provided for in Ohio Revised Code Section 5301.332 (the “Forfeiture Procedure”). The Forfeiture Procedure is a viable option when there are no producing or drilling wells on your land or on a drilling unit which includes your land and the oil and gas company has failed to perform specific promises contained in the oil and gas lease or the term of the oil and gas lease has expired. To use the Forfeiture Procedure, an attempt must be made to notify the oil and gas company by certified mail, return receipt requested, at its last known address, of your intent to declare the oil and gas lease forfeited. If service is not obtained by certified mail, then notice of intent to declare forfeiture is published at least once in a newspaper of general circulation in the county where your land is located. If the oil and gas company does not dispute your claim for forfeiture within sixty days after service of notice to declare forfeiture, the oil and gas lease can be cancelled. However, if the oil and gas company disputes your claim that the oil and gas lease has been forfeited, you will need to file a lawsuit to cancel the oil and gas lease.
As seen from the above, there is more than one option for the removal of oil and gas leases encumbering your land. You should consult with an attorney with knowledge of oil and gas law to determine which option makes the most sense for you given the history of your property and your particular situation. Like most areas of the law, one answer does not fit every situation.