Clearing old leases
I have been working on obtaining releases for leases which have expired. As I worked on this problem, I have come up with a few problems.
1st problem:
Landowner signs lease with A, A subsequently assigns the lease in its entirety to B. A is no longer in business, and the lease terms have expired. The lease is not held by production, and there has been no activity for 13 years. The question is, do I need a release from A?
2nd problem:
Landowner signs lease with A, A subsequently assigns a working interest or royalty interest to B. A is still in business, B's business status is unknown. The lease's status is the same as the 1st problem. The question is, do I need a release from B, or is his interest extinguished upon securing a release from A?
3rd problem:
Landowner signs lease with A, A combines a group of leases and uses them as collateral for a line of credit with B. A mortgage of the group of leases was recorded. The lease's status is the same as the 1st problem. The question is, do I need to get a release of the mortgage from B?
I ask these questions, because this process can become expensive. I have had one company willing to sign a release for it's working interest assignment. The recorder fee was $67.00. If I follow the example at a Buckeye minerals meeting, where a lease was assigned 88 times the recording fee would be $5,896.00.
What are your thoughts?
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Replies to This Discussion
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Permalink Reply by Jim Janson on
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James, I'm not an attorney, so take this for what it's worth. But I do work with them, and my title company is doing a ton of research for landowners and/or their attorneys here in Ashtabula and other Northeast Ohio counties, related to their mineral rights.
1st problem: No, you do not need a release from A. Not only do you not need one, it will do no good, as A doesn't own any interest in the lease any more.
2nd problem: It depends on whether the interest assigned was working or royalty. If it was a royalty interest only, you do not need a release from B because royalty interests are predicated on production; i.e. there has to be something produced in order for a royalty to exist; if there's no royalty and the lease is definitely out by its terms, then the royalty interest is extinguished. If the assignment was for working interest, it depends on what percent, and whether the entire depth or only certain depths were assigned. It also depends on whether the assignment was for the working interest to the entire lease, or just covered the well and/or a certain amount of acreage around the well. Most but not all the time, an assignment of the working interest is for a majority interest; in such a case B would be the party you need a release from. Sometimes the working interest is split 50/50; then you'd need a release from both. This problem can obviously get complicated.
3rd problem is one that I have not had to address in my company's research yet, so I don't know. FWIW, the attorneys we have worked for have not requested information on lenders that hold mortgages on leases, so I think that says a lot. My guess would be that no, you do not need to obtain a release from the mortgagee, mainly because I haven't seen any such releases as part of an attempt to clear an old lease. It would depend on exactly what interest the lender gained through the mortgage, and what rights, if any, it could claim to a lease that is no longer in production and is out by its terms. I am guessing that a lender's right to a lease does not survive the lease itself; if the lease is released or is forfeited thru ORC 5301, then a lender's interest in that lease would also be extinguished. If you are affected by this though, I would get a good oil and gas attorney's opinion.
Lastly, as I'm sure you've know by now, although a release is the cleanesst and clearest way to clear an old lease, you almost never need to obtain a release from every assignee. I'm the one who told Bob Rea we had researched a lease with 88 assignments, but the net result of those 88 assignments was that the working interest was held by 12 or 15 entities, of which all but about 3 were individuals that had been assigned small minority interests years ago and then disappeared from the public record. The majority interest was held by only 2 related Enervest companies, but that wouldn't be apparent unless someone sifted through all 88 assignments to make sure. Whether all 15 WI holders need to be served via the 5301 forfeiture process, or whether it would be sufficient to obtain a release from, or file an affidavit on, the majority working interest holder, is something that I couldn't speculate on; that too is a question best suited for a good oil and gas attorney.
Ultimately, should you sign a new lease, it comes down to the risk assessment of an attorney working for your lessee. If that person looks at your title report and determines there's no risk of the old lease resurrecting, you'll be ok. If he thinks otherwise than you could be in trouble, which of course is why you're doing this work now. It's a good move. Good luck.
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Jim, thanks for your input it was very informative. I understand your relationship between work and this forum, and understand a hesitancy you may have in answering some questions.
My first question would be, Does one really record and pay twice to record an affidavit in Ashtabula county?
I see we are both at odds with my attorney's advice concerning assignments of a working interest. My concerns are, a person holding a royalty interest cannot affect terms or longevity of the lease. A person holding a working interest can, by his actions, cause the lease to be held by production. My lawyer agrees with this, but feels that if the interest owner or the lessee has not performed, there is no production, and or the lease is over by terms, then the lease would end along with any assignment. This brings up my 2nd question, any tips on finding a "good" oil and gas attorney.
My 3rd question is, do you have a process that would show a lease changing hands by merger or acquisition? I fully understand if your answer is hire me. Thanks for your help.
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"This brings up my 2nd question, any tips on finding a "good" oil and gas attorney."
Call the ones who have been doing it forever rather than the ones who started in their oil and gas "expertise" once the word "Utica" became part of our Ohio lexicon.
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How would one determine an attourneys longevity in the oil and gas business?
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That is correct; as I learned yesterday after talking to the Recorder. They have determined that the only way to adhere to the part of 5301.332 that states that they shall note the cancellation of the lease, is to have the original affidavit re-recorded. I don't know that I necessarily agree with them on that; there's nothing in the ORC section that authorizes that, and I am going to talk to some people that may be able to convince the recorder to change that policy, but for now, that is the case.
As to your third question, my company has over the years developed a list of oil and gas mergers that we have looked for when we found a break in the chain of assignments. There are some breaks that we find for which we can't find a merger, but the great majority of them we have found, and use them often to plug one or more gaps in the chain of assignments of a particular lease. You don't have to hire us to find such mergers; the information we've collected is all public record and can be found in the Recorder's indexes or online, but of course I don't want to just give the information away that we've worked to collect.
As to your second question, there's only 1 certifiable oil and gas attorney in the County; that's Jerry Lemire in Jefferson who has been noted here before. He spent several years working around the country for a medium-sized oil and gas company, and since he opened his own firm 25 or 30 years ago he has done oil and gas work for landowers, in addition to his other areas of practice, and is very good at it. Casey O'Brien, who has an office in Orwell and is a partner at Petersen and Ibold, is quite a bit younger but has done work related to clearing old leases and is another that I'd recommend. The only other attorneys I have personally dealt with regarding oil and gas matters are all either out of state or work for large interstate attorney firms with offices in Cleveland or Columbus.
Lastly, I too agree with you and your attorney that a lease expires by its terms. But it's not just a matter of a lease being out by its terms; it's a matter of getting your new lessee to agree with you that there is no danger of an old lease resurrecting somehow. My own opinion, which is not any more valuable than anyone else's, is that oil companies that negotiate with landowners are using these old leases to raise objections to a person's mineral title- I have seen that happen to some of our customers- and regardless of the merit of the objection, are using it as a tool to pay landowners less than they agreed at the time of the signing. Or in some cases, to pay them nothing and walk away. Not to say that it would happen to you, but it has happened. A properly prepared and timely recorded affidavit of forfeiture can go a long way towards eliminating that as a possibility.
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"They have determined that the only way to adhere to the part of 5301.332 that states that they shall note the cancellation of the lease, is to have the original affidavit re-recorded."
Then they're morons, which is just about right for people in the public sector. Every other county in the Utica play has figured this out. Re-recording an affidavit does absolutely nothing to "note cancellation" on the original lease. Why is it that Trumbull county only requires someone to record their affidavit and then write the Recorder a request to cancel the old lease of record? Is Trumbull county light years ahead in terms of this stuff?
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Marcus, while I may have stated it more diplomatically, I cannot argue with the logic.
Jim, on the last portion of your post, I think this problem will grow. As groups force lessees to take all parcels, lessees will use this as a tool to reject parcels they really didn't want, while working out the problems of parcels they do want.
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Permalink Reply by Finnbear on -
The 2nd filing relates specifically to the county's use of the microfilm record storage method. 5301.332 requires the filing of the original affidavit "After thirty days and not more than sixty days from the date of proof of mailing or publication of the notice".
5301.332 later states "In a county in which the county recorder has determined to use the microfilm process as provided by section 9.01 of the Revised Code, the recorder may, where applicable, require that the notation “This lease cancelled pursuant to affidavit of forfeiture recorded in Lease Vol. . . ., Page . . . .” be entered on the affidavit, and that the affidavit be recorded in the record of leases provided for by section 317.08 of the Revised Code. The recorder shall charge the fee for such recording as provided by section 317.32 of the Revised Code for the recording of deeds."
The filing referred to here is a second filing which has the aforementioned notation "This lease cancelled pursuant to affidavit of forfeiture recorded in Lease Vol. . . ., Page . . . ." entered on the affidavit = a new document. This could be interpreted as adding the notation to the original affidavit and charging a second filing fee for filing the notation or it could be interpreted as filing a second affidavit entirely with the notation included on it. Either way, you pay two filing fees, once to file the original affidavit, and again to file the "amended" affidavit with the notation that declares the lease has been cancelled. It all centers around the use of microfilm and you would not have this issue in other counties where hard copies of the original lease are available.
An inefficient, archaic, nonsensical system, yes, but par for the course for government in recent times.
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I have been going over the posts concerning 5301.332, as I will be discussing it with the recorder next week. The following is how I understand it. If you see any errors, flawed thinking, or just have any other information, I would appreciate the input.
1st paragraph:
5301.332 Forfeiture for failure of lessee, successors or assigns to abide by specifically described covenants.
Whenever leases of natural gas and oil lands recorded under section 5301.09 of the Revised Code concerning lands upon which there are no producing or drilling oil or gas wells become forfeited for failure of the lessee, his successors or assigns, to abide by specifically described covenants provided for in the lease, or because the term of the lease has expired, the lessor, his successors or assigns, may file for record an affidavit for forfeiture with the county recorder after serving notice by certified mail, return receipt requested, to the lessee, his successors or assigns, at his last known address, or if service is not obtained by certified mail, by giving notice by publication at least once in a newspaper of general circulation in the county in which the land is located of the lessor’s intent to declare the lease forfeited.
This paragraph provides general information, imposes a duty to file notice, and describes how to proceed. The section just prior to the highlighted section imposes no duty, it merely states the process exist.
2nd paragraph:
The notice or publication shall be addressed to the lessee, his successors or assigns, and shall contain the name of the lessee; a general description of the land; the number of acres; the date of the lease; the volume and page of the lease record where the lease is recorded; the cause of the forfeiture; and shall state the intention of the lessor to file for record an affidavit of forfeiture with the county recorder if the lessee does not have the lease released of record within thirty days from the date of receipt of the notice or of publication.
This paragraph further describes the process, and seems to restrict the lessor from filing an affidavit prior to 30 days. I see nothing that would prohibit a lessee from releasing a lease after 30 days.
3rd paragraph:
After thirty days and not more than sixty days from the date of proof of mailing or publication of the notice, the lessor, his successors or assigns, may file with the county recorder an affidavit of forfeiture setting forth that he is the lessor of an oil or gas lease; the volume and page of the lease record where the oil or gas lease is recorded; that the lessee, his successors or assigns, has failed and neglected to comply with specifically described covenants provided for in the lease, reciting the facts constituting such failure, or that the term of the lease has expired; that there are no producing or drilling oil or gas wells on the leased premises; that the lease has been forfeited and is void; and that notice was served on the lessee, his successors or assigns, or publication made and the manner and time thereof.
This paragraph describes information which must be in the affidavit. The highlighted section provides a timeframe in which the lessor may file an affidavit. Even if you believe the highlighted section imposes a duty to file, it certainly does not impose any consequences for failing doing so. . Note, this paragraph has no requirement that the affidavit be recorded in the record. As a side note, although the section does not require the name of the lessee, the recorder will require them.
4th paragraph:
If the lessee, his successors or assigns, claims that the lease is in full force and effect, the lessee, his successors or assigns, shall, within sixty days after the mailing or publication of the notice of the lessor of his intention to declare the lease forfeited, notify the person who filed the affidavit of forfeiture of the claim, and file for record an affidavit with the office of the county recorder of the county in which the land is situated stating that the lease has not been forfeited and that the lessee, his successors or assigns, still claim that the lease is in full force and effect.
This paragraph imposes a duty, timeframe and process on the lessee to assert his claim, that the lease is still in effect. Note, it requires the affidavit be filed for record.
5th paragraph:
If the lessee, his successors or assigns, does not give such notice in writing to the lessor at any time prior to the sixtieth day after the mailing or publication of the notice of the lessor of his intention to declare the lease forfeited, then the lessor shall cause the county recorder to note upon the margin of the record of the lease the following: “This lease cancelled pursuant to affidavit of forfeiture recorded in Lease Vol. . . ., Page. . . .” Thereafter the record of the lease shall not be notice to the public of the existence of the lease or of any interest therein or rights thereunder and the record shall not be received in evidence in any court of the state on behalf of lessee, his successors or assigns, against the lessor, his successors or assigns.
This paragraph imposes a duty for lessor to cause the recorder to note the affidavit in the margin, but I don't believe it imposes a time frame to do so. "Then" has several meanings, while I will concede it could impose a deadline on the lessor, I believe "then" in this instance means next in order, or as a consequence. Note, this section would also seem to reduce the 60 day deadline to 59 days. Note, there is no process defined to cause the recorder to note in the margin.
Paragraph 6:
For recording the affidavit of forfeiture, for noting such cancellation upon the margin of the record, and for recording the affidavit giving notice that the lease has not been forfeited, the recorder shall charge the fees provided by section 317.32 of the Revised Code.
A provision for collecting fees. Note, there is no mention of rerecording, and all affidavits are referred to in the singular.
Paragraph 7:
This paragraph contains many confusing items. I will do one at a time.
In a county in which the county recorder has determined to use the microfilm process as provided by section 9.01 of the Revised Code, the recorder may, where applicable, require that the notation “This lease cancelled pursuant to affidavit of forfeiture recorded in Lease Vol. . . ., Page . . . .” be entered on the affidavit,
This portion describes verbiage to be placed on the affidavit. the only affidavit it could refer to is the one in paragraph 3. The wording "to be entered on the affidavit" assumes the affidavit already exist. This wording is also very confusing. the way it is written, the volume and page number noted will refer to the affidavit, it should refer to volume and page number of the original lease filling. If you are reading the notation, you would be holding the affidavit, there would be no reason to tell you where to find it. If it was intended for there to be a second filing, or affidavit, this would have been the place to require it. If you interpret this section as requiring the second action, I would note it is the only section that would have required a filing or affidavit without specifying the information required to be in it. If this section truly does require a second affidavit, and assuming the information would be the same as the affidavit in paragraph 3, what was the purpose of the affidavit in paragraph 3?
, and that the affidavit be recorded in the record of leases provided for by section 317.08 of the Revised Code.
this is the first time anything from the lessor has been required to be filed for record. The affidavit in paragraph 3 was never required to be filed for record.
The record of the lease is not notice to the public of the existence of the lease or of any interests therein or rights thereunder and the record shall not be received in evidence in any court of the state on behalf of the lessee, his successors or assigns, against the lessor, his successors or assigns.
Effective Date: 10-31-1979
This verbiage describes the end result of filing a affidavit of forfeiture. It provides no instructions on what to do with the verbiage. I do not understand.
In conclusion:
I don't think anyone would argue this is a well written piece of legislation. I think the main problem comes from paragraph 3. When a timeframe for a reply has been established, the law would generally abhor any further action, other than the reply, until that timeframe expired. One could interpret paragraph 3 as not only allowing it, but requiring it. This is what I intend asking the recorder to obtain an opinion on Ant thoughts?
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Just a new wrinkle. To be compliant with the strictest interpretation of 5301, I would need to rerecord my affidavit today. That's going to be a problem, since I am not in possession of the document. Even though I filed on 2/27/2013, the recorder's office has yet to return my affidavit. I'm beginning to suspect it's not really a well oiled machine.
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They do seem to be having some problems returning the documents in a timely manner lately. But it's not necessarily an obstacle in your case- if you go to the recorder's office personally and request to have your document returned to you, they will do so. They don't send the documents anywhere to get scanned; they're all right there. If they haven't scanned it yet they will just keep a copy to scan, and give you back your original, which you can then immediately re-record with the lease cancellation sticker affixed to it.
I don't know that you have to re-record, or cause the recorder to note the lease has been cancelled, within a strict time frame though. The time frames as I understand them apply to serving notice on the lessee, the lessee responding to that notice, and the lessor filing the original affidavit. Once those time frames have been complied with, I don't know that there is a strict timeframe in which you have to cause the recorder to cancel the lease.
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Jim, the timeframe will depend on your definition of "then" as it is used in paragraph 5. I wanted to be in compliance no matter how one interpreted "then". My affidavits were available online, although noted as incomplete, over a week ago. I went to the recorder's office today, and they found my paperwork in the pile waiting to be mailed. We were able to do as you stated. I'm not sure what they would have done if the paperwork was actually in the mail, and not available.
I was able to sit down with the recorder and discuss my concerns. She fully understands my position, and was on her way to discuss them with the prosecutor. She did say it could be a while before the prosecutor provides a opinion.
Regardless of how it turns out, I think her willingness to discuss the problem, should be noted.
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