Can a perpetual, non-participating royalty interest be abandoned?

My wife and I have a lease with Gulfport, which from this point in time seems like good fortune due to their success in Belmont County, Ohio, in which her and I live. We have a minor issue with language in an earlier oil lease a previous property owner assigned to their heirs back in 1903. I would safely assume that 110 years ago there probably was a shallow oil/gas well sitting on our current property. Originally, I was only aware of the amount- 1/16th royalty interest. After reaching Gulfport, my wife learned that the 1/16th only applies to royalties generated from oil production. 

The Gulfport PR contact told us that even though they have no idea where the heirs to this aforementioned royalty reservation are in 2013, we cannot do anything about it and just have to eat crow. My knee-jerk reaction was that if they, being Gulfport, don't know where these heirs live (or who they even are) and are telling us that we can't do anything about it, then Gulfport stands to "inherit" this 1/16th royalty interest off of oil production. 

This is an important issue to my wife and I- we have a pad ready to be fracked ~4300 feet from our house, of which we are part of the drilling unit. Seems to me this sounds like a perpetual non-participating royalty interest....only the heirs are nowhere to be found. Is there anything that I can do to get this 1/16th back? Am I screwed, as G-Port told us? Thoughts?

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Permalink Reply by Victoria Smith on April 18, 2013 at 9:15am

Dear Mark,

You say the "oil lease" was assigned to the heirs.  If there has not been an oil well producing on the acreage for a number of years, that lease is expired on its own terms and whatever these heirs were "assigned" has expired.  I am reading your post and am not certain whether you are speaking of an heirship conveyance of the royalties deriving from that old oil lease or an heirship conveyance of the oil estate in total.  

If the old oil lease is expired by its own terms, then those heirs receive nothing from oil wells drilled under the new Gulfport lease.  If you are saying the heirs retain a royalty interest via estate inheritance from that original lessor, then rather than looking to the old lease for documentation of the oil royalty reservation to the heirs, you need to be looking at the chain of title to the overall oil estate. 

Is your Gulfport lease an oil and gas lease or just a gas lease?  How long has it been since there has been a producing oil well on your land?  Did any aspect of the oil estate transfer to heirs via estate documents (last will and testament, court administration)?  If the overall oil estate transferred to heirs of that old lessor (rather than just oil royalties from the old oil wells under that old lease), then that means then that oil estate has been severed from the land somewhere along the way in the land conveyance documents. 

Looking at only what you write, it sounds like the oil royalty reservation assigned to the oldtime lessor's heirs expired on its own when the old oil well(s) stopped producing and the old oil lease expired.   

Victoria

Permalink Reply by Chris on April 18, 2013 at 9:25am

^What she said.  If it was only reserving or assigning the royalties from that particular lease, than you are fine.  That lease has most likely been null and void for decades.  This seems like it should be a non-issue.

Permalink Reply by Kevin Senich on April 18, 2013 at 1:19pm

I suspect there is more than just a very old, expired lease at issue.  If it were merely a function of the heirs being assigned the royalty interest under the 1903 lease, a simple forfeiture proceeding under RC 5301.332 would clear that cloud.

A "perpetual non-participating royalty interest" is a legal term of art.  I assume Mark learned that term from Gulfport and didn't find it himself is some dusty old treatise in a law library.  But, wherever he found it, it implies a lot more than an expired old lease.  The  royalty at issue appears to be a property interest of record tied to the mineral rights that may (or may not) be perpetual. 

No, I absolutely would not accept Gulfport's opinion that Mark can do nothing about it. 

But, I hope for Mark's and his wife's sake that you are right.  It would be nice if Gulfport was just causing anxiety for nothing, and this problem could be washed away with a simple statutory procedure. 

Permalink Reply by Tony Yurina on April 18, 2013 at 2:46pm

The oil fraction was excepted by the Grantor's in 1903 by deed conveyance language.

There is no wording as to any heirs or assigns. 

The property description, then followed by  a 1/2 coal exception....... period.

  "Also except one sixteenth (1/16) of all the oil that may be mined from said premises".

We don't believe there was any lease or active well at the time of the 1903 conveyance.  

Permalink Reply by Mark Yurina on April 18, 2013 at 3:06pm

grantors do give, grant, bargain, sell and convey unto the said grantees,  heirs and assigns, the following described premises: ...and known as being one hundred six and three fourths (106 3/4) acres...except one half interest in all coal underlying the above described premises. Also except one sixteenth (1/16) of all the oil that may be mined from said premises.

this is how the deed is worded. i think that upon purchasing the house we live in, the title research company should have picked up on this, but they missed it. Gulfport did their homework to their credit, therefore perhaps i should pursue the title research company to remedy the situation. 

Permalink Reply by Kevin Senich on April 19, 2013 at 1:48am

Mark:

I believe the language of the conveyance would violate the Ohio rule against perpetuities as regards the oil, but not the coal.  Since the oil may not "be mined" for an indefinite period of time, the interest will not necessarily vest within 21 years after a life or lives (then) in being.  It is what the law calls a future interest dependent upon a contingency.

There are technical legal issues to sort out, such as whether the current statutory rule applies or whether, because of the age of the conveyance, the common law rule applies, but my best understanding is that you should win this argument.  An action to quiet title is in order. 

I would not sue the title company until I knew I was actually damaged. If you win the quiet title action, you will have no damages, and you will have what you are fully entitled to under your present lease.

 

Permalink Reply by Mark Yurina on April 19, 2013 at 2:24am

I'm assuming that the Ohio rule that you reference to here is the Ohio Revised Code 2131.08 Statute Against Perpetuities. It appears that the landowner/mineral rights owner in 1903 signed a cookie cutter deed transfer and that they retained 1/16th of oil unto themselves, and furthermore nowhere does it mention that the reservation is conveyed to their heirs or assigns. Just mentions potential future oil...so what you're saying is that the Revised Code may silence this portion of the deed transfer with respect to the oil reservation?

I am a peaceful man so I have no intention of suing anybody. Publication to quiet title is what I'm hoping could cure the situation; this has been my stance from the beginning. I only wonder if Gulfport would honor it if I was able to win a quiet title action?

Permalink Reply by Kevin Senich on April 19, 2013 at 8:50am

Mark:

That is the correct statute, but as I said, there was no statute in 1903, just a common law rule against perpetuities.  I don't know how the two rules differ, if at all. 

Many times the American Bar Association (ABA) proposes what are called "uniform laws" to the state legislatures for adoption.  The goal is to achieve some uniformity in the law across the country.  Of course, after uniform laws are adopted, it's up to local judges to interpret them and apply them.  So even with uniform laws, state laws tend to go their separate ways over time.  RC 2131.08 is the Ohio version of the uniform rule against perpetuities.

Your problem, as I see it, has nothing to do with the fact that heirs and assigns are not mentioned in the deed.  The problem is that the original grantor never sold 1/16th of some interest in the oil on your property.  The question becomes what that interest is.  If it is a vested interest, the grantors heirs throught descent still own the 1/16th. It was never sold.   If it is a contingent interest, however, and that contingent interest would not necessarily vest within 21 years after a life in being at the time the conveyance was made, it runs afoul of the Rule.

What I believe is significant is the grantor retained not 1/16th of the oil, but 1/16th of the oil that may be mined.  Clearly at the time of the conveyance, oil might not have been mined or produced on that land for hundreds of years, if ever.   It is that contingent aspect of the retained oil interest that I believe may be determinative in your favor under the Rule.

Look.  I could be very wrong.  But, this is an open book test for me, and a lot better answer than I could have given if this were a bar exam question.

 

Permalink Reply by Kevin Senich on April 19, 2013 at 8:56am

Yes, if you have quieted title through lawful process and that is reflected of record with the county recorder, Gulfport will honor it. 

Permalink Reply by Jed Clampett on October 4, 2013 at 8:49am

I have a very similar situation in my deed in PA:  "Excepting and reserving to XXXX 1/3 of all royalty for oil found and produced upon said premises, and also 1/3 royalty or portion received for gas found upon said premises."  It does not state heirs and/or assigns, XXXX died in 1940, had at least a son.  My attorney said that we have to go look at the original deed where the reservation was made - it may have originally said heirs and assigns and some legal secretary was too lazy to type in on later deeds. Also try to find/prove that there are no heirs.  Also the old deeds will show if the reservation applied to the entire parcel, it may have been subdivided or merged along they way.  I am going to spend some quality time with the old deed books to get a full paper trail for my property before I sign a lease.

Permalink Reply by Victoria Smith on January 24, 2014 at 4:42pm

Mark, the link provided by M. Thomas in Oct 2013 to Marty v. Dennis lays out the  procedure to follow to acquire the abandoned interest.  Are you still thinking to publish the abandonment notices?  Let us know how things turn out.... 

Permalink Reply by Mark Yurina on April 18, 2013 at 3:22pm

Victoria, 

Ours is an oil and gas lease. I don't know of any oil well ever being drilled on the acreage that we own, but of course that isn't to say that there never has been one. Doesn't appear that our land has had a producing well in at least the last 50 years. 

I have worded how the deed reads on the next page, be sure to check it out. Thank you for your input.

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