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 Gary L on April 17, 2013 at 7:58am

Mark,

Ran across this topic today, I don't know if this applies, but hear is a link.

http://www.oilandgaslawreport.com/2012/12/19/life-estates-oil-and-g...

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on April 17, 2013 at 8:01am

"then Gulfport stands to "inherit" this 1/16th royalty interest off of oil production."

Nope.  If they know of a reservation but have no idea who the owner is today then they escrow the money.  How is the 1/16th royalty reservation worded?  Is it part of the source deed? 

Permalink Reply by Mark Yurina on April 17, 2013 at 8:45am

That is correct. I just learned that it goes into escrow, which over time if unclaimed gets absorbed by the state.

I am not sure until I read the reservation tonight on how it's worded. My wife had the file with a lawyer who claimed he'd work on the case, but never did. I am surprised that we were able to reach a contact with G-Port, we leased through a third party contractor, Ohio River Resources, who no longer works for G-Port and that left us with no one to talk to. 

I am hoping that I can rejoin that reservation to the surface rights under the Ohio Dormant Mineral Act of 1989, and as amended in 2006. 

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on April 17, 2013 at 8:51am

"I am hoping that I can rejoin that reservation to the surface rights under the Ohio Dormant Mineral Act of 1989, and as amended in 2006. "

If it's a reservation of a non-participating royalty then you can't.  Dormant Minerals Act is for minerals, not royalty reservations.  I'd be happy to recommend a lawyer to you if you need someone.  Send me a private message if you're interested.  

Permalink Reply by Mark Yurina on April 17, 2013 at 9:15am

Marcus, that's precisely what I'm concerned about, minerals vs. royalties interest. I will look at the way this reservation is worded later this evening. I certainly appreciate your info and assistance.

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on April 18, 2013 at 9:47am

Have you looked at the specific language of the reservation yet?

Permalink Reply by Michael Kasler on April 17, 2013 at 11:47am

Marcus: Is there any case law in Ohio addressing the issue of whether or not a royalty interest can be abandoned under 5301.56?  The statute is silent on royalty rights... 

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on April 18, 2013 at 2:09am

The statute is silent because royalty and minerals are treated as two different things.  A royalty interest is an investment instrument whereas minerals are (sometimes, depending upon the interpretation) real property.  You can fully develop a field--in the best interest of the public--by getting the mineral owner's consent via a lease.  The royalty owner cannot hold up production as they have no executory rights over the real property.

Permalink Reply by Kevin Senich on April 18, 2013 at 9:52am

Gulfport must have told you that your interest is subject to a perpetual NPRI.  To my knowledge no Ohio case law addresses this issue.  It is no disgrace for me to say I am far from an expert on this subject.  Outside of law professors and maybe estate planning attorneys who have clients who own mineral rights, few would know.  Do not expect a work-a-day attorney to be even conversant on the subject. It is not surprising to me that the attorney you hired did not offer a definitive opinion.

This is a difficult and complex legal issue, but I would NOT just accept Gulfport's advice that there is nothing you can do about it.   My guess is that it is not a problem with language assigning an interest in the 1903 oil lease, it is a deed or other recorded instrument transferring royalty rights in the production from the land that were part of that lessors' reversionary rights in the minerals.  The answer to your question likely will involve the application of the Ohio rule against perpetuities to the language of that instrument.  Questions such as whether the heirs' interest in the royalties are vested or contingent may be determinative.

The good news is that other states have dealt with this issue in circumstances much more convoluted than this.  I will attach an online definition of NPRI which might help those following this line to orient themselves.  I will also attach the Texas case of Hamman v. Bright & Co. to give you an idea of how finely tuned these legal issues are.  If you get past the second paragraph of Hamman without a headache, you are doing better than I am.

Attachments:
Permalink Reply by Jack Straw on April 18, 2013 at 11:40am

To compliment a bit of the information that Kevin kindly supplied:

Below is a comparison of (and differences between) some of the different types of "interests" (source: http://www.uniroyalties.com/faq.php )

 

What’s the difference between Mineral Interests (MI), Royalty Interests (RI), Overriding Royalty Interests (ORRI), and Working Interest (WI)?

  MI RI ORRI WI
Generates Revenue from Well Production Y Y Y Y
Owns the Underground Minerals Y Y N N
Ownership Continues after Production Stops Y Y N N
Collects Upfront Bonus Payments Y N N N
Has Rights to Executive Leases Y Y N N
Pays to Operate or Drill the Well N N N Y
Participates in the Lease Operating Expenses N N N Y
Has Significant Tax Advantages N N N

Y

 

(NPRI) Non-Participating Royalty Interests - Are Interest similar to ORRI's but typically not bound to a well or lease, they are typically bound to Minerals or Mineral Rights assigned by a land/mineral right owner conveying either a permanent royalty or temporary royalty off his or hers mineral rights and lands, typically NPRI do not have executive rights to bonuses but the NPRI owner is carried and bound by such leases that are executed by the true Mineral Rights Owner.

 

JS

Permalink Reply by Kevin Senich on April 18, 2013 at 1:23pm

Mark:

When you get the instrument that set up the perpetual NPRI back from the lawyer, please consider posting it so we can see what Gulfport claims costs you that 1/16th interest.

Permalink Reply by Mark Yurina on April 18, 2013 at 3:15pm

Kevin, please see how my deed is worded on the next page, i have posted it there. Thank you for your helpful comments.

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