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Cleaning Up Title to Real Property: Removing Old Oil and Gas Leases

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Elmer wanted to sell several acres of vacant land that his family owned for several generations. He found a buyer and they signed a purchase agreement.  Before closing the deal, the buyer wanted to make sure there were no title defects affecting the land.  Elmer hired a title company to issue a title report.

A search of the title records revealed that Elmer’s grandfather signed several oil and gas leases affecting the property, dating back more than 70 years. While the land had not produced oil or gas for many decades, none of the leases were terminated officially on the property records.  The buyer, concerned that the leases may prevent the development of the land, would not proceed with the purchase unless Elmer terminated the leases.  Elmer tried to contact the oil and gas companies named on the lease documents, but they were no longer in business. How could Elmer remove the leases if the oil and gas companies were no longer in existence to release their interest?  

Ohio Revised Code §5301.332 provides for a process by which non-producing oil and gas leases may be forfeited on the title records. However, two basic conditions must be met first.  One, the oil or gas wells subject to the lease must not be producing oil or gas. Two, either the term of the lease has expired or the oil or gas company has failed to abide by specific covenants of the lease.  In other words, a property owner cannot unilaterally forfeit an active lease.

Provided that these conditions are satisfied, the property owner may file an affidavit of forfeiture with the county recorder after serving formal notice on the oil and gas company.  If the owner cannot find an address to serve the oil and gas company, then he can publish notice in a newspaper of general circulation in the county in which the land is located. The notice or publication must contain the owner’s name, a general description of the land, the number of acres, the date of the lease, the volume and page of the lease, and the reason for the forfeiture. It shall also state that the owner will file an affidavit of forfeiture with the county recorder if the oil or gas company does not cancel the lease within 30 days.

After 30 days, the owner may file the affidavit of forfeiture with the county recorder.  The affidavit must include: the volume and page of the oil or gas lease; a statement that either the term of the lease has expired or that the oil and gas company has failed to comply with specifically described covenants of the lease; 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 oil or gas company.

An oil or gas company has 60 days from owner’s notice to contest the lease forfeiture.  It does this by notifying the owner and filing its own affidavit with the county recorder stating that the lease is still valid.  If, however, the oil or gas company fails to file such an affidavit within 60 days, then the lessor may record a notice with the county recorder stating that the lease is officially cancelled.  Thereafter, the lease shall have no further effect and will not affect the title to the property.

Oil and gas leases often contain clauses that allow pooling of properties together into a larger producing unit. This can extend the life of the lease if other properties located within a pooled unit are producing a minimum amount of oil or gas.  Sometimes a property is included in a pooled unit even though there are no physical wells or equipment on that property.  Leases are often assigned to several different companies after the original lease document is recorded.

If you wish to terminate old oil and gas leases that affect your real property, it is important to consult with a trusted real estate attorney to guide you through this complicated process.  The attorneys at Laribee & Hertrick, LLP are here to assist you.

This article is intended to provide general information about the law. It is not intended to give legal advice.  Readers are urged to seek advice from an attorney regarding their specific issues and rights.



 
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