Generally speaking, ownership of oil and gas is considered absolute: an ownership right that cannot easily be taken from you. However, certain states, in an effort to influence or facilitate oil and gas development, have enacted dormant mineral acts, or mineral lapse acts. These acts commonly work to encourage oil and gas development based on two approaches: 1) identify the unknown or unlocatable owners and 2) a declaration that the mineral interest has been abandoned.
It is common for mineral interests to be severed and fractionally divided through the years. The existence of dormant mineral acts stems from this very problem; where a mineral interest has been fragmented to the point that oftentimes, owners are not aware of what they own, or may not feel that they own enough to warrant their attention. This fractionalization of interest can hinder the development of the oil and gas resources. Thus, dormant mineral acts work to not only encourage these types of owners to participate in the development of the mineral estate, but also work to allow exploration and development of the resource to proceed.
Historically, dormant mineral acts have been challenged at various levels of the court system, with most arguing that the act works as an unconstitutional taking of private property. Then, in Texaco, Inc. v. Short, 454 U.S. 516 (1982), the Supreme Court of the United States upheld the dormant mineral act from Indiana and found that the act encouraged the development of the minerals and shot down the argument that the act worked as a taking of the mineral interest. The Court found that owner inaction is the cause of loss of ownership, not the action of the government. The Texaco case helped to quiet the scrutiny of dormant mineral acts that was coming from the lower level courts.
Today, most states that have enacted dormant mineral acts require that notice be given to the owner and also allow certain transactions or uses to equate to action on the part of the mineral owner so as to confirm their ownership and stop the dormancy. The following states have dormant mineral acts of one type or another are in place: California, Kansas, Pennsylvania, Ohio, Michigan, Kentucky, Tennessee, Maryland, Indiana, West Virginia, Louisiana, Nebraska, North Dakota, South Dakota, Oregon, and Washington. Interestingly enough, Oklahoma, Texas and New Mexico, three of the highest energy producing states, do not have dormant mineral acts.
In some states, dormant mineral acts have been put into place to address unascertainable, unknown or unlocatable mineral interest owners and work to protect the interest while also allowing the development of the mineral estate.
Commonly, this approach essentially creates a trust for missing owners, allowing the state to hold the interest for the later benefit of the owner. This approach also allows the oil and gas developer to continue operations of the mineral estate, providing an outlet for revenue to be placed for the missing owners. Generally, when or if a missing owner is identified, they will be allowed to recover their revenues from the trust held by the state. This is commonly achieved through unclaimed property agencies or divisions within the state.
In other states, dormant mineral acts have been put into place to declare mineral interests abandoned after a defined period of time and then reuniting the mineral estate with the surface estate. The abandonment approach is rooted in common law principles of “nonuse.” However, most courts, when analyzing dormant mineral acts that use the abandonment approach, have generally held that nonuse alone is not enough and there must also be an intent to abandon.
This type of act will normally follow a use it or lose it approach. However, owners may still act during the time period allowed for “saving” the interest. The interest can be saved generally filing an affidavit to claim and preserve the interest, but this varies depending on the state. Further, most states will define the savings period with some permitting upwards of 20 years to act to save the interest.
Some states have also enacted a hybrid dormant mineral act, where at the onset, protection is afforded to the unknown owners but after a period of time without the owner being found, the minerals may be abandoned. The hybrid approach is targeted at protecting the mineral owner while also enabling the termination of the mineral interest: the interest is protected for a defined time period but without use or action, the interest can then be deemed abandoned based on dormancy.
Understanding these Acts
Regardless of the approach followed, dormant mineral acts can impact not only the property rights, but the development of those rights as well. These acts make it to where an owner must act to ensure their ownership and oil and gas developers must also understand how the act may impact their leasing and operation plans. Objectively speaking, these acts should assure that active and valued mineral interests remain protected while also lowering the burden on oil and gas developers so that the interests are marketable and put to use.
As fractionalization of mineral interests continues, landowners and developers in states that have enacted dormant mineral acts should become familiar with approach used, statutory requirements and notice provisions. If you have questions or need legal guidance regarding a dormant mineral act, please contact our office so that one of our experienced attorneys may assist you.