The HBP Delimma

There are thousands of mineral acres being held by production with no compensation being given to the mineral owners. If you have acreage and are not receiving any royalty checks or any correspondence from the producers, you have a right to question why not? I wrote this HBP story for one of the "Meet the Frackers " books a few years ago. It explains how you can solve your problem with some time and research. If I can help you in any way, please contact me.

Here's the story:

In 2013 after a couple of years of living among friends and acquaintances who had cashed in on the oil and gas boom, Gary and Sheryl Thomas decided that they would do some research about HBP properties. They owned 185 acres that Gary had inherited from his grandmother about 10 years ago before mineral ownership was such a hot topic. The estate attorney had explained to Gary and Sheryl the details of the land when they had taken possession. He told them that the minerals had been leased to an oil and gas company sometime in the early 1940’s and a gas well had been drilled on the property, so the land was called HBP.

This information had meant very little to the Thomas’s at the time since, they had no reason to worry about the minerals that were underneath the property anyway. However, over the past couple of years, Gary had begun to ask a few questions as to why he never had heard from the oil and gas company that was supposed to be leasing their minerals. The neighbors had been signing new leases from these leasing agents and had been getting huge bonuses. New well units were being formed in all directions surrounding their property. It seemed strange that if the minerals in this area were so valuable then why had no one ever contacted them.

Gary decided to visit an attorney friend in town to voice his concern and to ask him a few questions since he and Sheryl needed to do repairs on their home and would be using the property as collateral. In talking with his attorney Gary found out an interesting fact that could possibly change their financial situation.

He was told that he should have been receiving royalty checks from the oil and gas company if his land was leased and had a producing well on the property. The checks did not have to be a large amount of money but he should be receiving something since he was HBP.

HBP means “Held By Production.” The definition is a provision in an oil or natural gas property lease that allows the lessee, generally an energy company, to continue drilling activities on the property as long as it is producing a minimum paying amount of oil and gas. The “held by production” provision hereby extends the lessee’s right to operate the property beyond the initial lease term. This provision is also a feature of mineral property leases.

Gary began to research his property paperwork to find out the name and address of the oil and gas company who held the lease to his minerals. He found the oil and gas lease dated December 20, 1942 and the address was for a company that was no longer in business. So he made a trip to the courthouse to find out some of the history of his property. During his research he found that the original oil and gas company had sold his lease to another energy company, who had also sold the mineral rights yet again. After spending several hours, he ended up with the name and address of the company who he believed was now holding his lease.

His attorney had also told Gary that he might want to check with the Ohio DNR, Division of Natural Resources, to find out about any producing wells that might be on his property. This tip took several days but he found paperwork that showed an abandoned well that has been producing 40 years ago but had been abandoned and was now dormant.

Things were looking more and more like his HBP status was only on paper. The situation was becoming a dilemma. Either his minerals were held by production or they were not. In any case, he should be getting some type of monetary compensation for their use. He had decided to dig deeper and see what type of recourse that he had. Surely as valuable as these mineral assets were, he could find a way to be compensated.

Gary went back to his attorney friend who told him about The Ohio Dormant Minerals Acts and a document called an Affidavit of Abandonment.

The Dormant Minerals Acts are statutory mechanisms designed to facilitate the development of mineral resources generally in one or two ways:

(1) by identifying unknown or unallocated mineral owners so that they might receive the benefits of mineral development, or

(2) by declaring mineral interests abandoned after the requisite period of time and reuniting with the surface and mineral estates.

Dormant minerals acts, no matter their style, have the power to significantly affect property rights and mineral development. Although this acts have been rarely used prior to 2012, they have now become a popular way for mineral owners to retain their rights if the minerals were indeed abandoned over the years.

The Affidavit of Abandonment is the procedure to follow in the quest of retaining one’s mineral rights. The first requirement is that the minerals in question cannot have been the subject of a title transaction within the past 20 years. There can be no royalty checks or any monies given to the property owner within the past 20 years and the lessee of the oil and gas company must be notified of the surface owner’s intent to deem the oil and gas rights abandoned. This is sometimes difficult because the company or companies may not be in business or operating at the address that is shown on the original lease, therefore, the statute does provide for the Notice of Abandonment to be published in the local newspaper.

The owner of the oil and gas rights has 60 days to file an affidavit showing reason why the rights should remain in his possession. If the oil and gas company does not do so in the timely manner, then the surface owner has the right to mark the mineral interests as abandoned. There will be a recorded document in the Recorder’s Office stating as follows:

“This mineral interest abandoned pursuant to Affidavit of Abandonment recorded in Volume…., Page….,” Once the reservation is marked abandoned the oil and gas rights are deemed to have transferred back to the surface owner of the property.   This was the procedure used in the state of Ohio. 

Gary followed the rules governing the abandonment procedures and after approximately 3 months, he and Sheryl had retained their mineral rights. They contacted the oil and gas company ‘s leasing agent and had a discussion about leasing their land and the possibility of being included within the well unit.

The attorney for the oil and gas company reviewed the abandonment documents along with the courthouse records and determined that all the paperwork was in order so the Thomas’s leased their mineral acreage for $2500 per acre. Needless to say, they never had to take out a mortgage on their property to remodel their home. This story proves that individuals with determination and dedication to spending hours in researching courthouse records and consulting knowledgeable attorneys can produce a positive solution to situations dealing with dormant minerals.

The Thomas’s were lucky that the old oil and gas company was no longer operating so there was no one to question their Affidavit of Abandonment. Otherwise their ordeal could have been both timely and costly. Since there are many abandoned wells within the state, I would suggest starting one’s search by visiting the Ohio DNR’s website as the first step in determining if the well or wells on your HBP property are indeed active producing wells or as in the Thomas’s case abandoned without any record of their abandonment.

 SOURCES:

How to Recover Abandoned Oil and Gas Rights by Real Estate Law 

www.kwgd.com

The Dormant Minerals Acts, Lots of questions, few answers

www.oilandgalawreport.com

Dormant Minerals Act, Roy A. Powell, lawyer

www.jonesday.com/dormant/minerals/act

Ohio State Bar Association, Columbus, Ohio

osba@ohiobar.org