Dormant oil and gas act

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  • Rather than allowing co-owners or surface owners to “quiet the title” by reunifying the dormant interest with their own, this statute was established to preserve the rights of unknown or unlocatable owners while allowing the development of natural resources, which benefits both the diligent co-owner and the public
  • Proctor holds that a plaintiff seeking to recover the possession of an estate in land must do so upon the strength of his own title, not upon the imperfections in the title of a defendant. Subsurface gas in place is an estate in land.  F. H. Rockwell & Co. v. Warren County ,  228 Pa. 430, 77 A. 665 (1910) . Accordingly, pursuant to property law in Pennsylvania, where a party has no title at all to a severed mineral interest, he cannot quiet title to the same in himself. Thus, a quiet title action will not avail a surface owner or would-be developer who has no fractional or correlative interest in the oil and gas rights.
  • From a practical standpoint, courts may be more inclined to approve a trust because 1) the lessee is not attempting to take the oil or gas interest itself but is acting in the interest of the owners by paying the monies into trust; and 2) the Commonwealth will likely gain possession of the funds as unclaimed property as the real owners will not be found.
  • INTRODUCED BY YAW, ERICKSON, VULAKOVICH AND VOGEL, JANUARY 18, 2013
  • INTRODUCED BY GODSHALL, BLOOM, BURNS, GEIST, GERGELY, HESS, MARSHALL, MILLARD, MIRABITO, READSHAW, STABACK, SWANGER, WHITE AND YOUNGBLOOD, JUNE 21, 2011
  • Dormant oil and gas act

    1. 1. The Pennsylvania Dormant Oil & Gas Act of 2006 58 P.S. § 701.1 et seq. Lisa C. McManus, Attorney at Law lisamcmanus616@gmail.com | 814.781.1319
    2. 2. Why Do We Need aDormant Oil and Gas Act?
    3. 3. What are Dormant Interests?Dormant oil and gas interests can arisein a number of ways:•Grantor reserves ½ of O/G in an 1890deed, but he and his heirs never filefurther instruments regarding the interest•O/G owner dies owning interest in O/G,but his heirs are not aware of the interest•Defective tax and judicial sales leavethe interest in the original owner•Improper conveyancing or estateadministration
    4. 4. Purpose of the Act• Facilitates the development of the subsurface estate by providing a means to lease the interests of “Unknown or Unlocatable Owners” of Oil and Gas• Protects the interests of the Unlocatable Owners• Unlike other states’ dormant mineral acts, the PA DOGA does not vest the surface owner with title to the oil and gas interests that have been severed from the surface estate• Does NOT apply to coal or coal bed methane
    5. 5. Why Not Just File a QTA?• QTA requires plaintiff to establish title by a fair preponderance of the evidence. Moore v. Commonwealth, Dep’t of Environmental Resources, 129 Pa. Commw. 628, 566 A.2d 905 (1989); Proctor v. Sagamore Big Game Club, 166 F.Supp. 465 (W.D. Pa. 1958)• Can’t quiet title to something you don’t own• May seek to QTA based on adverse possession through development > 21 years but only if plaintiff is not a co-tenant
    6. 6. Why File under the DOGA?• Developers may refuse to proceed with drilling in the absence of lease from all owners.• While a co-tenant can lease the entire interest, the lease cannot be exclusive and the co-tenant/developer has a duty to account to the missing co-tenant. o What if the missing co-tenant is found and doesn’t like the lease terms?? 58 P.S. § 701.6 provides protection to lessees. o Increased cost of development may militate against “taking a business risk” and developing in the absence of lease approval from a disinterested party. o DOGA provides protection from liability to an operator.
    7. 7. Who Benefits from the DOGA? • The Missing Heirs • The Operator • The Commonwealth And practically, the co-tenant who may not be able to lease otherwise
    8. 8. The Mechanics
    9. 9. Standing• Must have an interest in fee, by lease, as royalty or through ownership of correlative rights in the oil and gas• Act does not define “Correlative Rights” – likely that only an owner of the same hydrocarbon has standing What does this mean?• A DOGA petition can only be filed if someone other than the missing owners have an ownership interest. If the entire interest is owned by the missing party, no one has standing under the DOGA.
    10. 10. Due DiligenceBefore you file anything, you must perform a thoroughsearch for the missing owners. The necessity fordiligent search for missing heirs cannot be emphasizedenough.
    11. 11. What Efforts Are Required?• DOGA does not enumerate requirements for attempts to locate Unknown Owners• 58 P.S. § 701.3 Definitions : "UNKNOWN OWNER OR OWNERS." The owner or owners of interests in oil and gas who are unknown or whose present residence or other addresses cannot be found by reasonable efforts to do so.• 58 P.S. § 701.4 Creation of trust for unknown owners : … declare a trust in favor of all unknown owners of an interest in the oil and gas underlying the tract whose identity, present residence or present address is unknown and cannot be determined by diligent efforts.
    12. 12. Good Faith Requirements• Deer Park Lumber, Inc. v. Major, 559 A.2d 941, 945 (Pa. Super. 1989) o More than a paper search o Includes (1) inquiries of postal authorities including inquiries pursuant to the Freedom of information Act, 39 C.F.R. Part 265, (2) inquiries of relatives, neighbors, friends, and employers of the defendant, and (3) examinations of local telephone directories, voter registration records, local tax records, and motor vehicle records. o Can this really apply to someone who died 100 years ago?• Statutory and Case Law has not kept pace with technology: refrain from performing internet searches at your peril.
    13. 13. Best Practice: Leave No Stone UnturnedTo ensure that your DOGA Trust is protected against attack for failure toperform adequate due diligence, search the following: • Grantor/Grantee Indexes • Estate Records • Judgment Indexes • Tax Assessments • Guardianship proceedings • Voting Records • Marriage/Death Records • Veterans’ Records • Cemetery Records • Historical Society Records • Genealogical Sites • White page directoryConsider hiring a private investigator and search surrounding counties.
    14. 14. Your New Best Friend
    15. 15. Filing the PetitionThe Orphans’ Court has jurisdiction of DOGAactions pursuant to 20 Pa.C.S. § 711(11).DOGA requires the filing of a petition in the name ofthe co-owner of the rights. If interest is leased, theLessee will not file the petition, unless the Lesseehas actually purchased the rights at some point.Who foots the bill? Due diligence and prosecutingthe action can be costly. Lessee can pay and thendecide to absorb the cost or pass on to Lessor.
    16. 16. Service of the PetitionPa. R.C.P. Rule 430 provides mechanism for specialservice by publication:If service cannot be made under the applicable rule theplaintiff may move the court for a special order directing themethod of service. The motion shall be accompanied by anaffidavit stating the nature and extent of the investigationwhich has been made to determine the whereabouts of thedefendant and the reasons why service cannot be made.
    17. 17. Identifying the Trustee• The Trustee must be a financial institution authorized to do business in the Commonwealth of Pennsylvania.• From a practical standpoint, the petitioner should contact the proposed trustee before filing the petition to obtain consent to expedite the process.• May encounter difficulty: trusts may not be funded for some time, and balance may be small.
    18. 18. Establishing a TrustHearing on Petition is scheduled•Co-owner must testify that it is his desire to develop the oil/gasand to have the unlocatable heirs’ royalties placed into trust.•An abstractor must testify with regard to the efforts made tolocate the heirs through searching courthouse and otherrecords.•Petitioner’s attorney may also advise the courts of additionalefforts made to locate the heirs through internet searches, etc.•Trustee need not testify.•The trust must be in the best interest of all the owners.•The court may make its decision from the bench and willusually do so if the evidence is unequivocal.
    19. 19. The Lease• Once the trust is approved and the trustee is appointed, the lease is negotiated with the trustee, and the proposed lease must be submitted to the court for approval.• When approval is obtained, the trustee may execute the lease, and the lessee may proceed.• Pursuant to § 701.5, the lessee must pay all bonuses, rental payments, royalties and other income due to the unknown owner or owners to the trustee until the trust is terminated and notice of its termination given to all interested parties.
    20. 20. Administration of the Trust• Section 701.5 provides that the trust shall be administered in accordance with the PEF Code (20 Pa.C.S.).• The trust remains in effect until the beneficiaries are found and confirmed to the satisfaction of the trustee. Court approval is required.• If the owners are not found, the trust proceeds eventually escheat to the Commonwealth.• What happens when the money is gone?• Protection for Trustee in § 701.7, which provides for penalty for delinquency in payments of amounts due
    21. 21. Alternatives to DOGASurface owners or owners of rights in the correspondinghydrocarbon (e.g., oil v. gas) may file an action pursuant tothe Inalienable Property chapter of the PEF Code, whichwould appear to be appropriate to allow for the sale of theinterest, the receipt of the Commonwealth of the proceedsof escheated property (see Links Estate, 319 Pa. 513; 180A. 1 (1935)), and the subsequent exploitation of the mineralestate. • N.B. The petitioner may not be the winning bidder at sale. Time and expense could be for nothing.
    22. 22. On the HorizonSB 258 of 2013 would amend the Action toQuiet Title law to provide for a ‘rebuttablepresumption’ that OGMs have been abandonedin favor of a surface owner after a 50-yearperiod if the subsurface ownership is unclear orunknown.•Bill exempts fee interests reserved or acquiredby a recorded conveyance.•Does not appear to provide much assistanceother than in cases involving tax title issues.
    23. 23. Other Proposed LegislationHB 1707 of 2011•Proposed amendment of current DOGA•Primary benefit was inclusion of noticeprovisions•Encouraged commercial development
    24. 24. Questions?

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