LAWRENCE D. BRUDY & ASSOCIATES, INC. Attorneys at Law Summer 2012
“Your Energy Firm in the Natural Gas Age ”
Appalachian Basin Law Firm Lawrence D. Brudy & Associates, Inc. is a regionally positioned Appalachian Basin law firm with lawyers licensed in Pennsylvania, New York, Ohio, Virginia and West Virginia. The Firm is comprised of Attorneys, Certified Public Accountants, Paralegals, Legal Assistants, Title Examiners, Licensed Title Insurance Agents, Real Estate Brokers, Marketing and Public Relations Personnel, with a collective 100 years of Energy, Real Property, Litigation, Business and Tax Experience.
New York
Pennsylvania Ohio West Virginia
Virginia
Reclamation of Abandoned or Dormant Mineral Rights One of the hottest topics in the news today is the burgeoning industry of drilling for natural gas in the Appalachian States (Pennsylvania, New York, Ohio, Virginia and West Virginia) where this firm has licensed attorneys. It seems that you don’t go a day without reading an article in the local paper, viewing a commercial or hearing from a neighbor about oil and gas drilling that has commenced somewhere in the community. While a landowner of significant acreage can grow excited with thoughts of dollar signs in their heads as they dream of bonuses and royalties, the question quickly arises of whether they actually own the legal rights to the subsurface interests. With the discovery of oil via Robert Drake’s well in Titusville, Pennsylvania back in 1859, what existed beneath the ground quickly became as important as what could be grown on the surface. In the decades and centuries to follow, landowners began severing the rights to these subsurface interests, retaining those interests, even as they sold the land to another, or selling/ leasing interests to oil and coal companies as they continued to farm the land. So what we’ve arrived at, after many generations, is a society of landowners that may not be aware that they do not own the title to what may exist below the surface. If one has determined, or has already known, that they are not the owner of the sub-surface interests below their property, the next question may be whether they can somehow get those rights back. If there appears to have been no effort by the owner of the subsurface interests to extract those interests, am I able to reclaim those “dormant” assets? That is the subject of this article, and each of these five states has varying approaches. I will touch upon each state in turn. (See full article on Page 4)
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Page 2 Sean H. Bello, Esquire (OH) sbello@ldbassoc.com Lawrence D. Brudy, Esquire (PA) lbrudy@ldbassoc.com Matthew L. Brudy, Marketing Asst. mbrudy@ldbassoc.com Michael A. Cardamone, Jr., Legal Asst. mcardamone@ldbassoc.com Darcy M. Dayton, Esquire (PA) ddayton@ldbassoc.com Linda M. Eaves, Title Examiner leaves@ldbassoc.com Jennifer L. Enciso, Esquire (PA) jenciso@ldbassoc.com G. John “Jay” Flemma, Esquire (NY) (of counsel) jflemma@ldbassoc.com Thomas J. Kearn, CPA tkearn@ldbassoc.com Stefanie L. Kelly, Legal Asst. skelly@ldbassoc.com Paula J. Klein, Paralegal pklein@ldbassoc.com David A. Neely, Esquire (PA, WV) dneely@ldbassoc.com Amy E. Peck, Esquire (VA) apeck@ldbassoc.com Linda C. Polley, Marketing lpolley@ldbassoc.com Julie L. Schneck, Paralegal jschneck@ldbassoc.com Robert L. Stasa, Title Examiner rstasa@ldbassoc.com
Please Welcome... Amy E. Peck, Attorney at Law (VA)
Robert L. Stasa, Title Examiner
Michael A. Cardamone, Jr., Legal Assistant
Amy was born and raised in the Washington, D.C. area. She attended Duquesne University and graduated with a Bachelor of Science in Business Administration, with a concentration in both Pre-Law Studies and Supply Chain Management. Ms. Peck continued her education at DePaul University College of Law in Chicago, IL , earning her Juris Doctor in 2011. She then went on to pass the Virginia Bar and has since returned to Pittsburgh. Ms. Peck is a member of the Firm’s Energy Practice Group. She resides in Pittsburgh.
Robert was born and raised in Monroeville, Pennsylvania. He has completed his first year at the University of Pittsburgh School of Law and maintains a 3.78 GPA. In 2011, he graduated Cum Laude from Allegheny College with a Bachelor’s Degree in Economics. Robert supports the Energy Practice Group of the firm as a title examiner. Robert resides in the Shadyside area of Pittsburgh.
Michael was raised in Glenshaw, PA and attended Shaler Area High School. He graduated from George Mason University with a Bachelor of Arts degree, where he majored in Government and International Politics with a focus in Political Theory and Law. While at George Mason he played for the University’s ice hockey team. Mr. Cardamone has extensive experience working for a national title insurance company as a multi-state settlement agent and is a member of the Real Estate Practice Group of the firm. He currently resides in Coraopolis, PA.
The Firm’s Professionals… Prepared over 1,000 Oil, Gas, Coal, and Mineral Certified Title Opinions;
Litigated over the limit weight claims for national midstream companies;
Are licensed Title Insurance Agents in 26 states;
Represented Landowners with over 30,000 acres available for Oil and Gas Leasing;
Represented clients in over 50 jury trials in State and Federal Courts;
Represented Buyers, Sellers & Third Party Vendors in over 10,000 Pennsylvania Real Estate transactions;
Provide Business and Personal Tax Return preparation, QuickBooks reconciliation and traditional controller services;
Prepared hundreds of Estate Plans including Wills, Power of Attorneys, Trusts, Living Wills, State and Federal Inheritance Tax Returns;
Have provided Accredited Continuing Education for Pennsylvania Realtors on behalf of Regional and National Real Estate Companies;
Pennsylvania Title Insurance Rate Changes Pennsylvania Title Insurance Rates have been approved for a 7% increase effective July 1, 2012. The rating structures have been simplified into “Sale Rates” and “Non-Sale Rates”. The Firm issues Lenders and Owners policies for non-sale and sale transactions. The Firm’s Attorneys also provide Certified Title Opinions detailing the ownership and leasehold of oil, gas, and coal interests, rentals, and royalties for title agents and underwriters.
Financial Planning
Pennsylvania Realtors
Lawrence D. Brudy & Associates, Inc. and the Monteverde Group, LLC established a strategic cooperative in 2011 to address the collective need for financial, tax and estate planning realized by the new wealth brought by the fast growing oil and gas industry. Clients of the Firm can benefit from this proactive planning to perpetuate and transfer wealth to and for family members now and in the future.
The Firm recommends for all Pennsylvania Real Estate transactions the use of the Pennsylvania Association of Realtors Oil, Gas and Mineral Rights Disclosure and Addendum to Agreement of Sale. This Addendum provides the parties to the Agreement of Sale with information as to “Excepted” and “Reserved” subsurface interests, the conveyance of “Domestic Free Gas”, documentation as to oil / gas / coal leases, the opportunity for a buyer to conduct a subsurface interest title search and to review in advance the “Reservation” language, if any to be included in the conveyancing deed.
Pittsburgh Business Times – Dallas Business Journal – Houston Business Journal names Lawrence D. Brudy, Esquire as one of three hundred industry leaders in the “Who’s Who in Energy.” Lawrence D. Brudy, Esquire provided accredited continuing education on Oil and Gas issues for the Butler County Association of Realtors and for the Educational Development School of Real Estate in 2011 and 2012.
Gas Business Briefing (qualitynewsfirst@gasbb.com) Pittsburgh Magazine Pittsburgh Quarterly Landman Magazine Butler County Business Matters Mylan Classic Spectator Guide
Page 3 ALTA Introduces New Mineral and Subsurface Substances Endorsements A quick scan of today’s news headlines provides ample evidence of the rapid increase in oil and gas exploration and development that has been occurring in the nation’s Mid-Atlantic regions. Specifically, the Marcellus and Utica shale plays have lead to levels of activity unseen in years past. But while most people focus on the actual activities taking place either on the surface of the land or below, there are other aspects of oil and gas production that should be taken into consideration.
ordinarily obtain as part of the purchase or refinance transaction.
A number of states with active oil, gas and mineral development have instituted legislation that deems an oil, gas, and/or mineral estate superior to the surface estate, with the latter being subservient to the former. Accordingly, an owner of subsurface interests may use some, or all, of the surface in order to access the assets (i.e., build roads over the surface, or alter existing structures in doing so). As a greater understanding of this production and its accompanying procedures is achieved, various business communities outside of the immediate oil and gas entities involved with development and extraction, are beginning to consider how these activities may be affecting their respective lines of business.
Now, the four new endorsements that comprise the 35 series allow the customer [lender or borrower] to choose the necessary coverage in consideration of various elements (improvements located on the surface, type of transaction, nature of minerals involved). They include:
Recently, lending institutions have begun to question how the extraction of subsurface, oil, gas and mineral assets lying beneath mortgaged property may affect their interests. In light of the public conversations focusing on hydraulic fracturing, well water contamination and possible surface damage, among other topics, banks are considering how to protect their interests in the parcel encumbering their mortgages. One method is to seek greater coverage in a lender’s title insurance policy that the bank would
To that end, this past February, the American Land Title Association (ALTA) Board approved recommendations to ad opt new mineral and subsurface substances endorsements (the ALTA 35 Series). Prior to this series, there were no specific mineral endorsements, although title insurance companies / agents, could afford some manner of coverage with the ALTA 9 series.
The ALTA 35-06 (Minerals and Other Subsurface Substances – Buildings) endorsement “provides indemnity against enforced removal or alteration of buildings located on the Land at Date of Policy because of the exercise of the existing right to use the surface for extraction or development of minerals and other subsurface substances.”*
The ALTA 35.1-06 (Minerals and Other Subsurface Substances – Improvements) endorsement “provides indemnity against enforced removal or alteration of Improvements (as defined) located on the Land at Date of Policy because of the exercise of the existing right to use the surface for extraction or development of minerals and other subsurface sub
stances.”* The endorsement defines improvements to include buildings, structures located on the surface of the Land, and any paved roads, walkways, parking areas, driveways, or curbs, affixed to the Land at Date of Policy, and that by law constitutes real property. It excludes crops, landscaping, lawn, shrubbery and trees.
Pennsylvania Land Title Association (PLTA) American Association of Professional Landmen (AAPL) Energy & Mineral Law Foundation (EMLF) National Association of Royalty Owners (NARO) Northern Appalachian Landmans Association (NALA)
The ALTA 35.2-06 (Minerals and Other Subsurface Substances – Described Improvements) endors ement is similar to the first two, but goes on to allow the title company, at the proposed insured’s direction, to describe the specific improvements in existence at Date of Policy that are to be covered by the endorsement. The ALTA 35.3-06 (Minerals and Other Subsurface Substances – Land Under Development), “provides indemnity against enforced removal or alteration of improvements (as defined) located on the Land at Date of Policy and Future Improvements (as defined) [emphasis added].”* Each of the four endorsements includes exclusionary language, excepting from coverage loss or damage resulting from, among other things: contamination, explosion, fire, fracturing, earthquake or subsidence, negligence by a person or entity exercising a right to extract or develop minerals or other subsurface substances, or the exercise of a specific right identified by the title insurance company/agent.
Realtors Association of Metropolitan Pittsburgh (RAMP) Pennsylvania Institute of Certified Public Accountants (PICPA) All Pennsylvania, New York, Ohio, Virginia, and West Virginia State Courts Allegheny County Bar Association United States District Court for the Western District of Pennsylvania United States Court of Appeals for the Third Circuit United States Court of Appeals for the Fourth Circuit United States Court of Appeals for the Sixth Circuit United States Supreme Court United States Tax Court Beaver County Chamber of Commerce Southpointe Chamber of Commerce Wexford / Cranberry Chamber of Commerce
*ALTA Title News, April 2012 issue
NOTARY SERVICES
The firms’ professionals provide Notary Services for Estate, Real Estate, Business and Energy transactions .
Pennsylvania Association of Notaries (PAN)
Page 4 Pennsylvania The Commonwealth has addressed dormant subsurface interests in its own manner, differing from the approach taken by the State of Ohio. On July 11, 2006, the state legislature enacted the Dormant Oil and Gas Act (58 P.S. Section 701.1 et. seq.). While Ohio’s Dormant Minerals Act was crafted to address the reclamation of dormant mineral interests by the land’s surface owner, Pennsylvania’s legislation was created to allow the drilling for, and capturing of, natural gas in instances where all of the owners of the sub-surface interests cannot be ascertained or located. In essence, this act was created solely in the interest of business being able to move forward, as gas companies are not likely to drill in instances where all of the interest owners have not agreed to place the interests under a lease agreement. Pursuant to § 701.2, the legislation’s purpose is “to facilitate the development of subsurface properties by reducing the problems caused by fragmented and unknown or unlocatable ownership of oil and gas interests and to protect the interests of unknown or unlocatable owners of oil and gas. It is not the purpose of this act to vest the surface owner with title to oil and gas interests that have been severed from the surface estate [emphasis added].” The Act calls for a constructive trust to be established, and any bonus payments or royalties due to the absent party would be paid by the Exploration and Production company into the trust. After a period of years, the funds would escheat to the Commonwealth, if not claimed by the party in question. Pennsylvania courts have displayed a willingness to
create trusts in such instances, as the co-owner of the subsurface interests is not seeking the profits for themselves as they are being placed in a trust, and the Commonwealth will most likely be seeing the profits if the co-owner fails to come forward and the royalties escheat to the state. So, unlike Ohio’s legislation, Pennsylvania’s Dormant Oil and Gas Act was not created expressly to allow for landowners to reclaim dormant interests, and a property owner would be unable to employ the Act like their neighbors in Ohio. In the absence of a statutorily provided pathway, two possibilities would appear to be remaining options for seeking reversion of dormant mineral rights: A claim for adverse possession, or an Action to Quiet Title. Concerning the latter, LexisNexis, in its online Emerging Issues Law Community, succinctly addressed the issue of quieting title as to dormant mineral interests: “In order to prevail in an action to quiet title, a plaintiff must establish title by a fair preponderance of the evidence. Moreover, plaintiff has the burden of proving a prima facie title, which proof is sufficient until a better title is shown in the adverse party. Moore v. Commonwealth, Dep’t of Environmental Resources, 129 Pa. Commw. 628, 566 A.2d 905 (1989) See also Proctor v. Sagamore Big Game Club, 166 F.Supp. 465 (1958) (holding 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 wouldbe developer who has no fractional or correlative interest in the oil and gas rights. Conversely, there are indications that Pennsylvania’s procedural scheme for bringing quiet title actions (PA.R.C.P. §1061 et seq.) has been employed to determine title to mineral rights in instances where no development has occurred. So, it would appear that the law may be unsettled as to this aspect. In light of this information, it becomes apparent that the remaining option for the landowner may be adverse possession. But it would present to be a potentially costly one. In Pennsylvania, the necessary period to claim adverse possession is twenty-one years (42 Pa. C. S. § 5530). The practice of adverse possession requires that one’s act be open, continuous, exclusive, adverse and notorious as to the subsurface rights sought. Further, it would be necessary for the landowner to actively drill for the minerals in question for that period. Merely “sitting” on the gas or oil reserves would not be sufficient to claim subsequent ownership. And at any point during that period should the mineral asset’s true owner come forth, the landowner would need to surrender the mineral reserves to them. So it appears that this choice might be a risky one.
Virginia In Virginia, the only existing statutory language referencing the reclamation of mineral interests can be found at Va. Code Title 55 (Property and Conveyances), Chapter 8, Section 154 et seq. (Presumption that no minerals, coals, oils or ores exist in certain lands), where the statute allows for the reclamation of mineral rights in certain instances (i.e., a right to explore or mine is derived or reserved by any writing made 35 years or more prior to the institution of the suit for reclamation), and such right to explore or mine has not for a like period been exercised and for a like period the person having such claim or right has never been charged with taxes thereon but all the taxes on the land have been charged to and paid by the person holding the land subject thereto, and for a like period no deed of bargain and sale of such claim or reservation in such mineral rights in the lands embraced in such claim has been recorded in the clerk's office of the county wherein the lands are located. It should be noted that a portion of this existing legislation has been held to be unconstitutional in Riddleberger v. Chesapeake W.Ry, 229 Va. 213 (1985), with the statute not having yet been amended by the legislature to reflect that ruling. Additionally, Va. Code 55-154.2 (Presumption regarding estate of owner of mineral rights), which discusses the shell, container chamber, passage, space, or void opened underground that was created by the removal of mineral assets, was significantly amended by the 2012 General Assembly and therefore may still potentially be subject to challenge in the courts. While there had recently been some talk in the state legislature about instituting a dormant mineral statute similar to other states, allowing for the reclamation of mineral interests such as oil and gas, there has been nothing of substance beyond the initial discussions. Therefore, it would appear that, similar to New York, Pennsylvania and West Virginia, in Virginia the instituting of a quiet title action would be the preferred avenue for a present landowner to seek the reclamation of mineral interests believed to be dormant or abandoned.
Page 5 New York Regarding the matter of dormant minerals, the state legislature did address this topic during the 2011-2012 Session. However, while acknowledging the existence of dormant minerals and the desire to reclaim them, Chapter 501 of the Laws of New York, 2011, limited the scope of reclamation to Allegheny state park only, therefore providing that reclamation of any dormant minerals would be made by the State of New York solely. The language therein included a legislative declaration, which stated that where oil and gas rights have not been used for twenty years, they may properly be viewed as dormant, and it is reasonable and appropriate to lapse such rights unless their owners assert their claims to them within a reasonable period of two years. The language went on to add a new section (Article 9, Section 329-a) to the existing real estate law, which called for the extinguishment of unused oil and gas interests, with said interests reverting to the state. The legislation does not extend this ability to private individuals and companies, with the main avenue for similar hopes of reclamation appearing to be solely through a quiet title action brought in court. Ohio Like its neighbor Pennsylvania, Ohio has a history of being a mineral producing state, with severance of gas, coal and o il interests being common. In response to questions such as the one above, in 1989 the Ohio General Assembly enacted the Dormant Minerals Act, providing the landowner with a process to declare inactive mineral rights to be “abandoned” by the current interests owner.
However, if you’ve answered “no”, then you may be able to move forward with your efforts. Ohio Revised Code Section 5301.56 provides the process which a landowner must employ to pursue abandonment of the sub-surface mineral rights. The steps are as follows: 1. 2.
Before beginning the process, the landowner must ask themselves the following questions, as there are scenarios under which reclamation under the Act is not possible: 1. 2.
3.
4.
Are the resources in question coal? Are the interests owned by the federal or state government, or any political subdivision? Have the mineral interests been the subject of a title transaction within the last twenty years? Have the interests been assigned a tax parcel number on the county auditor’s tax list?
If your answer to any of these questions is in the affirmative, then you would be unable to access the procedure identified in the Act.
Filing of a notice of intent to declare a mineral interest as abandoned. Filing of an affidavit of abandonment with the county recorder where the subject land is located. This event must occur no less than thirty days and no more than sixty days after completion of the notification referenced above.
Once these events have taken place, the holder of the affected mineral interest who has received notice must move to defend those interests by notifying the landowner by one of two means: 1. 2.
has used the interest for underground gas storage, an affidavit to preserve the interest has been filed, or a separately listed tax parcel number has been assigned for the mineral interest. If the landowner fulfills the two abovementioned requirements, and the owner of the mineral interests fails to take the required steps to preserve the interest, the Act provides the method by which the landowner may finalize the abandonment of the desired interest. The landowner must request the recorder of the applicable county to make a notation on the deed, lease or other instrument with the language: “This mineral interest abandoned pursuant to affidavit of abandonment recorded at [insert book and page]”. Once this has been accomplished, the mineral interest immediately transfers to the landowner, who now has title to both the surface and sub-surface.
Filing an affidavit to preserve the mineral interest; or Filing an affidavit identifying a prior event that would prevent the desired abandonment.
Acts could include: the interest was mentioned in a title transaction of record with the county, actual production has occurred, the interest owner
West Virginia Like Pennsylvania, West Virginia does not provide legislation that would allow a landowner to reclaim dormant mineral interests similar to Ohio’s Dormant Minerals Act. This leaves the options of adverse possession or an action to quiet title. Under West Virginia law, the statutory period necessary for adverse possession is ten years (WV Code §55-2-1). By doing so, the actions will give notice to the true owner. In instances where the subsurface rights have not been severed, adverse possession of the land will include adverse possession of the sub-surface minerals as well. Similar to Pennsylvania, in instances of severance, it is necessary to have actual development of the subsurface reserves before adverse possession can be proved. So again, this route can be a potentially risky one, as the true owner may make their presence known at any point during the mandatory ten year period. What remains is the possibility of instituting a quiet tile action to claim any dormant subsurface rights. In West Virginia, quiet title actions are declaratory in nature (as opposed to the statutory procedure provided in Pennsylvania). Note: This article is a general summary, and should not be relied upon to solve individual issues, as there may be unique facts or variations that may result in differing legal advice. In an instance where a landowner is considering pursuit of dormant mineral interests, legal counsel should be consulted. Work Citation: http://www.lexisnexis.com/community/emergingissues/blogs/oilgasandenergylaw/archive/2010/01/24/pennsylvania-dormant-oil-and-gas-act.aspx Welch v. Canyon, 183 W.Va. 252, 395 S.E.2d 496, 499 (1990) (adverse possession of oil and gas requires that oil and gas be removed from the ground such as by drilling a producing well).
Lawrence D. Brudy & Associates, Inc Primary Business Address 2500 Brooktree Road, Suite 301 Wexford, PA 15090 Phone: (724) 935-1400 Fax: (724) 935-1415 Toll Free: (855) 935-1400
Ownership of Subsurface Interests The Firms’ attorneys provide title opinions detailing the ownership of surface and subsurface interests including oil, gas, coal, minerals and associated hydrocarbons. These interests can be separated from each other and by strata. Payments for rentals, gas storage and royalties can be excepted and reserved outright, for life, leased, sold, devised, bequeathed and encumbered. Defects in the chain of title can occur that involve severances, life estates, use of improper terminology, lack of joinder of interested parties and ambiguous language. Prior to the development, sale or purchase, a title opinion should be obtained to identify defects and the “cure” of the same.
Our office is located at: 2500 Brooktree Road Suite 301 Wexford, PA 15090 (724) 935-1400 (724) 935-1415 fax (855) 935-1400 toll free
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