The state of Ohio allows a property owner to severe the mineral rights from the land surface rights. Once a mining company owns a property’s mineral rights, coal and other valuable underground resources like natural gas, is available for mining or excavation from the property. Property owners should negotiate the price of the mineral rights based on the resources expected for removal from the property and based on the expected devaluing of the land for surface use.
With recent advancements in drilling technology and natural resource extraction from the Marcellus Shale under much of Eastern Ohio, mineral rights again are a hot topic. If you are a landowner or control and estate here are some things to remember in terms of mineral rights in Ohio.
- Ohio Senate Bill 165, which became effective June 30, 2010 making it the first new Ohio oil and gas law in over 20 years specifically deals with some of the regulations of groundwater and other issues with drilling into the Marcellus Shale. See the resources section for a link to Senate Bill 165.
- In Ohio, mining and drilling for minerals has occurred since the 1800's. Many different land owners severed their mineral rights years ago and these properties may still have separated mineral rights. In 1989 the Ohio General Assembly enacted the Dormant Minerals Act. This legislation allows property owners who have not had any recent mining activity on their property to reclaim their mineral rights. The time period which the law considers dormant activity is 20 years. Ohio Revised Code Section 5301.56.
- Ohio property owners with valuable mineral rights are typically approached by oil and gas company representative. Their goal is get a signed lease agreement for the mineral rights with the property owner. The lease agreement presented to the landowner is a legal document. Treated the agreement this way. Do not sign anything until you have an attorney experience in oil and gas mineral rights agreements review the contract on your behalf.
- There are different items in an oil and gas mineral rights lease agreement which can trigger a payment to the landowner. All lease agreements should include a cash bonus, sometimes called a spud fee. This is an up front payment to the landowner paid after the signed agreement. The landowner should also negotiate a delay fee. The delay fee pays the landowner a specific amount until drilling starts or is completed. The landowner, if preferred, can also negotiate for free oil or gas. The landowner should understand the type of natural resource that typically extracted from the ground in their area. Free natural gas is desirable, however, gas companies sometimes try to lower fees in other areas to account for the lost oil and gas. The largest fee the property owner can negotiate is the royalty fee, particularly if it is a large piece of land. This fee is a set percent of the sales amount of the oil and gas. The standard rate is 12.5%, however, in contracts everything is negotiable. Typically the royalty rate is based on a market price of the oil and gas beings sold. Some oil and gas companies own other companies which handle the oil and gas. They may sell the property owners oil and gas at a discounted price to them and make up the profit in handling fees and in other ways. Try to negotiate a market price for the royalty fees. The last payment is called a shut in royalty. Negotiate payment of a shut-in royalty if no mineral rights can be extracted from the property because of drilling design or problems with drilling or extraction.