Columbiana County, OH Landowners Seek Minimum Royalty Law

A few weeks ago MDN highlighted a story about a couple living in Columbiana County, Ohio who were due to get more than $375,000 in lease payments from Chesapeake Energy for their 65 acres of property, but the deal fell through when Chesapeake discovered the land under the property was already locked into a decades-old lease by Columbia Gas Transmission. The couple is suing to be released from that contract (see this MDN story).

We have word today that other landowners from the same area also affected by the Columbia lease are trying a different tact: Pass a state law imposing minimum royalties.

A brief background: Some residents live in what is called the Brinker Storage Field—property that Columbia leased years ago to house gas storage tanks. Those leases are written to include all mineral rights under the surface of the land. Columbia is now considering allowing Utica Shale drilling, but by all accounts isn’t willing to share any of the royalties with the landowners who own the land on the surface. So it’s possible that a landowner in Columbiana has hit the proverbial jackpot with lease payments and royalties, while that landowner’s neighbor who happens to live over top of the Brinker Field gets zippo.

That’s why the couple mentioned above are suing: They say Columbia has not lived up to the lease terms, and those terms never envisioned the kind of drilling that happens now.

But other landowners are willing to forego lease payments if they can just get a fair royalty on gas and oil produced:

[Some] residents [who] live within the Brinker Storage Field owned by Columbia Gas and now are trying to get legislation approved that would provide a minimum-royalty payment.

Texas, West Virginia, Pennsylvania and New York among other states have minimum-royalty payment laws. Most of them place the minimum royalty at 12.5 percent of gross revenue.

The Ohio Oil and Gas Association would not support any law that would create a minimum royalty. The situation with Columbia Gas is something that should be worked out between the parties, said Jerry James, association president.*

Other landowners prefer to litigate:

A group of residents met Thursday to discuss legal action that has been started against Columbia in Columbiana Common Pleas Court. Two lawsuits have been filed against NiSource, the parent company of Columbia Gas, and include a total of 18 plaintiffs. The cases were filed by Youngstown attorney Sean Scullin. Scullin’s office stated they do not comment on pending litigation.*

Do landowners have a shot in winning a case against Columbia? They just might:

Typically, Ohio law allows the owner of the surface rights to reclaim mineral rights if the company that possesses the mineral lease has not done anything to develop minerals for 20 years. The Ohio Dormant Mineral Act does require the property owner to contact the leaseholder via mail or publication to reclaim mineral interests.*

MDN’s view: If Columbia were smart, they would reach out now and offer landowners a fair share of the royalties and lease payments. If they don’t, they risk losing their existing leases.

*Youngstown (OH) The Vindicator (Jun 8, 2012) – Columbiana County residents seek law imposing minimum royalties