The Pennsylvania DormantOil & Gas Act of 2006

58 P.S. § 701.1 et seq.

Lisa C. McManus, Attorney at Lawlisamcmanus616@gmail.com | 814.781.1319

Why Do We Need a Dormant Oil and Gas Act?

What are Dormant Interests?Dormant oil and gas interests can arise in a number of ways:

•Grantor reserves ½ of O/G in an 1890 deed, but he and his heirs never file further 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 leave the interest in the original owner•Improper conveyancing or estate administration

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

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

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.

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

The Mechanics

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.

Due Diligence

Before you file anything, you must perform a thorough search for the missing owners. The necessity for diligent search for missing heirs cannot be emphasized enough.

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.

Good Faith Requirements• Deer Park Lumber, Inc. v. Major, 559 A.2d 941, 945 (Pa. Super. 1989)

o More than a paper searcho 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.

To ensure that your DOGA Trust is protected against attack for failure to perform 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 directory

Consider hiring a private investigator and search surrounding counties.

Best Practice: Leave No Stone Unturned

Your New Best Friend

Filing the Petition

The Orphans’ Court has jurisdiction of DOGA actions pursuant to 20 Pa.C.S. § 711(11).

DOGA requires the filing of a petition in the name of the co-owner of the rights. If interest is leased, the Lessee will not file the petition, unless the Lessee has actually purchased the rights at some point.

Who foots the bill? Due diligence and prosecuting the action can be costly. Lessee can pay and then decide to absorb the cost or pass on to Lessor.

Service of the Petition

Pa. R.C.P. Rule 430 provides mechanism for special service by publication:

If service cannot be made under the applicable rule the plaintiff may move the court for a special order directing the method of service. The motion shall be accompanied by an affidavit stating the nature and extent of the investigation which has been made to determine the whereabouts of the defendant and the reasons why service cannot be made.

• 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.

Identifying the Trustee

Hearing on Petition is scheduled•Co-owner must testify that it is his desire to develop the oil/gas and to have the unlocatable heirs’ royalties placed into trust. •An abstractor must testify with regard to the efforts made to locate the heirs through searching courthouse and other records. •Petitioner’s attorney may also advise the courts of additional efforts 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 will usually do so if the evidence is unequivocal.

Establishing a Trust

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.

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

Alternatives to DOGASurface owners or owners of rights in the corresponding hydrocarbon (e.g., oil v. gas) may file an action pursuant to the Inalienable Property chapter of the PEF Code, which would appear to be appropriate to allow for the sale of the interest, the receipt of the Commonwealth of the proceeds of escheated property (see Links Estate, 319 Pa. 513; 180 A. 1 (1935)), and the subsequent exploitation of the mineral estate.

• N.B. The petitioner may not be the winning bidder at sale. Time and expense could be for nothing.

On the Horizon

SB 258 of 2013 would amend the Action to Quiet Title law to provide for a ‘rebuttable presumption’ that OGMs have been abandoned in favor of a surface owner after a 50-year period if the subsurface ownership is unclear or unknown.•Bill exempts fee interests reserved or acquired by a recorded conveyance.  •Does not appear to provide much assistance other than in cases involving tax title issues.

Other Proposed Legislation

HB 1707 of 2011

•Proposed amendment of current DOGA

•Primary benefit was inclusion of notice provisions

•Encouraged commercial development

Questions?