Business Law Articles
Dormant Oil and Gas Act can provide relief when oil and gas owners are unknown
By Paul R. Yagelski, Esq.
You have been offered a lease by an oil and gas company, but you do not own all of the oil and gas underneath your property. Can you enter into an oil and gas lease without the joinder of the other owner or owners?
Even though you do not own all of the oil and gas underneath your property, you still have the right to enter into a lease with an oil and gas company, even if the joint owner or owners do not enter into a lease. It is not necessary for all of the oil and gas owners or all of the co-tenants to enter a lease with the oil and gas company. What if, however, the other oil and gas owner or owners is unknown or can’t be located and the oil and gas company will not enter into a lease with you until the other owner or owners is known and can be located? What can be done?
There is a statute in Pennsylvania known as the Dormant Oil and Gas Act, which can provide relief.
The purpose of the Act 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 interest of unknown and unlocatable owners of oil and gas.
Under the Act, any person who owns an interest in oil and gas underlying a tract of land may petition the Court of Common Pleas of the county in which the tract or any portion of the tract of land is located to 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.
If the other owner or owners is not known or cannot be located, the Act should protect their interest and allow you to enter into an oil and gas lease with an oil and gas company; however, before a trust is declared in favor of the unknown or unlocatable owner or owners, the petitioner must show to the satisfaction of the Court that:
- The petitioner has made a diligent effort to locate the owner or the claimant,
- Despite this diligent effort, the petitioner has been unable to identify or to locate the present residence or other address of one or more owners or claimants of the oil and gas interest, and
- Appointment of a trustee will be in the best interest of all owners of the interests in the oil and gas.
If the aforesaid requirements have been met, the Court is to appoint a financial institution authorized to do business in the Commonwealth as a trustee of a trust for the unknown or unlocatable owner or owners and will authorize the trustee to execute and deliver one or more oil and gas leases or other instruments on terms and conditions to be approved by the Court.
Once a trustee has been appointed and a trust created, all bonuses, rental payments, royalties and other income due to the unknown or unlocatable owner or owners are to be paid to the trustee until the trust is terminated and notice of its termination given to all interested parties. The trustee is to distribute all monies held in trust to the person or persons entitled thereto as determined by the trustee or by order of the Court that created the trust.
The trust for the unknown or unlocatable owners is to remain in force until the unknown or unlocatable owners of the oil and gas interests in question have been identified to the satisfaction of the trustee and received their share of any funds held in trust.
Should the oil and gas company, the lessee of the oil and gas, or other person who pays bonuses, rental payments, royalties and other income due to the unknown or unlocatable owner or owners pays these monies to the trustee, they will not be liable for claims by unknown or unlocatable owners for any income produced from the oil and gas interests subject to the trust. Accordingly, the appointment of a trustee and the creation of a trust should alleviate any concerns that the oil and gas company has for entering into an oil and gas lease with you if the other owner or owners are unknown or unlocatable. In addition, as long as the bonuses, rental payments, royalties or other income due to the owners of the interest in the oil and gas who are unknown or cannot be found are paid to the trustee within six months of the date of which those funds become due, there will be no liability for attorneys’ fees and court costs of collection with interest, which would otherwise be due for failure to comply with the Act.
If there is a situation where the oil and gas company will not enter into an oil and gas lease with you due to the fact that the other owner or owners of the oil and gas under your property cannot be located or are unknown, there is a remedy by which these owners can be protected and allow you to enter into an oil and gas lease with the oil and gas company. Should you wish to take advantage of the Act, you should contact an oil and gas attorney to petition the Court to appoint a trustee and set up a trust.