The Michigan Dormant Mineral Act: Retaining severed oil and gas rights
According to the Act, severed mineral rights can revert to the current surface owner.
Oil and gas are treated as part of the ownership of land. While oil and gas interests are a part of land ownership, the oil and gas interest itself can be separated from the ownership of the land. It is possible that you own your land, but not own the oil and gas underneath it. When this occurs the oil and gas are typically referred to as having been “severed” from the land. The oil and gas can at some point in the future be reunited with the surface land ownership. Severance of the oil and gas typically occurs when the real property is conveyed and the seller reserves or excerpts from the conveyance some or all of the oil and gas rights. Mineral deeds can also be used to accomplish severance. A careful review of each instrument in your title history is required to determine oil and gas ownership. It is not uncommon for disputes to arise as to who actually owns the oil and gas rights under a particular tract of land.
If your property has had the oil and gas severed, you need to familiarize yourself with the Michigan Dormant Mineral Act. The Dormant Minerals Act is a Michigan law that causes severed oil and gas rights to be abandoned (lost) if the owner allows more than 20 years to pass without doing one of the following:
- Recording at the register of deed’s office a sale, lease, mortgage or transfer of the severed interest.
- Issuance of a drilling permit for the lands involved
- Actual production or removal of oil and gas from the severed holdings
- Use of the interest for underground gas storage
- Recording a claim of interest with the county Register of Deeds.
This is a use it or lose it law. What qualifies as a sale, lease, mortgage or transfer is often the subject of litigation between the owners. A warranty deed, quit claim deed and mineral deed can typically qualify as a sale, but the language employed in the drafting of the deed is critical to the outcome of ownership. What about a recorded judgment from the family court (divorce) or probate court (inheritance)? It is not uncommon for someone to retain a portion of the mineral rights when a property is sold and not realize that they have to take action to prevent abandonment of their severed mineral interest. At the time of death, if the person that retained the mineral rights has not mentioned them in a will or trust, the beneficiaries may not know they even exist! The language employed by the courts (and the lawyers representing the parties) is often determinative of the outcome of severed mineral ownership. If the severed mineral owner fails to timely preserve its interest, the severed interest reverts to the surface owner holding the property on the date of the reversion. When the 20 year Dormant Mineral Act clock starts and stops and what constitutes a qualifying preservation action or recorded instrument is fertile ground for creative lawyers, especially if oil is found on the property.
Michigan State University Extension recommends that if you are the owner of severed oil and gas rights, to be safe, err on the conservative side and pick the earliest possible date when the rights were severed and then make sure that at least once every 20 years you record something at the register of deeds to prevent abandonment of your interest. An attorney with oil and gas experience should be consulted to calculate when the 20 year period starts and ends. The most common preservation approach (and probably the cheapest) is the filing of an affidavit of claim of mineral interest with the register of deeds.