Oil and Gas

*Note: This is a hypothetical real estate issue. This post is not intended to give legal advice nor create an attorney client relationship. If you wish to schedule an appointment to discuss your situation, you can reach out either on this platform, schedule a virtual meeting, email, or call our office.

A landowner is selling 20 acres of farm ground that has been used for crop farming for the past 10-20 years.  However, the Title commitment (Schedule B-II, Exceptions) identifies an Oil and Gas lease dated 1942, recorded in Howard County, IN.  The current landowners have no knowledge of any oil or gas wells having been in use on the property.  There are no visible indications of any such wells to the farmer who farms the ground. Buyer’s lender insists on being provided with some sort of “affidavit of non-production”.

What does the landowner need to be aware of to complete this real estate transaction? 

First, the Landowner should be aware that leases for oil and gas that are recorded in Indiana are void (1) after a period of one year has elapsed since (a) the last payment of rentals on the oil and gas lease as stipulated in the lease or contract; or (b) operation for oil and gas has ceased, both by the non-production of oil or gas and the non-development of the lease; and (2) upon the written request of the owner of the land, accompanied by the affidavit of the owner stating that no rentals have been paid to or received by the owner or any person, bank, or corporation in the owner’s behalf for a period of one (1) after they have become due and the leases and contract have not been operated for production of oil or gas for one (1) year. 

However, the person leasing the oil and mineral interests, also known as the Lessee, may file proof of payment of rental under the lease, or an affidavit, establishing rentals have been paid or the lease has been operated within a period of one year before cancellation. (IC 32-23-8-3).  Please note, the Lessee also has six (6) months to appeal cancellation of a lease in the circuit court of the county in which the land is located. (IC 32-23-8-4). 

Please note, just because a pumping unit/oil well, or oil storage tanks isn’t visible does not mean that the lease in non-productive.  If pooling with this lease has occurred, then the pumping unit, oil well, and storage tanks may be located at another surface location. 

Indiana statutes authorize both voluntary and compulsory pooling. (IC 14-37-9, et. Seq.)  

Voluntary pooling is when two or more separately owned tracts of are embraced within an established drilling unit, or when there are separately owned interests in all or a part of such units, the owners of all oil and gas interest therein may validly agree to integrate their interest and to develop their lands as a drilling unit. (IC 14-37-9-1(a).  Compulsory pooling is when such owners have not agreed to integrate their interests, the commission of natural resources shall, for the prevention of waste or to avoid the drilling of unnecessary wells, require such owners to integrate their interest and to develop their lands as a drilling unit (IC 14-37-9-1(b)) 

Also, just because the surface owner isn’t receiving checks for a royalty interest, an over-ride interest, or a working interest, doesn’t mean that the lease is non-productive.  If the oil and gas interests have been severed from the surface interests, then the owners of the oil and gas interests or heirs of the oil and gas interests would be receiving the payments not the surface owners.  

JRW @jrwlaw.llc

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