land & energy quarterly summer 2014

2500 Brooktree Road, Suite 301

Wexford, PA 15090

Phone: (724) 935-1400

Fax: (724) 935-1415

Toll Free: (855) 935-1400

Staff Members Emails

Lawrence D. Brudy, Esq. (PA) [email protected]

Matthew L. Brudy [email protected]

Michael D. Brudy [email protected]

Samantha R. Cavalier, JD [email protected]

David R. Cooper [email protected]

Julian M. Donado [email protected]

Linda M. Eaves [email protected]

Anna M. Hall [email protected]

Jonathan D. Hall, Esq. (PA) [email protected]

Thomas J. Kearn, CPA [email protected]

Paula J. Klein [email protected]

Michael J. Krobot [email protected]

David A. Neely, Esq. (PA, WV) [email protected]

Lawrence B. Nydes, Esq. (PA, WV) [email protected]

Tenille R. Pack [email protected]

Linda C. Polley [email protected]

Anthony J. Racioppi, Esq. (PA) [email protected]

Mark C. Ramach, Esq. (OH) [email protected]

Tara L. Rodman [email protected]

Jasmine A. Romanie [email protected]

Julie L. Schneck [email protected]

Frank Spinelli, III [email protected]

David L. Trzeciak, JD [email protected]

inside LAND & ENERGY QUARTERLY

LAWRENCE D. BRUDY & ASSOCIATES, INC. is pleased to provide you with

the latest edition of Land & Energy Quarterly. The magazine features

educational articles related to the development of oil and gas interests,

real estate, estate planning and a spotlight on two of the firm’s dynamic

members, David A. Neely and David Cooper. Our professional and

para-professional staff members have produced over 3,000 certified title opinions

for exploration and production companies determining ownership of oil, natural

gas, coal and minerals; have represented clients in more than 10,000 residential,

commercial and relocation real estate transactions and provided accredited

continuing real estate education for over 1,000 Pennsylvania realtors. The firm was

nationally recognized this year in Landman Magazine for its commitment to the

American Association of Professional Landmen Code of Ethics, and established a

firm paid clerkship with Duquesne University School of Law to provide second

year law students practical experience in the Energy and Real Estate law fields.

Finally in 2013 I was honored to be selected as one of the three hundred “Who’s

Who in Energy” industry leaders. Energy exploration will continue to shape our

region.

mailto:[email protected]












Table of Contents

LAWRENCE D. BRUDY & ASSOCIATES, INC. www.ldbassoc.com

Clerkship with Duquesne University School of Law 2-3

In the Spotlight

- David R. Cooper, Land and Real Estate Administration 3

- David A. Neely, Attorney at Law 4

Durable General Power of Attorney,

Durable Healthcare Power of Attorney and Living Will 5

-By: Lawrence D. Brudy, Esquire

Why You Really DO Need to Have a Will 6-8

-By: Jonathan D. Hall, Esquire

Heirship Searches—Locating Missing Heirs 9

-By: Paula Klein

An Inside Look at the Dormant Mineral Act 10-11

-By: Theo Collins and Jonathan D. Hall, Esquire

Environmental Issues Related to: Oil and Gas Extraction 12-13

-By: Samantha Cavalier, JD

AND SO LONG THEREAFTER… Free Gas as an Extension

of an Oil and Gas Lease’s Primary Term 14-15

-By: Anthony J. Racioppi, Esquire and Ryan W. Brode

Primacy in Penn’s Woods: The Rights of Oil and Gas Owners

under Public Lands 17-19

-By David L. Trzeciak, JD

Action to Cure Defects in the Chain of Title, and the Pennsylvania

Dormant Oil and Gas Act 20-21

-By: Jonathan D. Hall, Esquire

Land Warrants vs. Patents 22-23

-By: Julie L. Schneck

Mortgage Subordinations: The Procedures and Benefits 24-25

-By: Jennifer N. McDonough, Esquire

Differences Between a Note, Mortgage and Deed 26

-By: Linda M. Eaves

Notarial Seal Requirements 27

By: Benjamin B. Kmetz

Interesting Facts 28

1

“Our law students continue to

gain important practical

experience in the oil and gas

industry through the Brudy &

Associates clerkships” said

Maria Comas, Director of

Career Services at Duquesne

University School of Law.

Recognizing the growing need for legal skills in

Pennsylvania’s expanding natural gas industry,

LAWRENCE D. BRUDY & ASSOCIATES, INC, has

established an in-house clerkship program for law students

interested in oil and gas law.

The program, created by Lawrence D. Brudy, Presi-

dent of the Wexford-based firm, provides second-year stu-

dents at the Duquesne University School of Law with practi-

cal experience in performing research in practice areas in-

volving the interplay of natural gas, oil, coal, mineral and

real estate law, all under the supervision of the firm’s attor-

neys. The students, who are paid for their clerkships, do the

research principally on weekends, during the work week and

after classes. Mr. Brudy created the program in conjunction

with Duquesne, and also under the guidelines of the Ameri-

can Bar Association. He received his Juris Doctor degree

from Duquesne, and also holds a bachelor’s degree from the

University of Pittsburgh and a master's from Carnegie

Mellon University.

This is a way of giving back to the profession,” said

Mr. Brudy. “The hands-on experience in the setting of a law

office, doing real legal work under attorney supervision, is

an invaluable addition to classroom work and lectures. This

is especially true in this field, given the intricacies of oil and

gas law in Pennsylvania.

Mr. Brudy launched the program in the first semester

of the 2013-14 school year, bringing in nine students. “Our

Clerkship Established with Duquesne University School of Law

LAWRENCE D. BRUDY & ASSOCIATES, INC. www.ldbassoc.com 2

law students continue to gain important practical

experience in the oil and gas industry through the

Brudy & Associates clerkships” said Maria Comas,

Director of Career Services at Duquesne University

School of Law.

“Before the Marcellus Shale boom started in

the mid-2000s, the need for natural gas lawyers in

Pennsylvania was comparatively small,” Mr. Brudy

said. “That need has expanded rapidly, and Duquesne

is among the education leaders working to meet it.

The Brudy program reflects the change not

only in legal education but also in the firm’s practice.

The firm formerly was engaged principally in

residential and commercial real estate. But with the

development in the Marcellus Shale gas industry,

Brudy & Associates has expanded rapidly to meet the

needs of clients, and now is comprised of lawyers

licensed to practice in Ohio and West Virginia, as well

as Pennsylvania, and also of paralegals, legal

assistants, title examiners, title analysts and licensed

title insurance agents.

Dave, born and raised in Western Pennsylvania, joined the Firm in September

2013 and has been working extensively with the marketing department.

Beginning in 2014, he launched various marketing campaigns in addition to

working with existing and new clients. He is a graduate of Indiana University of Pennsylvania,

where he earned a bachelor’s degree in Communications Media/Public Relations with a minor in

journalism, and spent 12 years in Sales and Marketing. Dave worked over a decade in the

Healthcare I.T. Industry marketing software and services to hospitals and physician groups across

the United States. He also worked for an international healthcare company located in Tel Aviv,

Israel, where he launched their products and services in the United States doubling the company’s

clients and revenue. He recently completed his Certification in Land Administration for

Oil & Gas through Community College of Allegheny County.

David R. Cooper

Land & Real Estate Administration


Matthew J. Bolewitz

Ryan W. Brode

Theo A. Collins

Samantha C. Franco

Mary E. Hancock

Amanda D. Knorr

Katrina S. Lawrence

Gregory Sobol

Frank Spinelli, III

Law Students Awarded

Clerkships with LAWRENCE D.

BRUDY & ASSOCIATES, INC.

last semester:

3

David was born and raised in New Brighton, Beaver County. He obtained his

undergraduate degree from Indiana University of Pennsylvania and his law

degree from Duquesne University in 1987. David has twenty-seven years of

litigation experience and has practiced in State Courts throughout Pennsylvania and

West Virginia, where he was licensed to practice in 1989. David’s major emphasis is on trying

cases and using the art of persuasion to convince a jury to decide in favor of his client. He tends

to focus his practice on personal injury matters, such as automobile accidents and defective

products. David recently obtained a $600,000.00 settlement on behalf of a man who was injured

when a defectively manufactured deer-hunting trees stand collapsed. He also concentrates on

insurance disputes, particularly bad faith issues. In 2005, David obtained a $1.5 million dollar

verdict against a major insurance company. Since joining LAWRENCE D. BRUDY &

ASSOCIATES, INC. in July of 2011, David has become the face of the firm’s litigation

department. Because a large concentration of law practiced by LAWRENCE D. BRUDY & AS-

SOCIATES, INC. is in energy and real estate, David has been active in defending and pursuing

issues in those areas, including quiet title actions and matters involving breaches of agreements of

sale for the purchase of real estate. David has tried more than 50 cases to verdict and has success-

fully engineered the settlement of numerous others. He maintains strong ties to both his native

Beaver County and in Allegheny County, where he resides in the community of Crafton.

David A. Neely, Esquire

Attorney at Law

Watch for our campaign advertising

Pawn Stars, Fox & Friends and House Hunters

When you think of

Oil and Gas . . . Think of us!


On several occasions the Firm’s Attorneys

have been called upon by a client, or, more often

a spouse, adult child or sibling to prepare a Last

Will and Testament, Power of Attorney and/or

Living Will, when and after a loved one has been

hospitalized as a result of an accident, surgery or

terminal condition. Rather than this reactive

approach to a situation, our Firm’s professionals

have always recommended a proactive position,

that is to have these critical documents prepared

in advance, not under the stress of the

circumstances. This article will focus on the

Powers of Attorney and Living Will.

A Durable General Power of Attorney

allows your appointed “Agent” (prior to 1999

identified as Attorney in Fact) to act in your place

to manage your daily affairs, conduct financial

and real estate transactions and make gifts among

other responsibilities you the “Principal”

designates. A “durable” power of attorney

remains effective even after you suffer a

disability.

A Durable General Power of Attorney can

be changed or modified at any time, remains in

full force and effect unless revoked by the princi-

pal and extinguishes at the Principal’s death.

Pursuant to Pa. C.S.A. § 2504 (a) original (and

previously recorded certified copies of the

originals) Powers of Attorneys may be recorded

in any county within the Commonwealth, with a

recorded certified copy of the original having the

same force and effect as the original. For real

estate transactions involving title insurance, the

Power of Attorney must be recorded in the county

where the land is located for the transaction to be

insured. In Pennsylvania anyone 18 years of age

with capacity can create a Power of Attorney.

A Durable Power of Attorney for Healthcare

provides your appointed “Agent” with the power to

make decisions regarding your medical care if you

are unable to understand, make or communicate

those decisions for yourself. Since 2006 a Durable

Health Care Power of Attorney and Living Will may

be combined into one document.

A properly drafted Durable General and

Healthcare Power of Attorney can provide you and

your dependents with comfort and protection in the

event you are unable to manage your personal, legal,

medical, financial and real estate affairs without

court involvement.

A Declaration of Living Will reflects the

“Declarant’s” (you) decisions regarding

life-sustaining treatment. Providing the attending

physician, care provider or appointed “surrogate”

with the declaration, directs those individuals to

withhold or withdraw life-sustaining treatment that

serves only to prolong the process of dying. Any

person 18 years of age, or is a high school graduate

or has married, with capacity, can create a Living

Will.

The firm’s Attorneys prepare Last Will and

Testaments, Durable General and Healthcare Powers

of Attorneys and Living Wills in triplicate originals.

We suggest an original be provided to the Executor/

Executrix, Agent and Surrogate for safe-keeping and

future exercise. Documents that require notarization

are provided by the firm’s notaries, including ink

and raised seals. We recommend to clients to have

these documents reviewed every five (5) years for

updates. In addition, if the documents are to be used

in another state, to verify that jurisdiction will accept

the documents that conform to Pennsylvania law.

By: Lawrence D. Brudy, Esquire


Why You Really DO Need To Have a Will

Yes, this is an unpopular topic, mostly

because it is unpleasant to be faced with our

own mortality. As human beings, we like to fo-

cus on self-preservation and the longevity of our

lives as opposed to the conclusion of our life.

“…never send to know for whom the bell tolls;

it tolls for thee” is the famous statement that

John Donne wrote almost 500 years ago and

reminds us that death is an inescapable

certainty.

Planning and preparing for what will

come can provide assurance and peace of mind.

A Will puts YOU in control of your estate and

can prevent family fighting and civil action over

the distribution of assets. We all know that we

should have life insurance because in our

absence, we want our family and loved ones to

be taken care of. In the same regard, a Will will

ensure that your wishes are carried out, and that

your assets are controlled and distributed as you

wish. Taking the time and forethought to pre-

pare a Will saves your family from having to

figure out and agree on what you would have

wanted.

Our office on multiple occasions has

been asked to prepare and deliver Wills, Power

of Attorneys and Living Wills, on-site, by

individuals or their families after they have been

admitted to a hospital or hospice care. On every

occasion, the explanation was similar: “I’ve

been meaning to get this done sooner.” Unfortu-

nately, far too many of us will not receive ad-

vance notice of our imminent death or terminal

condition and that time may be running out.

There are far too many unknowns; the time to

complete your Will is now.

Many married couples believe that they

do not need a Will because they mistakenly

believe that their surviving spouse will inherit

the entire estate, even if the decedent died

intestate (without a Will). In many, if not most

cases, a surviving spouse will not receive the

entire estate without a Will. In Pennsylvania, a

surviving spouse will only get the entire estate if

the decedent has no issue (lineal descendants,

e.g. children, grandchildren) or parents.

If the decedent has either issue or

parents, the surviving spouse is entitled to only

the first $30,000 of the estate, plus a one-half

interest of the remaining estate. The other half

of the estate will be divided among the issue of

the decedent. If the decedent has no issue, but is

survived by parents, then the parents will inherit

the remaining one-half interest. If the decedent

has issue that is not the issue of the surviving

spouse, the surviving spouse is not entitled to

the first $30,000 of the estate and is entitled on-

ly to a one-half interest.

For individuals with minor children,

preparing a Will is of the utmost importance

because it will declare who will take care of,

and be the Guardian of the Testator’s children in

the event of the Testator’s death and/or appoint

In many, if not most cases, a

surviving spouse will not

receive the entire estate

without a Will.

By: Jonathan D. Hall, Esquire


a contingent caretaker in the event that the Testa-

tor and their spouse die contemporaneously. A

Will can also establish a Trust for the children,

and dictate how the money is to be used for their

support, and when, or under what conditions the

child(ren) may receive the balance of the Trust.

The chart at Exhibit 1 is provided by the

Wills/Orphans’ Court Division of Allegheny

County, Pennsylvania. It shows how Intestate

Succession works within the Commonwealth.

Having a Will drafted and prepared is

faster, and easier than you may expect; and more

importantly, it’s the right and responsible thing to

do. A Will can also be changed, ratified or

revoked at any time by the Testator as situations

may dictate. The support requirements between

beneficiaries may differ and fluctuate over time. A

Will can be changed easily and as often as needed

to specifically address the changes in your

family’s lives. Contact your Estate Planning

attorney to see how a Will, Living Will, and

Power-of-Attorney can further benefit your family

and loved ones.

Example No. 2:

Ben and Mandy are married with

three children. Ben and Mandy are

the natural parents of the three chil-

dren. Ben has one child from a previ-

ous marriage. Ben dies intestate,

with his estate containing $300,000

of distributable assets. Mandy will

receive $150,000. [300,000 / 2 =

$150,000] Each of Ben’s children

will receive $37,500 [the remaining

150,000 / 4 = $37,500].

Example No. 1:

William and Deborah are married

with two children. William and Deb-

orah are the natural parents of both

children. William dies intestate, with

his estate containing $200,000 of dis-

tributable assets. Deborah will re-

ceive $115,000; derived from the

first $30,000 + $85,000 [200,000 –

30,000 (to Deborah) = 170,000;

170,000 / 2 = 85,000]. Each of their

children will receive $42,500 [the

remaining 85,000 / 2 = $42,500].


Why You Really DO Need To Have a Will Exhibit No. 1

8

Heirship Searches -

Locating Missing Heirs

The Energy Practice Group Attorneys

licensed in Pennsylvania, Ohio and West

Virginia, along with the firm’s

para-professionals and abstracting corps

research and examine county courthouse

Recorder’s offices; including all deeds of

conveyance, general, special, fiduciary,

quitclaim, sheriff. treasurers, mortgages, se-

cured transactions, ejectment, miscellaneous,

equity, judgments and liens in the Prothono-

tary’s office, Treasurer’s office, Tax Claim

Bureau, and Orphan’s Court Records in the

Register of Wills. All identify ownership of

surface and/or subsurface interests. In many

instances, an abstract of the public records

may not provide adequate documentation to

evidence ownership of these interests into the

early 1800’s. For example, a Last Will and

Testament executed by the Testator in 1840,

wherein he devised all real estate to his wife

for her natural life, and at her death,

remainder to his children. However, the Will

does not identify the names or number of

children. The subsequent conveyance from

“the children” as Grantors to the Grantee fails

to identify all of the heirs of the parents. Our

staff begins with verifying the death of the

mother. Employing genealogical websites

can in most situations, provide a date of death.

Obtaining original death certificates however, are

generally reserved to familial limitations, legal

representative of a decedent’s estate, or by power

of attorney. Genealogical search websites include

obituaries, family trees and death records identi-

fying children and grandchildren. Historical

County and Census Bureau sites will provide ear-

ly settlers, addresses, heads of households, people

living in the home and occupations. State

Archives are also a good place to search for

on-line vital records prior to the Early 1900’s.

Lastly, and most importantly a careful and

comprehensive reading of dates, legal descrip-

tions, signatures, including witnesses, notary

acknowledgments and leases in public documents

can provide clues in the identification process.

The firm’s Certified Title Opinions account for all

identifiable heirs in the chain of title minimizing

the client’s investment of additional time and

business risk.


By: Paula J. Klein

9

An Inside Look at the Ohio Dormant Mineral Act

Since the late 1800’s, the landscapes of

Ohio, Pennsylvania, and West Virginia have

been host to a common sight: oil and gas pro-

duction wells. Also common, have been real

estate transactions where a seller conveys the

subsurface interests separately from the surface

interests or reserves the subsurface when sell-

ing the surface. For example, a grantor can

convey the surface, and reserve the oil, gas,

coal, specific minerals, or any combination

thereof. When this occurs, the subsurface

“mineral estate” is deemed to be severed from

the “surface estate.” When interests are sev-

ered, they can become lost, forgotten, and un-

used.

In keeping with the theory that land ought to

be used, or at least be able to be used, the Ohio

Legislature enacted the Ohio Dormant Mineral

Act, or ODMA, in 1989 in order to provide

surface landowners with a process by which

they may unite their surface property with the

subsurface estates. It is important to note that

in the State of Ohio, the term “minerals” is

deemed to include both oil and gas with other

subsurface minerals. In the Commonwealth of

Pennsylvania, the term “minerals” does not

include oil and gas and must be specifically

mentioned. Under the ODMA, if the minerals

underlying the surface were dormant and

unused for 20-years, the minerals are deemed

to be abandoned and automatically reunited

with the surface once a three-year waiting

period passed. The purpose of the three-year

waiting period is to allow the owner(s) of

unused minerals to come forward and to

preserve their ownership. Therefore, all severed

mineral interests that were dormant and unused

since 1969 automatically vested with the surface

owner in 1992, if the mineral owner did not

preserve the minerals.

In 2006, the Legislature passed a modifica-

tion to the Act, codified at O.R.C. 5301.56, re-

quiring notice to be served on all identified hold-

ers of interest in the minerals. A holder is the

most recent person deeded the subsurface estate.

If the 20-year look back period concluded after

2006, the surface owner will need to follow the

new procedure outlined by the 2006 amendment

to the Act and file an Affidavit of Abandonment.

If no notice can be served, publication in the

newspaper will serve as notice. Once notice has

been provided by newspaper publication or

mailing, the surface owner may file an Affidavit

of Abandonment after 30 days and within 60

days, and provided that no claim of preservation

has been filed by a holder, the minerals will vest

with the surface owner. Another modification,

effective January 29, 2014, requires a surface

owner to file notice that the holder has failed to

file a claim or affidavit of preservation. If that

identified holder fails to file their intent to claim

and preserve the mineral estate within the

statutory period, the court will deem the

Affidavit of Abandonment effective and the

minerals will transfer to the surface landowner.

In order for a mineral estate to properly be

declared abandoned, the holder must not have

carried out an “act of preservation” within those

By Jonathan D. Hall, Esq. and Theo Collins


20 years. An act of preservation occurs when

a title transaction takes place which concerns

the subject mineral interest (including oil and

gas leases), an affidavit of preservation is

filed, or a separate tax parcel identification

number is created for the minerals. Active oil

and gas production and storage are also valid

acts of preservation. Where any of these have

occurred within the last 20 years, the minerals

will not be deemed to have been abandoned.

However, mere payment of real estate taxes

will not be viewed as acts of preservation.

The “long and short” of this process that

landowners need to be familiar with is as

follows: when a surface landowner becomes

aware that they do not have title in their

subsurface mineral estate, or that their claim is

clouded, and the minerals have been effective-

ly abandoned for 20 years, they may

commence actions to have them declared

legally abandoned, whereby they would be

united with the surface estate. Conversely, if a

holder of a mineral estate is seeking to

preserve their subsurface interest, they must

file an affidavit of preservation with the

county recorder’s office, declaring their intent

to retain possession of their mineral interest.

This affidavit will then be valid for 20 years.

So far, most lower courts have

reaffirmed the 1989 version of the Act. See

Taylor vs. Crosby, Walker vs. Noon, and

Tribett vs. Shepherd. Currently, the 1989

version has not yet been brought before the

Ohio State Supreme Court, however, in

Walker vs. Noon, the Seventh District Court of

Appeals, covering Belmont, Carroll, Columbi-

ana, Harrison, Jefferson, Mahoning, Monroe

and Noble Counties recently decided that the

1989 version of the ODMA automatically

reverted the minerals to the surface owner

because a savings event did not occur in the

statutory time. Although questions of the

constitutionality of the act have been raised in

regards to its power to seize and transfer

property, Indiana has a statute similar to Ohio’s

ODMA, titled the Mineral Lapse Act, which

was declared constitutional by the United States

Supreme Court in 1982 in Texaco v. Short, 454

U.S. 516, 102 S. Ct. 781, 70 L. Ed. 2d 738,

(1982). In fact, Indiana’s Act only allowed for a

two (2) year grace period for land owners to

become familiar with the act, whereas Ohio’s

provides a three (3) year period. In Texaco, it

was held that, “There was no constitutional right

for a mineral interest owner to receive individu-

al notice that his right will expire.”

The process of reclaiming the subsurface

mineral estate can be very complex and not all

potential issues have been raised in this brief

overview. It is highly recommended that you

contact an attorney in the practice of oil and gas

if you are considering pursuing this course of

action.


http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=Pbu0q8fH6iyl-M&tbnid=Ftdi8Iwhdv2P-M:&ved=0CAUQjRw&url=http%3A%2F%2Fgeology.rockbandit.net%2F2008%2F09%2F18%2Fexperience-dealing-with-oil-exploration-companies-min

Although Oil and Gas extraction has

raised an abundance of environmental issues,

most companies in the oil and gas industry are

taking precautions to mitigate the environmental

impacts caused by oil and gas extraction. Some

common environmental issues that are being

raised include changes in air quality, ecological

resources, hazardous materials, waste manage-

ment and the depletion of water resources.

Air Quality:

Changes in the air quality can be caused

by emissions and dust from vehicles, earth-

moving equipment, seismic surveys, well com-

pletion, testing, and drill rig exhaust. Although

these impacts can occur, the severity depends on

many factors which include the duration and lo-

cation of the oil and gas extraction. In addition,

according to Tribal Energy and Environment In-

formation Clearinghouse, emissions during this

phase do not have a measureable impact on cli-

mate change.

Ecological Resources:

Impacts to ecological resources depend

on the amount of surface disturbance and habitat

fragmentation. Because vegetation and topsoil is

removed for the development of well pads, ac-

cess roads and pipelines, a loss of wildlife habi-

tat, reduction in plant diversity and the potential

for increased erosion could occur.

Hazardous Materials & Waste Management:

Development and drilling activities may

produce solid and industrial waste. Most of the

solid waste is nonhazardous such as containers

and packaging materials. Industrial wastes

include small amounts of paints, coatings, and

spent solvents that are likely transported

off-site for proper and safe disposal.

Drilling wastes include used oils, oil

filters, paint, scrap metal, hydraulic fluids, solid

waste and garbage. Undesirable impacts could

result if hazardous wastes are not properly

handled and are released into the environment.

Water Resources:

Drilling and well development often

remove massive amounts of groundwater. This

generation of produced water can create

numerous problems. Water may be depleted

from nearby aquifers; and produced

groundwater that is contaminated with drilling

fluids can contaminate soils or surface waters,

if brought to the surface and not

re-injected to a suitable subsurface unit.

Produced water also may contain organic acids,

alkalis, diesel oil, crankcase oils and acidic

stimulation fluids.

Precautions to Mitigate Environmental

Harm:

Many Oil and Gas companies assess the

potential environmental impacts prior to

beginning an oil and gas project. The

assessments look at the potential problems that

By: Samantha Cavalier, JD


may occur during the extraction stage and then

plans are implemented in accordance with the

assessments in order to provide the best possible

methods with the least impact on the environ-

ment.

One company has adopted this practice by

enforcing a set of requirements for each new

project they commence. Its goal is to ensure

potential issues such as waste disposal, emissions

reduction and discharges into the water, are

thoroughly researched before a project is

commenced and is carefully monitored from the

beginning until the project’s end.

Similarly, another company has enacted

an Environmental Social and Health Impact

Assessment (ESHIA) process which mandates

the evaluation of all new capital projects for

potential environmental, social and health

impacts. When there is a potential for significant

negative environmental impacts, ESHIA is used

to plan ways to avoid, minimize or mitigate

them.

With this evaluation process, protecting

people and the environment is one of the

company’s core values. Further implementing

this approach, it has developed four

environmental principles that define its

commitment to doing business in environmental-

ly responsible ways. These principles include the

environment in decision-making processes;

reducing its environmental footprint by identify-

ing and managing risks to the environment and

reducing potential environmental impacts

throughout the life of operations; operating

responsibly by aiming to improve reliability and

safety of everything to prevent accidental

releases, including spills; and stewarding its

sites, meaning that a site has reached the end of

its productive life, decommission it, remediate

any environmental effects and look for ways to

reuse the area that will have an overall benefit on

the community and the environment.

Despite all of the above raised

environmental concerns dealing with oil and gas

extraction, most companies in the industry are

taking action to mitigate them and develop new

methods that make the procedures regarding oil

and gas extraction more environmentally

responsible.

Samantha was born and raised in New Middletown, Ohio where she

attended Youngstown State University and graduated Cum Laude

with a Bachelor of Arts degree in Journalism and Political

Science. She continued her education at Duquesne University

School of Law, earning her Juris Doctor in 2013, and serving as

Associate Editor for Juris Magazine. Ms. Cavalier is a member of

the Energy Practice Group and currently resides in West View.

About the Author: Samantha R. Cavalier, JD


One of the most common provisions of

an oil and gas lease is a “free gas” clause that

affords a specified amount of natural gas

(typically 200,000 cubic feet/year) of natural

gas to the lessor, for domestic use. Although the

receipt of free gas can confer a substantial

benefit upon the lessor, unanticipated

consequences associated with the use and en-

joyment of free gas can catch an uninformed

lessor off-guard, at a later date.

The habendum clause of an oil and gas

lease serves to inform the parties to the

transaction of the rights to be afforded to the

lessee. In particular, the habendum clause

states the primary, and secondary term of the

lease and will usually contain language as

follows: This lease shall continue for a term of

three years, and so long thereafter as oil and gas

are (found/produced) in paying quantities. The

question that arises after a cursory review of a

lease’s term is whether the receipt of free gas

will extend a lease beyond the primary term.

Although courts within the tri-state

region address the issue on a case-by-case basis,

the habendum clause of a lease is consistently

evaluated in making a determination whether

the receipt of free gas will extend the primary

term of an oil and gas lease. Generally, a

finding of commercial oil and gas production,

consistent with the purpose of the lease, will

extend the primary term. However, a finding of

commercial production may not be necessary to

extend the primary term where the habendum

clause provides for an extension of the lease’s

term pursuant to a finding of oil and gas in

paying quantities. The following is a summary

of how Pennsylvania, Ohio, and West Virginia

courts have historically addressed the issue.

Free Gas as an Extension of an Oil and Gas Lease’s Primary Term

In Mitchell Energy Corp. v. Stagl, 27 Pa. D. &

C.3d 132 (1983), the court found that the

habendum clause contemplated continuation of the

lease beyond the primary term, absent any com-

mercial production, where the secondary term pro-

vided that the lease would continue “. . . as long as

oil or gas are found in paying quantities thereon.”.

The well associated with the subject lease in this

case was shut-in, for legitimate reasons, but capa-

ble of production.

In Babb v. Clemensen, 455 Pa. Super. 181

(1996), the secondary term of the subject lease

provided, “. . . and as long thereafter as oil or gas

casing-head gas or either or any of them, be pro-

duced therefrom . . .”. Contemplating the meaning

of production, the court relied on the unpublished

Ohio case of Tisdale v. Walla, 1994 WL 738744

(Ohio App. 11 Dist. 1994). In considering the per-

suasive authority of the Ohio case, which defined

“production” as “produced in paying quantities”,

the court found that domestic use did not constitute

production as contemplated by the lease, and

would not extend the primary term.

By: Anthony J. Racioppi, Esq.

Research Assistance By: Ryan W. Brode


AND SO LONG THEREAFTER . . .

14

Ohio courts have held that commercial oil

and gas production will extend the primary term

of a lease. Incidental use, which is not consistent

with the primary purpose of commercial produc-

tion of oil and gas by a lessee for sale to third

parties, of an oil and gas well, will not preserve

the rights of a lessee and extend the primary

term. The case of Y oder v. Stocker & Sitler Oil

Co., 5th Dist. No. CA465, 1993 WL 95604

(March. 30, 1993), is an example of an Ohio

court finding a lease to be expired by term where

commercial production was absent. The court stated, in pertinent part, that, “The lease is intended to

give appellees [the oil and gas companies] the right to drill for, produce, and market this oil and gas.

For this reason, it is appellees’ [the oil and gas companies’] operations for oil and gas to which [the

lease] refers. Likewise, the production of oil and gas must be in “paying quantities” to appellees.

The benefit that the [landowners] derive from their well for their own use, admittedly a non-

commercial use, does not impact on this lease to extend it past the 10-year primary term.

Consistent with the rationale of Pennsylvania

and Ohio, West Virginia courts have held that the

use of free oil and gas for domestic purposes does

not constitute production that will extend the pri-

mary term of a lease. In Goodwin v. Wright, 163

W. Va. 264 (1979), the court held that the purpose

of an oil and gas lease is to obtain production. In

its discussion of production, the court stated,

“When a well is not producing in paying quantities

and no royalties or rentals are being received by

the lessors, these being required by the terms of a

lease as necessary to its continuation, receipt by the

lessors of free gas for domestic purposes from the well does not constitute consideration sufficient to

keep lessors bound by the lease, nor does it amount to ‘production’.”

Through clear and concise drafting that is consistent with the intention of the parties to the

transaction, a proper oil gas lease, that mutually benefits both lessor and lessee, can be created. In

executing a lease, a savvy lessor/lessee should pay special attention to the habendum clause of the

lease, as this component is given the most deference by the court. In order to avoid a situation where

the term of a lease is extended by domestic use only, a secondary term requiring commercial produc-

tion should be sought. By carefully considering key components of a lease, such as the term, the

transacting parties can further their interests while avoiding potential headaches down the road.


Primacy in Penn’s Woods:

The Rights of Oil and Gas Owners under Public Lands

Throughout its history the Common-

wealth of Pennsylvania, renowned for its

beauty and natural resources, lured its first

settlers with that beauty and ease of access

to those natural resources, whether those

settlers were Native American tribes or

colonists and frontiersmen. Since before the

dawn of the Industrial Revolution, the

prospect of material wealth derived from

those resources inspired many hard working,

innovative, and industrious citizens. People

such as Edwin L. Drake, who drilled the

first commercially successful oil well near

Titusville, Pennsylvania, which pioneered

the development of the oil and gas industry,

and ushered in the United State’s first oil

boom. Its vast reserves of oil, gas, and coal,

underground, and timber on the surface,

played a pivotal role in the development of

the Commonwealth as one of the nation’s

leading industrial areas. It was only natural

that the value of the rights in property on the

surface and below the surface was realized.

Early in the 20th Century, the Common-

wealth began its acquisition of multitudes of

tracts of land for state forests, state parks and

game lands. The ownership rights to the sur-

face and subsurface property, in many cases,

were separate.

According to the Pennsylvania

Constitution, Article I, § 27, “Pennsylvania’s

public natural resources are the common

property of all the people, including

generations yet to come. As trustee of these

resources, the Commonwealth shall conserve

and maintain them for the benefit of all the

people.” Therefore, in 2011, the Common-

wealth took an inventory of state-owned

lands that overlay the Marcellus and Utica

Shale oil and natural gas formation. Accord-

ing to the 2011 report, An Inventory of State

-owned Real Property and Subsurface Min-

eral Rights, private parties own or control

approximately 15 percent of the oil and gas

rights, or approximately 330,000 acres un-

derlying those state forest lands. The map

included with this article, provided by the

Pennsylvania Department of Conservation

and Natural Resources (DCNR), shows

Pennsylvania State Forest Land overlying

the Marcellus Shale oil and natural gas for-

mation, and in substantial part, lands overly-

ing the Utica Shale oil and natural gas for-

mation. (See Figure 1). The tracts of land

highlighted in red show the state forest lands

where the oil and gas rights are privately

owned. It is often the case that ownership in

the oil, gas and minerals stretches back more

than a hundred years and as such the task of

researching and identifying who those pri-

vate parties is gigantic. As a result, the Com-

monwealth may not find out about the pri-

vate ownership of the oil and gas until the

lessee of private subsurface rights in state

forest land applies for a well drilling permit

from the Pennsylvania Department of Envi-

ronmental Protection (DEP).

In the Commonwealth of Pennsylva-

nia, the rights in property are divided into

three distinct estates: the surface rights,

support rights and subsurface rights. Simply

put, the surface estate is the land. The

support estate consists of the subsurface

rock, minerals and other materials that

support the surface and prevent subsidence.

In general, the subsurface estate consists of

By: David L. Trzeciak, JD


the following: oil, gas, coal, sand, limestone

and other minerals with the accompanying

rights to access and develop the subsurface

estate. Owning the surface does not

necessarily mean that one also owns the

subsurface or more specifically the oil, gas,

coal, sand, limestone and other mineral

rights. Oil, gas, coal and mineral rights are

severable from the surface. Often property

owners are unaware of whether or not they

own the subsurface property; or in other

words, possessing the real estate in "fee sim-

ple,” which indicates that one owns the sur-

face as well as subsurface rights. Therefore,

it may be necessary to research the chain of

title for a property as far back as the 1850s

or earlier to determine whether prior proper-

ty owners severed the surface from subsur-

face estate. The owner of the subsurface is

entitled to a right of access for the extraction

of oil, gas, coal and minerals, even if this

involves altering, or temporarily occupying

parts of the surface, so long as such use is

reasonable. Accordingly, the subsurface

estate is dominant over the surface estate.

Nevertheless, the owner of the surface estate

is entitled to certain notifications and

protections. The conflict between the rights

of the surface and subsurface owners is

particularly acute whenever it involves lands

owned by the Commonwealth.

When such a conflict arises, recent

rulings by Pennsylvania courts reaffirmed

the rights of the subsurface estate as the

dominant estate. A recent case of note is

Belden & Blake Corp. v. Commonwealth,

DCNR, 969 A.2d 528 (Pa. 2009). That case

involved the Belden & Blake’s claim to

subsurface rights to extract oil and gas

below land in Oil Creek State Park. Pursuant

to the Oil and Gas Act, Belden & Blake

notified the DCNR that it was planning to

extract oil and gas by drilling wells on the

parcels to which it owned a surface estate.

Belden & Blake completed and submitted

the necessary well permit applications, maps

of proposed sites, as well as posted bond to

ensure well closure, site reclamation, and

pollution control. The DCNR sought to

impose additional requirements in the form

of a “coordination agreement,” and would

not permit surface access without such an

agreement. Thus, Belden & Blake sought

judicial review, and argued that it had an

implied easement to access the land in order

to retrieve the oil and gas so long as the re-

quired surface use was reasonable. In re-

sponse, the DCNR argued that it was author-

ized to condition the surface use of state

lands under Article I, § 27 of the Pennsylva-

nia Constitution. Belden & Blake’s response

was that the additional requirements were so

burdensome as to affect an unconstitutional

regulatory “taking” of private property

without just compensation.

Upon review by the Pennsylvania

Supreme Court, it affirmed the Common-

wealth Court’s ruling and reaffirmed its pri-

or ruling under Chartiers Block Coal Co. v.

Mellon, 25 A. 597 (Pa. 1893), and noted

that the DCNR could not require Belden &

Blake to execute the “coordination agree-

ment,” and that subsurface owners are enti-

tled to access their property in a reasonable

manner. It found that Belden & Blake met

its duty to use the surface reasonably. The

Court ruled further ruled that “a subsurface

owner’s rights cannot be diminished because

the surface comes to be owned by the gov-

ernment.” As such, it is the surface owner’s

burden to seek legal action when he or she

believes that the subsurface owner’s actions


are unreasonable. However, the owner of the

subsurface rights is also “limited by a good

faith requirement that it use the surface area

only in a reasonably necessary manner to ex-

tract the minerals.”

The law of the Commonwealth is

conclusive. The Commonwealth may not

unduly interfere or burden the use and access

to subsurface rights underlying state forests,

state parks, and state game lands, where those

rights are owned by a private party. The

regulation of such private subsurface rights to

protect public resources must be reasonable.

That way such regulation is not so burden-

some as to affect an unconstitutional “taking”

of private property without just compensation.

However, the owner of the subsurface rights is

limited by a good faith “reasonable use”

requirement as a limit to its access to the

surface area for the development of subsurface

rights.

As Pennsylvania experiences its

second major oil and natural gas boom in a

little over a hundred years, it is imperative that

the Commonwealth strive to maintain a

balance between the regulatory control of oil

and gas operations of state owned land, and

the private ownership of subsurface rights in

oil and gas underlying those lands.


See Figure 1

19

By: Jonathan D. Hall, Esq.

over a hundred years ago and still be valid. This

is most likely because there has been continuous

production of oil or gas from the well.

When defects in the chain of title are

discovered, the client may have several options

depending on the type and age of the defect,

including commencing an action to quiet title,

declaratory judgment, action in ejectment, actions

pursuant to the Pennsylvania Dormant Oil and

Gas Act, or perhaps even making a business deci-

sion to waive curative action.

In Pennsylvania, actions to quiet title are

governed by the Rules of Civil Procedure

codified at Pa. R.C.P. 1061-1068, which provides

that an action to quiet title may be brought: to

compel an adverse party to commence an action

of ejectment; to determine any right, lien, title or

interest in the land or determine the validity or

discharge of any document, obligation or deed

affecting any right, lien, title or interest in land;

to compel an adverse party to file, record, cancel,

surrender or satisfy of record, or admit the validi-

ty, invalidity or discharge of, any document, obli-

gation or deed affecting any right, lien, title or

interest in land; or to obtain possession of land

sold at a judicial or tax sale.

An action to quiet title is brought when

the plaintiff is in possession, or can claim proper

possession of the property. Actions to quiet title

are commonly brought in supporting a claim of

adverse possession, or to cure gaps, missing in-

terests, or wild deeds in the chain of title. They

are also brought when there is a conflicting own-

ership interest. For example, if a piece of land

was conveyed to four individuals in 1921 and the

next deed of record appears in 1938, when three

of the four individuals convey their interest in the

property. No deed can be found of record from

the fourth owner. Furthermore, no estate of the

Throughout the history of a piece of prop-

erty, many actions and events can take place that

may adversely affect the chain of title. Events

such as deaths, marriages, tax sales, sheriff’s

sales, wild deeds and non-recorded or mis-

indexed deeds can create gaps in the chain of title

and confusion as to the clear owner(s) of real

property. Such “clouds” in the chain of title are

common, especially in research back to the early

1800s.

Property searches for residential

conveyances are typically 60-year searches; how-

ever, with the development of the Marcellus and

Utica Shales in the Appalachian Basin, searches

as far back to the early 1800s are necessary to

determine the owner(s) of the oil and gas estate.

The first commercial oil well was drilled in Ti-

tusville, Pennsylvania in 1859. Since that time,

the oil and gas may have been conveyed separate-

ly from the surface, or may have been reserved in

a conveyance for the surface estate. Therefore,

searches of property that do not predate 1859 are

generally not acceptable for the purpose of deter-

mining the ownership of oil and gas.

Historic searches are also necessary to

examine all of the oil and gas leases that have

encumbered the property throughout time.

Examination of the leases is required, as

historical leases may still be in effect, and t

herefore, the oil and gas owner may not enter into

a new oil and gas lease. This is because the

habendum clause in a lease will usually contain

two terms. The primary term establishes a short

term, usually between one and ten years. The sec-

ondary term provides under what terms the lease

will remain valid after the expiration of the pri-

mary term, (e.g. and as long thereafter as oil or

gas is found in paying quantities.) It is not unusu-

al for an oil and gas lease to have been executed


Actions to Cure Defects in the Chain of Title,

and the Pennsylvania Dormant Oil and Gas Act

20

fourth individual can be found. After a diligent

search is made to identify the heirs of the owner

of the missing one-fourth interest, an action to

quiet title may be commenced to merge the miss-

ing interest with the owner’s majority interest.

Actions in ejectment are governed by Pa.

R.C.P. 1051-1058. An action in ejectment is

brought when the plaintiff is not in possession of

the property, but has a right to be in possession.

An action in ejectment is brought to remove oc-

cupants of the property and restore possession to

the plaintiff. For example, if a landowner sells

only the surface and reserves the oil and gas, and

later discovers that the surface owner executed an

oil and gas lease; or a home owner discovered

that squatters are living in the owner’s house, an

action in ejectment would be brought.

Declaratory Judgments are governed by

the Declaratory Judgments Act codified at 42

Pa.C.S.A. §7531-7541. Declaratory Judgments

are used to interpret the construction, meaning or

validity of a deed, will, written contract, or whose

rights, status, or other legal relations are affected

by a statute, municipal ordinance, contract, or

franchise. A declaratory judgment would be

sought, for example, if a reservation of oil and

gas in the chain of title was unclear and ambigu-

ous, making it difficult to ascertain if the reserva-

tion was a reservation for the oil and gas, or a

reservation of oil and gas royalties.

The Pennsylvania Dormant Oil and Gas

Act, codified at 58 Pa. Stat. §§ 701.1-701.7, is

very different from the Ohio Dormant Minerals

Act. Where the earlier version of the ODMA pro-

vided an automatic transfer of dormant minerals

(including oil and gas in OH) to the surface own-

er; the amended version requires that notice be

given to the mineral owners. The Pennsylvania

Dormant Oil and Gas Act was enacted to only

clarify divisional, unknown oil and gas owner-

ship interests:

“The purpose of this act is to facilitate the

development of subsurface properties by

reducing the problems caused by frag-

mented and unknown or un-locatable

ownership of oil and gas interests and to

protect the interests of unknown or

un-locatable owners of oil and gas. It is

not the purpose of this act to vest the

surface owner with title to oil and gas

interests that have been severed from the

surface estate.”

What the Pennsylvania Dormant Oil and

Gas Act does, after a diligent search has been

made to identify missing oil and gas owners, is

allow the court to appoint a Trustee on behalf of

the unknown or unlocatable oil and gas owners.

The Trustee can enter into an oil and gas lease

and collect the bonus payment and royalties on

their behalf. If the unlocatable owners are not

found, eventually, the trust will be terminated,

and the funds in the trust will escheat to the

Commonwealth.

While defects in a chain of title may be

cured, the cures are often expensive, but more

importantly, time consuming and lengthy

processes. Ideally, all defects should be cured;

however, some defects in title may be very old

and the likelihood of litigation is very low. In this

case, clients may conduct a cost-risk analysis. For

example, an owner receives property in 1845, and

then dies intestate in 1862; there is no estate

found of record for the landowner in the county

in which the property is located. The next deed of

record is from two men and their wives purport-

ing to be the sons and only heirs at law of the

landowner. A search on Ancestry.com provides

that the landowner had two sons, as named in the

deed. In this instance, an oil and gas exploration

and extraction company may decide to waive a

curative action because of the age in the gap in

title from the landowner and his sons, and the

subsequent familial transaction.

While defects in the chain of title are very

common, it is important that each defect be

evaluated and heavily scrutinized to determine

the amount of the exposure to risk and liability,

and which course of action the client should take.


In the past, real estate transactions typically

have involved a 60-year search of the chain of title

by the title company issuing the loan and/or own-

er’s title insurance policy. However, due to the

rapid expansion occurring within the natural gas

industry, involving exploration and lease

acquisition, a different approach is now necessary.

In 1859 Edwin Drake drilled the first commercial

oil well near Titusville, Pennsylvania. As a result,

beginning in the 1860’s, landowners began

transferring subsurface interests separately from

surface interests, to third parties; often reserving

the remainder to themselves. Consequently, today

exploration and production (E&P) companies now

require a more exhaustive chain of title search

dating back to 1859 or earlier, in order to

accurately ascertain the ownership of sub-surface

interests. A deed relating back to this time period

can often be located within the county land

records. However, in some instances such records

cannot be located and an effective alternative

would be to examine a state’s patent or warrant

records. Throughout its history, the United States

has acquired land by purchase, war, and treaty

agreements with foreign crowns, governments,

and the Native American tribes. The granting of

such lands, by the government, to an individual or

corporation is known as a land patent; the grant of

all right and title to a parcel of land. Thus,

Historical Note: The first official

land patent was granted to a John

Martin in 1788, which reserved to

the United States of America 1/3

interest in all gold, silver, lead and

copper within the United States.

By: Julie L. Schneck


Land Warrants vs. Patents

22

theoretically, a patent may be been viewed as the

supreme title to a piece of land. A patent secures

that all evidence of title in existence before its

issue date has been authenticated. Accordingly,

the land patent became tangible

title of the land as defined

pursuant to the language and land

description of the patent

document. There are two

recognized categories of states:

State Land States and Public

Domain States. State Land States

are those in which lands are

granted by a Proprietor or by State

Government. Such patent files are

usually found at state archives and

are known to contain areas of

property which were granted

originally by foreign governments,

e.g., England, France, Spain,

Mexico and Russia. Following the Treaty of Par-

is (1783), certain lands were placed in trust to

the United States government, and the U.S.

Treasury Department was assigned the responsi-

bility of managing the public records pertaining

to said lands. Throughout the years, the U.S.

government acquired other land, by the taking of

Native American lands, the Louisiana Purchase,

and other various acquisitions. All land owned

by the federal government is called “Public Do-

main”. Public Domain States involve instances

in which land is granted by the Federal Govern-

ment. The Bureau of Land Management has ju-

risdiction over public domain land, which is di-

vided into Eastern and Western States. The Na-

tional Archive tract books for the East-

ern States (which includes the Ohio

Archive) are located at the

Bureau of Land Management (BLM)

which is located in Springfield,

Virginia, or online at

www.glorecords.blm.gov.

Example of understanding: A

"warrant" was simply an authority to

purchase a certain amount of land

from the Proprietors (i.e., the Penns),

but without specifying any particular

tract of land. Then a selected tract of

land was "surveyed" to the purchaser,

and a "patent" was issued to seal the

deal. Commonwealth of Pennsylvania:

Documents associated with early settlement of

the Commonwealth can be found in the

Pennsylvania Historical and Museum Commis-

sion, located in Harrisburg and online at:

www.portal.state.pa.us. State of West Virginia:

Records of conveyances prior to the Civil War

are found within the Virginia Records, and post

Civil War in the West Virginia State Archives, at

the Cultural Center in Charleston, and online at

www.wvculture.org.

Historical Note: William

Penn would be an exam-

ple of a proprietor; as

he received the land by

King Charles II in 1681,

to satisfy a debt the king

owed to Penn’s father.


Mortgage Subordinations:

The Procedures and Benefits

For oil and gas exploration and

production companies, obtaining Mortgage

Subordinations has become an increasingly

important step in the title curative process. In

Pennsylvania, if a landowner has a mortgage or

lien on their property that predates their oil and

gas lease, and the landowner fails to pay on that

lien, thus setting a foreclosure action into motion,

the lender taking over the property would take it

in the condition in which it existed when the lien

was taken, i.e. without an oil and gas lease

encumbrance. Obviously, this places potential

decades of production on the part of oil and gas

companies at risk. Therefore, these companies

have begun putting safety measures into place to

avoid that risk.

Enter the Subordination Agreement. A

Subordination Agreement is a legal document

that gives one instrument superiority over

another. If a Subordination Agreement is in

place on a property that has a mortgage or lien

predating an oil and gas lease, the Mortgagee can

still foreclose on the property, but the oil and gas

lease will remain in place. The Subordination

Agreement almost always contains a clause

providing that royalty payments will be assigned

from the original lessor to the lender or new party

taking the property over in a foreclosure

proceeding, thereby giving the lender a benefit in

exchange for allowing oil and gas production to

continue on the property uninterrupted.

The first step in obtaining a Subordination

Agreement is usually executing a third-party

authorization with the lessor. Many lenders do not

entertain proposed Subordination Agreements

without the authorization of the lessor. Most oil and

gas companies have a standard Subordination

Agreement that can be sent to the lender along with

the third-party authorization. This is often just a

starting point though, because many lenders have

their own format for these agreements with more

lender-friendly language. Negotiations on the terms

and language of Subordination Agreements are

common, although the majority of the finalized

products are very similar. Some lenders require

execution of the agreement by all of the parties

involved: Lessor, Lessee, and Lender. Others

simply execute the document without requiring any

other parties’ signatures.

Some financial institutions refuse to execute

Subordination Agreements across the board. The

reasons for refusal are unclear, as these lenders are

missing out on potential revenue opportunities.

When a property is taken over in foreclosure, the

lender is, by definition, losing money. The lender

could at least collect royalty payments if a

Subordination Agreement is in place. In some

cases, those royalty payments are greater than the

By: Jennifer N. McDonough, Esquire


mortgage payments would have been. A Subordina-

tion Agreement does not affect the lender’s right to

foreclosure upon a property either. Significant

up-sides exist for both the lenders and the oil and gas

companies in having a Subordination Agreement in

place.

A Consent to Lease can be used as an

alternative to a Subordination Agreement also. In

this document, the lienholder consents to the

existence of the lease and guarantees that the lease

will not be disturbed, even in the event of a

foreclosure on the property. Little difference exists

between a Subordination Agreement and a Consent

to Lease.

Still, if a lender will not execute a

Subordination Agreement or a Consent to Lease even

after knowing all of the benefits, an oil and gas

company can execute a Consent of Lienholder. This

document serves as the lender’s acknowledgement

that the property owner has entered into an oil and

gas lease, and that the lender will, at the very least,

notify the oil and gas company if a foreclosure action

is initiated. Although the option of a Consent of

Lienholder is not ideal, it serves as more protection

than having nothing in place at all.

With the boom of shale production in

Pennsylvania in recent years, obtaining Subordina-

tion Agreements with lenders who have superior

interests in leased properties is increasingly

imperative. These agreements serve as protection for

oil and gas companies, and can serve as opportunities

for revenue for lenders. What is the down-side of

that?

Upon admission to the Pennsylvania

Bar in October 2009, Jennifer began

her legal career in the energy field.

She has extensive experience in oil

and gas issues in Pennsylvania and

Ohio, including preparation and

review of title and leasehold

searches, abstracting, curing title,

and negotiating and completing

mortgage subordinations. Jennifer

earned her Juris Doctor from

Duquesne University School of Law

in 2009. Before attending Law

School, she was a high school

teacher in the Pittsburgh Public

School District. Jennifer holds a

Master of Education degree from the

University of Maryland, and a

Bachelor of Arts degree from James

Madison University. She is licensed

to practice law by the Pennsylvania

State Supreme Court and the United

States District Court for the Western

District of Pennsylvania, and is

licensed to teach in Pennsylvania

and Maryland.

JENNIFER N. MCDONOUGH, ESQ.

ABOUT THE AUTHOR


At a real estate closing numerous documents

are signed by both seller and buyer. The buyer,

who is purchasing the real estate by borrowing

money from a lender, has many more documents to

sign. The lender, usually a bank or mortgage com-

pany requires signatures to secure the loan. Three

of the documents signed at a closing that can be

confusing are the deed, the mortgage and the note.

The deed is the legal instrument that passes,

affirms or confirms an interest or right in a property

and is signed, attested, delivered and in previous

times was sealed. The deed confirms the interest

being transferred. Usually the interest is 100%

ownership, but is can be a partial interest. For in-

stance, in a divorce situation, if the couple

purchased the house jointly, one spouse may con-

vey to the other spouse a one-half interest in the

house as a requirement of the divorce. Also, in the

instance of the death of a parent, the parent’s estate

may convey to the children a percentage of the

interest (if four children, each may receive 25%).

The percentage of interest does not have to be

equal. For instance, two investors may purchase a

parcel of real estate, whereas one buys a 60%

interest and the other 40%. The deed identifies the

interest being conveyed, as well as the property,

together with a legal description, and is signed by

the grantor and the grantee, and then witnessed.

The mortgage is the instrument that

evidences the existence of a loan. It identifies the

lending institution, the borrower, and the property

that is encumbered by the mortgage. The mortgage

also identifies the terms of the mortgage. For

instance, the “if you don’t pay, you don’t stay”

clause, explains the consequences of not making the

agreed-to payments and the legal actions that can be

taken by the lending institution. Of interest may be

that the word mortgage originated from a French

law term meaning “death pledge.” Some

borrowers may think the term means that they will

carry the mortgage until they are dead, but it really

means that the mortgage ends when it is paid in full,

or taken by foreclosure.

The “note” is actually the promissory note

associated with a particular mortgage. The

borrower, by signing the note, promises to pay the

mortgage amount that encumbers the real estate

identified in the deed. This instrument usually

identifies the term, monthly payments, and interest.

The term can be, for instance, 30–year, or 15-year.

The monthly payment is usually a fixed amount that

includes the principal payment, and the interest.

The interest will be either a fixed percentage, or an

adjustable rate (ARM). With these examples,

understand that the lending institution and the

borrower can agree to a wide range of terms, rates

and payments. The note is the instrument that

proves that the borrower is the owner of the debt.

At a real estate closing, the mortgage and

the note are signed by the borrower before the deed

is signed. The deed is usually the final document

signed at the closing, after all the terms and

conditions of the agreement of sale are finalized,

and at which time the grantee-borrower-buyer,

being one and the same, own the property.

By: Linda M. Eaves


Differences Between a Note, Mortgage and Deed

26

Notarial Seal Requirements –

Which states require Embossing Seal vs. Ink Stamp?

A notary public is a public or state officer, of integrity, who is appointed by the governor, or

most typically, by the Secretary of State. A notary public has a multitude of authorized notarial

duties and principles. Specific duties and obligations for a notary public differ immensely

throughout the United States. Although every state has a different procedure for appointing and

commissioning notary public officers, each state has several universal guidelines. According to

American Society of Notaries, a notary acts as an impartial witness in the execution of

documents, helping to deter fraud and promote the integrity of document transactions. These

acts are often referred to as notarizations or notarial acts. In order to accomplish these duties

and prevent unauthorized use, notary public must act in strict compliance with the laws of their

state.

An effective way to deter document fraud and achieve the collective goal of a notary public is to

understand notarial seal requirements. The three regions that require notaries to implement the

embossing seal are the state of Alabama, District of Columbia and the U.S. Virgin Islands.

Traditionalists prefer the embossing seal because it creates raised seal impressions, facilitates

the achievement of the document’s integrity and provides ceremonial influence. Twenty seven

states recognize the ink stamp, or embossing seal, to be used in notarizing a document. The

Commonwealth of Pennsylvania requires an ink stamp. An embossing seal may be used, but

only in conjunction with an ink stamp, and the seal must be photographically reproducible. A

total of nine states do not require an embossing seal or ink stamp.

Once a seal or stamp has expired, or information on the seal or stamp has changed, a notary

public should destroy or deface the old stamp or seal. If a seal or stamp is stolen, it should be

reported immediately to the respective state notary authority. An appointed and commissioned

notary public should be educated on the duties and responsibilities, and take their notarial acts

very seriously. Implementing the appropriate standards for sealing a notarial document is just

one of the numerous proactive solutions a notary public can practice in order to aid the fight

against falsified activities.

By: Benjamin B. Kmetz


Notarial Seal

John Doe, Notary Public

City of Pittsburgh, Allegheny County

My Commission Expires June 29, 2014

COMMONWEALTH OF PENNSYLVANIA

27

1. Oil is made into many different products, among them: clothes, fertilizers, plastic bottles and

pens.

2. In 2013, the National Association of Realtors reported that the median age of first-time buyers

was 31. On average these buyers purchased a 1,670 square-foot home costing $170,000.

3. Don’t be so quick to change your brass to brushed nickel! Brass doorknobs disinfect them-

selves. Its called the oligodynamic effect: the ions in the metal have a toxic effect on spores,

fungi, viruses and other germs.

4. Can you come up with the only country club to have hosted eight U.S. Opens? It’s Oakmont

Country Club. Oakmont has beaten golf’s best, and is the only course named a national historic

landmark. Oakmont’s legendary lightning-fast greens, thick rough and plentiful bunkers have

played host to a record 21 national golf championships, including eight U.S. Opens. Golf Digest

ranks Oakmont No. 4 in its most recent version of America’s Top 100 courses.

5. You can get all the way from Pittsburgh to Washington, D.C. - that's 245 miles - via a bike and

running trail called the Great Allegheny Passage and Chesapeake and Ohio Canal towpath trail.

Should you feel compelled to try it, you'll pass landmarks like Frank Lloyd Wright's

Fallingwater, one of two surviving cast-iron truss bridges in all of North America, an aban-

doned railway tunnel called the Big Savage Tunnel, Antietam Battlefield, Harpers Ferry, and

Georgetown University.

LDB interesting facts

In Pennsylvania, the term “minerals” does not include oil and gas.

Powers of Attorney may be recorded in Pennsylvania.

A residential title search will not identify the ownership of oil and gas.

You can sell the oil, gas, coal and minerals from various subsurface strata and keep the surface.

The Pennsylvania coal notices required to be in every deed of conveyance since 1957 and 1966

(Bituminous Coal) do not identify whether you own any coal vein or not.

You only receive free gas when the well is on your property.

Title Insurance does not insure for oil and gas.

Because there is an oil and gas lease on the property that is no guarantee of oil and gas ownership.


Did you know...

28

land & energy quarterly summer 2014

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