We have spilled a lot of “digital ink” on this blog addressing how Ohio courts have confronted oil and gas disputes about Ohio’s Dormant Mineral Act (DMA) and regulatory/zoning matters. As we noted previously, there are no less than five cases now pending before the Ohio Supreme Court about the DMA, presenting some 15 propositions of law. And the court still has not ruled on the long-pending Munroe Falls appeal, which addresses the extent to which municipalities may be preempted from applying zoning regulations to state-permitted oil and gas wells.

It has been interesting for those of us who practice in the firm’s Appellate and Supreme Court Practice Group to watch Ohio’s oil and gas boom touch other areas of the law, beyond the predictable DMA, leasing, and regulatory contexts. Two recent appellate decisions from Guernsey County – one of which is set to be argued before the Ohio Supreme Court in May – reflect how Ohioans’ interest in valuable mineral rights is affecting other facets of the law.

Is income from an oil and gas lease marital property?

On May 5, the Ohio Supreme Court is scheduled to hear arguments in Kuhn v. Kuhn n.k.a. Cottle. In Kuhn we see the effects of the oil and gas boom in the context of a divorce. Mr. Kuhn owned certain property, including mineral rights, before the parties were married. After their marriage, the husband’s property became the marital residence. Four years into their marriage, Mr. and Mrs. Kuhn executed an oil and gas lease with Gulfport Energy Corp., leasing the property for oil and gas development. The lease provided for a signing bonus of more than $120,000 and 20% royalties from any future oil and gas production. Continue Reading Ohio’s appellate courts wrestle with oil and gas issues concerning domestic relations and dual-agent Realtors

Litigation over Ohio’s Dormant Mineral Act, R.C. 5301.56, (DMA) began as a trickle in 2012 and turned into a flood in 2014 that continues to confound mineral title attorneys and challenge judges. Questions about the DMA have all but paralyzed oil and gas companies still looking to acquire and develop mineral leases. Now all eyes are on the Ohio Supreme Court for guidance on myriad questions regarding the validity and application of the statute. This post provides an update of DMA appeals and issues pending before the Ohio Supreme Court to date.

Though the Ohio Supreme Court hasn’t yet issued any decisions related to DMA, that is about to change. The court has accepted five DMA cases for review — all accepted in 2014. These five cases present a total of 15 questions of DMA law. Only two of these cases (Dodd and Buell) have been argued, at least in part (the question accepted sua sponte in Dodd was not argued). The other cases have yet to be scheduled for oral argument. In addition, six more cases present another 20 questions of law that have been appealed to the Ohio Supreme Court but are not yet accepted for review.

The overlap between many of the cases and issues highlights the hottest current DMA issues. However, this list of questions and issues is far from complete. In hindsight, we may find that the wave of DMA litigation crested in 2014, but experienced oil and gas attorneys expect litigation surrounding the Dormant Mineral Act will continue for years as landowners and courts wrestle with unique fact scenarios and title transactions. But for now, any definitive guidance from the Ohio Supreme Court would be helpful. Following are cases, issues and questions of law appealed to the Ohio Supreme Court to date: Continue Reading The Dormant Mineral Act: Lots of questions, few answers

We wanted to take a moment to announce our newest endeavor, Antitrust Law Source. Antitrust Law Source is a new site designed for visitors to quickly and easily learn about developments in this growing arena. The site will focus primarily on news and legal updates related to antitrust in a podcasting format. The podcasts will feature a variety of insights, educational offerings, discussions and interviews with thought leaders across a variety of industries.

The site is prepared by members of our firm’s Antitrust Practice Group and will feature news and information on a range of areas, including:

  • Agriculture
  • Civil litigation
  • Compliance programs/audits
  • Consumer protection
  • Criminal and civil government enforcement
  • Distribution, pricing and promotional allowance programs
  • Healthcare
  • Intellectual property/Technology
  • International issues
  • Legislative matters
  • Mergers, acquisitions and joint ventures
  • Privacy and data security

We encourage you to share your thoughts with us.

In Eastham v. Chesapeake Appalachia, L.L.C., 6th Cir. No. 13-4233, 2014 U.S. App. LEXIS 10531 (June 6, 2014), the Sixth Circuit court of appeals considered whether a provision in a 2007 oil and gas lease that granted Chesapeake the option to “extend or renew under similar terms a like lease” was ambiguous and whether it required Chesapeake to renegotiate the lease when it expired. The court held that the plain language of the lease allowed Chesapeake to “extend” the lease on the same terms. The decision contains insights about Ohio law and important lessons in contract drafting and interpretation.

Facts of the case

On April 9, 2007, William and Frostie Eastham signed an oil and gas lease with Great Lakes Energy Partners, LLC (“Great Lakes”) for their 49.066 acre parcel in Jefferson County, Ohio. The five-year primary term of the lease required Great Lakes to either drill a well or make delay rental payments to Mr. and Mrs. Eastham in the amount of $10.00 per acre per year until a well was drilled. The lease also provided that if the lease expired, Great Lakes would have the following option:

Upon the expiration of this lease and within sixty (60) days thereinafter, Lessor grants to Lessee an option to extend or renew under similar terms a like lease.

Sometime before the lease expired, Great Lakes assigned the lease to Chesapeake. There was apparently no dispute that the assignment was authorized by the lease and that all required delay rentals were timely paid throughout the primary term. Then, on March 14, 2012, about one month before the lease expired, Chesapeake recorded a notice of extension of the lease and sent a check for $490.66 (delay rentals for the first year of the extended five-year term) to Mr. and Mrs. Eastham along with a letter explaining that Chesapeake was exercising its option to extend the lease under the provision quoted above. Continue Reading Sixth Circuit affirms Chesapeake’s right to “extend or renew” an oil and gas lease

Last fall, the U.S. Fish & Wildlife Service (USFWS) proposed listing the northern long-eared bat as an endangered species under the Endangered Species Act (ESA). Though a decision on the ESA listing was expected this fall, the USFWS recently delayed its deadline for a decision until April 2, 2015. The USFWS also reopened the comment period on the proposed ESA listing until Aug. 29, 2014, citing “substantial disagreement regarding the sufficiency and accuracy of the available data relevant to our determination regarding the proposed listing.”

The northern long-eared bat would be the second native Ohio bat, after the Indiana bat, to be classified as an endangered species. Both bat species have suffered population declines in recent years as a result of a naturally occurring condition called white-nose syndrome, which affects the bats. If listed, Ohio oil and gas operators and pipeline companies would have to assess the impact of their activities on the northern long-eared bat, as is already required for the Indiana bat, and local and/or seasonal restrictions on certain kinds of construction or clearing activities are also likely. Continue Reading USFWS reopens comment period on proposed listing of northern long-eared bat as endangered until Aug. 29, 2014

For the past several weeks, our colleagues at Technology Law Source have been working hard to keep readers apprised of developments related to The Internet Corporation for Assigned Names and Numbers’ new generic top-level domain (gTLD) program. This program, which is essentially redefining the face of the Internet, is likely to impact any business — or, indeed, any entity — with a web presence. If you haven’t been able to keep up with the hundreds of gTLDs already delegated this year, download this hot-off-the-press e-book: Protecting Your Brand in a New gTLD World.

You also may want to subscribe to Technology Law Source (use the “Subscribe by email” prompt in the left column of the site) to receive weekly updates about the evolution of the gTLD program and the dot-anythings launching each month.

 

As we have noted previously, the sale to investors of interests in an oil and gas venture typically involves the sale of a security under federal and state securities laws, regardless of whether the investment vehicle is stock, a limited partnership or limited liability company interest, or even a fractional undivided interest in a lease (such as a working interest) if the investor is relying on someone else to manage operations. A corollary of this principle is that persons involved in marketing and selling the investment, if they receive compensation based on the transaction, must be licensed as a broker under state and federal securities laws. The lore that an unregistered “finder” can perform such services is mostly just that — lore. For the issuer, the consequence may well be loss of an exemption from registration and rescission claims from investors.  For the “finder” it may mean that his contract is not enforceable.

In Legacy Resources, Inc. v. Liberty Pioneer Energy Source, Inc. (No. 20120142, Dec. 20, 2013), the Utah Supreme Court held that a finder of investors for a prospective oil and gas project could not enforce an agent agreement with the issuer because the finder acted as an unregistered broker in violation of the Utah’s state securities laws. The court noted that the record contained undisputed evidence that the finder: Continue Reading Utah decision highlights unregistered finder risks in sale of oil and gas investments

The Ohio Supreme Court recently accepted a new group of civil cases; among them is Chesapeake Exploration, LLC v. Buell. In this case, the Supreme Court has agreed to answer the following two questions of Ohio law certified by United States District Judge Watson of the Southern District of Ohio in Case No. 2:12-cv-916:

  1. Is the recorded lease of a severed subsurface mineral estate a title transaction under the Ohio Dormant Mineral Act, R.C. 5301.56(B)(3)(a)?
  2. Is the expiration of a recorded lease and the reversion of the rights granted under that lease a title transaction that restarts the 20-year forfeiture clock under the ODMA at the time of the reversion?

Read the court’s certification order and preliminary memoranda. Continue Reading Ohio Supreme Court accepts second Dormant Mineral Act case

In February 2013, we reported that the Ohio Environmental Protection Agency (Ohio EPA) had issued proposed revisions to its Model General Permit for oil and gas well-site production operations. On April 4, Ohio EPA announced that it had finalized those revisions. The revisions bring the Model General Permits up-to-date with changes in the law since Ohio EPA originally issued the permits and make other changes to respond to industry comments. The revisions also include revised leak detection and repair requirements, which have been the subject of much recent discussion.

Ohio law generally requires each new source of air pollution to obtain a pre-construction permit from Ohio EPA’s Division of Air Pollution Control before “begin[ning] actual construction, erect[ing], locat[ing] or affix[ing] [the] air contaminant source.” Ohio law also requires sources of air pollution to obtain operating permits. Larger sources typically obtain permits-to-install (PTIs) and “Title V” operating permits; smaller sources typically obtain combined permits-to-install and operate (PTIOs). Ohio EPA may also develop Model General Permits — model PTIs and PTIOs — for categories of sources. Sources may choose to apply for regular PTIs or PTIOs if they like, but Model General Permits can be obtained more quickly, because, as Ohio EPA has explained, “all the terms and conditions of the permit have been developed in advance.” Continue Reading Ohio EPA issues revised Model General Permits for oil and gas wells

Ohio Gov. John Kasich’s mid-biennium review plan calls for an increase in Ohio oil and gas severance taxes, as proposed in House Bill 472. These increased taxes would fund certain local governmental initiatives and the Ohio Department of Natural Resources. They also would help offset personal income tax cuts outlined in the mid-biennium plan.

The current production-based severance tax scheme does not distinguish between production generated by conventional oil and gas wells and production generated by horizontal wells. The current severance tax under R.C. § 5749.02 is levied at a rate of $0.10 per barrel of oil and $0.025 per thousand cubic feet (MCF) of natural gas.

For conventional oil and gas wells, the tax under H.B. 472 would remain a volume-based tax but the rates would increase to $0.20 per barrel of oil and $0.03 per MCF of natural gas. The tax would be imposed on the “severer,” defined for conventional wells as the person who actually removes the oil or gas from the ground. Other changes to the state’s regulatory scheme are intended to militate against this tax increase, however, resulting in no economic change to the costs of production for conventional wells.1 Moreover, low-producing conventional wells would be completely exempt from the severance tax. Continue Reading Ohio severance tax is a point of ongoing negotiation