On Dec.19, 2018, Gov. John Kasich signed SB 263 into law, which amends ORC 4735 to exempt oil and gas land professionals (landmen) from the licensure requirements imposed on real estate agents and brokers. The revisions to sections 4735.01 and 4735.023 introduce the concept of an “oil and gas land professional” (new ORC 4735.01(GG)), and
West Virginia joins majority view on oil and gas leasing with new cotenancy statute
On March 5, 2018, the West Virginia Legislature passed new legislation known as the Cotenancy Modernization and Majority Protection Act, W. Va. Code § 37B-1-1 et seq. (Cotenancy Statute). This new Cotenancy Statute, which became effective June 3, 2018, is intended to facilitate oil and gas development of West Virginia properties that have numerous fractional oil and gas owners. It applies to tracts in which there are seven or more owners of the oil and gas in place, and changes West Virginia law by allowing an operator to produce oil and gas without the consent of all oil and gas owners under certain circumstances.
Prior to passage of the Cotenancy Statute, West Virginia law mandated consent of 100 percent of the oil and gas owners before an operator could lawfully develop the oil and gas estate. If any oil and gas owner refused to sign a lease, regardless of how small that non-consenting owner’s fractional interest, the operator was compelled to either forego development or file a partition action under W. Va. Code § 37-4-3. Through partition, an operator could acquire the non-consenting owner’s interest at fair market value, as appraised by three special commissioners appointed by the court.
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Ohio Supreme Court rejects implied covenant to explore further
The Ohio Supreme Court’s latest oil and gas decision is good news for the industry. On Jan. 3, 2018, the Court decided Alford v. Collins-McGregor Operating Co., Slip Opinion No. 2018-Ohio-8, which held that under Ohio law, “there is no implied covenant to explore further separate and apart from the implied covenant of reasonable development.” Id. at ¶25.
The facts are straight forward and did not seem to make much difference in the decision. The Plaintiff-appellant filed suit in 2015 in Washington County against Defendant, a conventional oil and gas operator who had continuously operated a conventional Gordon Sand well on Plaintiff-appellant’s 74 acre parcel since 1981. …
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Federal district court finds that Ohio allows deduction of post-production costs from royalty payments required to be calculated “at the well”
Last week the Ohio Northern District Court, Eastern Division issued a decision in Lutz v. Chesapeake Appalachia, LLC, N.D. Ohio No. 4:09-cv-2256, 2017 U.S. Dist. LEXIS 176898 (Oct. 25, 2017), which involved a dispute about whether Ohio follows the “at the well” rule (which allows oil and gas royalty payments to be downward adjusted to account for a lessor’s pro rata share of post-production costs) or the “marketable product” rule (which does not allow producers to adjust royalty payments to account for post-production costs).
The case has an interesting history. In 2015 District Judge Lioi certified a question of law regarding post-production costs to the Ohio Supreme Court. The Ohio Supreme Court accepted briefing and heard oral argument before returning the issue to the Judge Lioi with instructions to interpret the disputed leases according to their plain language. The Ohio Supreme Court held, “[u]nder Ohio law, an oil and gas lease is a contract that is subject to the traditional rules of contract construction. Because the rights and remedies of the parties are controlled by the specific language of their lease agreement, we decertify the question of law submitted by the United States District Court for the Northern District of Ohio, Eastern Division.”
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Ohio Supreme Court to hear appeal on expansion of implied covenants to encompass deep rights
On March 15th, 2017, the Ohio Supreme Court accepted a discretionary appeal in Alford v. Collins-McGregor Operating Company, Washington App. No. 16CA9, 2016-Ohio-5082. The Alford appeal arises from the Washington County Court of Appeals, Ohio’s 4th Appellate District. In Alford, the 4th District declined to expand Ohio’s implied covenant…
Ohio appeals court requires landmen to be licensed as real estate brokers to negotiate oil and gas leases
On Feb. 17, 2017, the 7th District Court of Appeals upheld a Mahoning County Court of Common Pleas decision that ruled landmen must be licensed as real estate brokers to be compensated for negotiating oil and gas leases.
In Dundics v. Eric Petroleum Corp., 2017-Ohio-640, the plaintiffs were landmen who had negotiated leases on behalf of the defendant operator. The landmen were promised $10 per leased acre and a 1 percent working interest in any wells placed on the leased acreage. In the landmen’s suit for failure of payment, the operator successfully moved to dismiss the case on the basis that the landmen were not entitled to compensation since they were not licensed real estate brokers. The operator pointed to Ohio Revised Code Section 4735.21 in support of its motion to dismiss, which states in part:
“[n]o real estate salesperson … shall collect any money in connection with any real estate or foreign real estate brokerage transaction, whether as a commission, deposit, payment, rental, or otherwise, except in the name of and with the consent of the licensed real estate broker or licensed foreign real estate dealer under whom the salesperson is licensed at the time the sales person earned the commission.”
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Ohio Supreme Court issues decision regarding post-production costs
This morning the Ohio Supreme Court issued a decision in Lutz, which arose when the federal Northern District Court of Ohio, Eastern Division, certified the following question of law to the Ohio Supreme Court: Does Ohio follow the “at the well” rule (which permits the deduction of postproduction costs) or does it follow some version…
Ohio Supreme Court rules on Beck lease regarding delay rentals and tolling
On Jan. 21, 2016 the Ohio Supreme Court announced State ex rel. Claugus Family Farm, L.P. v. Seventh Dist. Court of Appeals, Slip Opinion No. 2016-Ohio-178, a decision that finally laid to rest two important oil and gas cases that have been winding their way through the Ohio courts for more than four years –…
The Dormant Mineral Act: Lots of questions, few answers
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:…
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Sixth Circuit affirms Chesapeake’s right to “extend or renew” an oil and gas lease
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.
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