Transactional

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Mineral and land owners in Ohio who are presented with a proposed lease from a landman or oil company often launch an intense study of royalty provisions, development covenants, delay rentals, Pugh clauses, well spacing and the like. They often refer to the Internet, land owner groups, owner-oriented attorneys and other resources. Like so many things, it turns out that our forefathers pretty much had it figured out. I recently reviewed a 1901 oil and gas lease from Putman County; my thoughts and observations are below.

The lease was granted by Noah Moser to The Sun Oil Co., an Ohio corporation, on Sept. 19, 1901. The recordation of this transaction is hand written into the Putman County records by the recorder. The consideration, what is today called the “signing bonus,” was $80 for a 160-acre parcel. (In today’s dollars, that’s an “economic power” of $56,300, or $352 per acre.)

In the two-page document, Mr. Moser granted all the oil and gas in and under the described premises together with the right to enter at all times for the purpose of drilling and operating for oil, gas or water. This included the right to erect, maintain and remove all buildings, structures, pipelines and machinery necessary, provided that Mr. Moser retained the right to farm the land not actually used. Just what one would expect. But here’s where Mr. Moser shows he knew what he was doing:
Continue Reading Nothing New Under the Sun — A 1901 Oil and Gas Lease

We previously blogged about securities regulation of interests in oil and gas exploration and development. Industry participants, state and federal securities regulators have recently cautioned investors regarding investing in oil and gas ventures.

At the federal level, the U.S. Securities and Exchange Commission (SEC) issued an investor alert aimed at private oil and gas offerings. In addition to the usual cautions to investors to do their homework on these deals, the SEC encouraged investors to verify that the person offering the investment is licensed as a broker-dealer. The SEC recently stepped up its efforts to pursue “finders” and other unlicensed persons compensated by issuers to assist in finding investors. Companies raising investment funds need to understand that persons who they engage to assist in selling investments are required to have a securities license. Failure to do so exposes the issuer to civil liability, including rescission claims by investors, and potential criminal liability in cases where material misstatements or omissions are made in the private placement memorandum or other offering material, or other fraudulent activity is present. The investor alert cites several examples of recent enforcement actions where such illegal activity was involved.
Continue Reading SEC Issues Investor Alert for Private Oil and Gas Offerings

This is the second post in a two-part series examining ownership of minerals located under bodies of water and roads. See part I discussing the ownership of minerals under adjoining waters.

Who owns the minerals underneath public roads in Ohio? This is really two questions:

  1. What ownership interest does the state, county, or township have in the land underlying the road? 
  2. What is the rule for abutting landowners in the event the government owns less than a fee simple absolute?

Historical Ownership Interest of the State, Counties and Municipalities

Over time, the interest acquired in the land underlying roads has changed for states, counties, and townships. Ownership interests are transaction specific, but there is a general trend. Municipal roads were usually taken in fee, while roads outside municipalities are likely to be easements unless they were granted in the past 30 years, in which case they are likely to be held in fee.
Continue Reading Ownership of Minerals Under Public Roads

Understanding rights and obligations associated with oil and gas leases can be challenging. Imprecise lease language, implied legal duties, formulaic statutes and evolving case law all affect oil and gas leases in different ways. We’ve written several articles on these topics during the past several months and have compiled them into an eBook to help…

This post is the first of two articles examining ownership of minerals located under bodies of water and roads.

Who owns the minerals under bodies of water? When oil and gas were being produced in meager quantities, not many people cared. But the story is different when lease bonuses are thousands of dollars per acre and royalties could be worth millions. Now, every acre in eastern Ohio is cast in a different light and suddenly there is enormous interest in figuring out who owns the minerals beneath Ohio’s lakes, rivers, ponds, streams and reservoirs. The following press release helps drive home the point about what is at stake:
Continue Reading Ownership of Minerals Under Adjoining Waters

In many ways, the Utica Shale play caught Ohio off guard. The state became a main focus of the oil and gas industry almost overnight. Ohio responded by updating its oil and gas laws, including major overhauls resulting from Senate bills 165 in 2010 and 315 in 2012. But in some cases, operators and regulatory agencies are still applying old law that was written with conventional drilling methods in mind. In this post, part 3 of our series on compelled participation (see Part 1 and Part 2), we look at unitization — one of these old laws being put to new use.

What Is Unitization?

Unitization is the creation or designation of a contiguous area of land, called a “unit,” for the efficient development of the oil and gas resources underlying that land. Units can be formed by order of the Ohio Department of Natural Resources (ODNR), on application from an operator. Units also can be formed voluntarily by consent of interest owners, usually owners of the leasehold. Inevitably, the land sought to be unitized — really the geologic formation below the surface — is subject to a patchwork of different ownership interests. The operator attempts to negotiate lease rights with all such land or mineral rights owners, but it is often the case that the operator cannot reach an agreement with all of them. When an operator has the consent of all but a small portion of the land for a unit, Ohio law allows the operator to apply for ODNR to compel the non-consenting interest owners to join the unit.
Continue Reading Unitization in Ohio: Compelled Participation in the New Context of the Utica Shale

A decision out of the Eleventh District Court of Appeals of Ohio, Mong v. Kovach Holdings, LLC, 2013-Ohio-882 (Ohio 11th Dist. March 11, 2013), represents a cautionary reminder that parties should carefully review the language of contracts they enter, especially the essential terms of the document, and especially contracts that convey away property rights. That is particularly true when a party parts with property rights set forth in warranty deeds. My colleague Jeff Fort blogged about this recently and asked me to add my thoughts.

In Mong v. Kovach Holdings, the plaintiff, Joseph Mong, sold approximately 70 acres of land near Warren, Ohio, he had recently acquired from Alice McMenamin to Defendant Kovach Holdings at auction. Mr. Mong apparently intended to reserve to himself the oil and gas rights associated with the property. According to Mr. Mong, the auctioneer informed the prospective purchasers of that reservation immediately preceding and subsequent to the auction. The auctioneer confirmed that he did so in a following affidavit. The purchaser of the property, Kovach Holdings, denied that that the auctioneer described any such limitations or reservations. The property sold for $245,300.

The parties shortly thereafter executed a standard purchase agreement, but which included the following handwritten language: “Gas + oil Royalty Reserved by Present owner.” Mr. Mong argued this language revealed that the oil and gas rights were not a part of the sale to Kovach Holdings. The problem, for Mr. Mong at least, was that the subsequent warranty deed by which Mr. Mong conveyed the property included no comparable language. It did, however, include merger language.
Continue Reading Oil and Gas Rights — Reserved? A Litigator’s Perspective On The Mong Case

We recently received a question regarding our earlier post Life Estates: Oil and Gas Law Implications, wondering: “What happens to a mineral lease which the life tenant entered into and received renewal payments each year that was never ratified by the remaindermen upon the termination of the life estate and complete possession is realized by the remaindermen?”

The Noble County, Ohio Court of Common Pleas recently addressed this issue in Dickson v. Chesapeake AEC Acquisition, LLC, Case No. 212-0051. In Dickson, a life tenant entered into an oil and gas lease with an exploration company. Just before the original term of the lease expired, the lessee’s successor sent the life tenant a check, as was required to extend the primary term of the lease. The plaintiffs (the remaindermen of the life estate) returned the check and notified the lessee that the lessor owned only a life estate in the property, that the plaintiffs owned the remainder interest in the property, and that the life tenant had no right to lease mineral rights. When the dispute could not be resolved, the remaindermen sued the lessee. The remaindermen then moved for summary judgment, asking the court to declare the lease between the life tenant and the exploration company void.
Continue Reading Life Estates: More Oil and Gas Law Implications