Ohio Oil and Gas Legal Report · 2018-04-03 · • thRHDK Oil & Gas LLC v. Dye, 7 Dist....

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Ohio Oil and Gas Legal Report

Ohio Oil and Gas Association 2017 Winter Meeting

3/10/2017


Topics We’ll Discuss

•  Dormant Mineral Act

•  Royalties and Post-Production Costs

•  Lease Validity cases

•  Pipeline cases

•  Other cases


DORMANT MINERAL ACT


Dormant Mineral Act

Supreme Court of Ohio:

•  Corban v. Chesapeake Exploration, L.L.C., 2016-Ohio-5796, decided Sept. 15, 2016.

•  Walker v. Shondrick-Nau, 2016-Ohio-5793.

•  Albanese v. Batman, 2016-Ohio-5814.


Dormant Mineral Act

Certified questions presented in Corbin:

•  Does the 2006 version or the 1989 version of the DMA apply to claims asserted after 2006 alleging that mineral rights automatically vested in the surface owner prior to 2006?

•  Is the payment of a delay rental during the primary term of an oil and gas lease a title transaction and “savings event” under the DMA?


Dormant Mineral Act

First key holding from Corbin:

•  The 1989 version of the DMA was not self-executing (i.e., it did not automatically transfer ownership of dormant mineral rights to the surface owner of the property by operation of law).


Dormant Mineral Act

In reaching that conclusion, the Supreme Court found important that:

•  The 1989 law did not use the word “extinguish,” nor did it declare dormant mineral interests “null and void.”

•  Rather, it provided that dormant mineral interests “shall be deemed abandoned and vested in the owner of the surface.”


Dormant Mineral Act

“Thus, by providing a conclusive presumption that the mineral interest had been abandoned in favor of the surface owner if the holder failed to take timely action to preserve it, the legislature provided an effective method of terminating abandoned mineral rights through a quiet title action.” Id. at ¶29.


Dormant Mineral Act

Second key holding from Corbin:

•  The 2006 version of the DMA applies to claims to abandon dormant mineral rights asserted after its effective date (June 30, 2006) and specifies the procedure that a surface owner is required to follow.


Dormant Mineral Act

Third key holding from Corbin:

•  The payment of a delay rental during the primary term of an oil and gas lease does not qualify as a “savings event” under the DMA.


Dormant Mineral Act

“The payment of delay rental is not a saving event either under the 1989 Dormant Mineral Act or the 2006 amendment to it, because it is not ‘a title transaction that has been filed or recorded in the office of the county recorder of the county in which the lands are located’ as required by the statute.” Id. at ¶38.


ROYALTIES AND POST-PRODUCTION COSTS


Royalties and Post-Production Costs

Supreme Court of Ohio:

•  Lutz v. Chesapeake Appalachia, L.L.C., 2016-Ohio-7549, decided Nov. 2, 2016.



Certified question presented in Lutz:

•  Does Ohio follow the “at the well” rule (which permits the deduction of post-production costs) or does it follow some version of the “marketable product” rule (which limits the deduction of post-production costs under certain circumstances)?



“Under 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 decline to answer the certified question and dismiss this cause.” Id. at ¶11.


LEASE VALIDITY CASES


Lease Validity Cases

•  Potts v. Unglaciated Indus., 7th Dist., 2016-Ohio-8559, decided Dec. 30, 2016.

―  Lessors asserted that the lessee was required to provide evidence of production throughout the entire 112-year secondary term

―  Court disagreed and instead applied the statute of limitations for written contracts



“Where a lease is in production, a prior period of alleged non-production or insufficient production is a situation encompassed in the legislative mandate to apply the statute of limitations for a written contract in ‘an action alleging a breach with respect to any other issue that the lease or license involves.’” Id. at ¶113.



•  Lang v. Weiss Drilling Co., 7th Dist. 2016-Ohio-8213, decided Dec. 19, 2016.

―  Well shared a common meter with anywhere from two to five other wells

―  Trial court found that prior to the installation of a deduct meter, the well’s reported production “was an estimate at best”



“[J]ust because this practice [of common metering] is accepted by some oil and gas companies does not mean that the trial court had to accept it in this case as a valid means to measure production for purposes of whether a well is producing paying quantities of gas.” Id. at ¶43.



•  Haverhill Glen, LLC v. Eric Petroleum Corp., 7th Dist., 2016-Ohio-8030, Dec. 2, 2016.

―  Lessee declared force majeure after trying unsuccessfully to access the property to conduct a survey and stake the well site

―  Representatives were denied access and they were cursed at, lunged at, and physically threatened



“The trial court was correct in concluding that the force majeure clause was triggered based upon these facts. This is precisely the situation that this Lease provision was intended to cover.” Id. at ¶28.



•  Burkhart Family Trust v. Antero Res. Corp., 7th Dist., 2016-Ohio-4817, June 28, 2016.

―  Trial court believed lessees bore the burden of proving that the wells were profitable

―  “[T]he fact remains that the [lessor] had the burden of proving by means of evidence that the wells (that they admit produce) do not produce in paying quantities.” Id. at ¶30.



•  RHDK Oil & Gas LLC v. Dye, 7th Dist. 2016-Ohio-4654, June 20, 2016.

―  Lessors relied on three periods of non-production, with none exceeding six months

―  “[A]bsent a finding of unreasonableness, a six-month cessation period is temporary and does not terminate a lease.” Id. at ¶24.



•  Schultheiss v. Heinrich Enters., Inc., 4th Dist., 2016-Ohio-121, Jan. 12, 2016.

―  Alleged lack of production from 1977 to 1981, but continuous production since at least 1992

―  Court of Appeals held that affirmative defenses of laches and statute of limitations had no application because lease terminated in 1981



Ohio Supreme Court has accepted jurisdiction on the following proposition of law:

•  “A landowner should be estopped from terminating an oil and gas lease by the acceptance of benefits.”

•  Oral argument scheduled for May 2, 2017


PIPELINE CASES


Pipeline Cases

Ability to appropriate property for pipelines:

•  Kinder Morgan Cochin LLC v. Simonson, 5th Dist., 2016-Ohio-4647, June 27, 2016.

―  Kinder Morgan sought access to Simonson’s property for the purpose of conducting surveys, inspections, and examinations

―  Trial court enjoined Simonson from interfering with Kinder Morgan’s right to enter the property and conduct surveys


Pipeline Cases

“[T]he trial court did not err in finding that the term petroleum as used in R.C. §1723.01 includes the natural gas liquids ethane and propane.” Id. at ¶28.


Pipeline Cases

“[A] ‘common carrier’ is … one who undertakes to transport persons or property from place to place, for hire, and holds itself ‘out to the public as ready and willing to serve the public indifferently.’ … Here, we find that the evidence presented supports the trial court’s finding that the Utopia Pipeline is a common carrier pipeline.” Id. at ¶¶33-34.


Pipeline Cases

Ability to appropriate property for pipelines:

•  Sunoco Pipeline L.P. v. Teter, 7th Dist., 2016-Ohio-7073, Sept. 29, 2016.

―  Trial court granted Sunoco Pipeline L.P.’s petition for appropriation and complaint for condemnation, concluding in part that propane and butane are petroleum

―  Court of Appeals affirmed


Pipeline Cases

•  Landowner appealed to Ohio Supreme Court

•  Court granted emergency motion to stay execution of the court of appeals’ judgment with no bond required

•  Court has not yet decided whether to accept jurisdiction over the appeal


MISCELLANEOUS CASES


Other Miscellaneous Cases

Barnes v. Reserve Energy Exploration, 7th Dist., 2016-Ohio-4805, decided June 28, 2016.

•  Statement was made that landowners would lose their oil and gas to wells drilled on the neighboring land if they did not sign the leases and their neighbors did

•  Issue was whether the statement could support a fraud-in-the-inducement claim



“It has been long held that, under Ohio law, a representation of law is an opinion and cannot form the basis of an action for fraud in the absence of a fiduciary relationship. … Further, Ohio has recognized the ‘rule of capture’ in the oil and gas lease context.” Id. at ¶¶28-29.



Dundics v. Eric Petroleum Corp., 7th Dist., 2017-Ohio-640, decided Feb. 17, 2017.

•  Issue is whether Ohio Rev. Code § 4735.21 precludes an independent landman from receiving payment for work in negotiating oil and gas leases

•  Trial court concluded that appellants were required to have a real estate broker’s license to perform the alleged services



“Whether described as licenses, leases, fee simple determinable estates, or something else, any instrument affecting oil and gas necessarily affects the surface rights as well [and] falls under the definition of ‘real estate.’ Thus, to engage in any of the activities alleged here for compensation, one must have a broker’s license.” Id. at ¶23.



Based on its conclusion that the statute was unambiguous, the Court also declined to consider “legislative intent, legislative history, public policy, [or] the consequences of an interpretation.” Id. at ¶26.


Questions?

Mitch Tobias 52 E. Gay Street

Columbus, OH 43215 (614) 464-6214

[email protected]

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Ohio Oil and Gas Legal Report · 2018-04-03 · • thRHDK Oil & Gas LLC v. Dye, 7 Dist....

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