Energy & Environmental Law Blog

Energy & Environmental Law Blog

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U.S. EPA to Reconsider Oil and Gas Methane Emissions Rule

Posted in Energy, Environment

On April 18, 2017, U.S. EPA issued a letter in response to petitions submitted by the American Petroleum Institute and other oil and gas industry groups requesting reconsideration of EPA’s rule regulating methane emissions from sources in the oil and natural gas sector (81 FR 35824). EPA determined that the petitions “raised at least one objection to the fugitive emissions monitoring requirements (40 CFR 60.5397a) that arose after . . . or was impracticable to raise during the comment period.” Accordingly, pursuant to Clean Air Act section 307(d)(7)(B), the EPA is convening a proceeding for reconsideration of the fugitive emissions monitoring requirement.

The rule under reconsideration would require companies to identify, monitor and repair sources of fugitive emissions at wells sites and compressor stations. During the reconsideration proceeding, EPA plans to issue a 90-day stay of the June 3, 2017 compliance date for the fugitive emissions monitoring requirements.

The Dimock Saga Continues – Judge Vacates Award

Posted in Energy

For over six years, individuals living in Dimock Township, Susquehanna County, Pennsylvania, have been asserting claims against Cabot Oil & Gas Corporation related to alleged damage to their water supplies purportedly caused by two unconventional gas wells. On March 10, 2016, a jury rendered a verdict in favor of the individuals, awarding them $4.24 million.  However, Magistrate Judge Martin Carlson quickly vacated the award, noting that weaknesses in the plaintiffs’ case and proof, coupled with serious and troubling irregularities in the testimony and presentation by the plaintiffs’ attorneys, greatly undermined faith in the jury’s verdict.  (The court delivered a stinging blow directly to the plaintiffs’ counsel, New York-based Leslie Lewis, for overzealous advocacy, which included several instances of inappropriate conduct throughout the trial.)  Further, the court held that the jury’s award bore no discernible relationship to the evidence.

Although the judge has encouraged the parties to reach a meaningful settlement, this decision sets the stage for another trial and the continuance of the Cabot Oil – Dimock saga.

For a copy of the case, captioned Ely v. Cabot Oil & Gas Corp., please contact Attorney Michael Vennum at mkvennum@vorys.com.

Ohio Court Rules Royalty Interests May Be Abandoned Under ODMA

Posted in Energy

Deciding an issue of first impression in the state, Ohio’s Seventh District Court of Appeals recently held that oil and gas royalty interests may be abandoned under the Ohio Dormant Mineral Act (ODMA). See Devitis v. Draper (Mar. 20, 2017).

In Draper, the court first looked to its prior decision, Pollock v. Mooney, which found that royalty interests are subject to extinguishment under the Ohio Marketable Title Act (OMTA), of which the ODMA is a part.  In Pollock, the court relied on broad language in the OMTA that applied the act’s provisions to “all interests, claims, or charges whatsoever.”   While noting that the language of the ODMA is different, the Draper court found that “parallels can be drawn” because the ODMA’s definition of “mineral interest” was also broad, and included the catch-all phrase “regardless of how the interest is created and of the form of the interest.” Moreover, the court found that conceptually, a royalty interest is simply one “stick” within the bundle of attributes comprising the mineral estate, and that it may be separately transferred.  Therefore, a royalty interest fell within the definition of a “mineral interest” under the ODMA.

The Draper court went on to find that the particular royalty interest at issue, while potentially subject to abandonment under the ODMA, was preserved through the timely filing of a claim of preservation.

Any Month is One Month for Strippers

Posted in Energy

In its decision of Snyder Brothers, Inc. v. Public Utility Comm’n, 1175 C.D. 2015 (Mar. 29, 2017), the Commonwealth Court was asked to determine the meaning of the term “any” as it applied to stripper wells and the payment of impact fees.  A stripper well is defined as an “unconventional gas well incapable of producing more than 90,000 cubic feet [cf] of gas per day during any calendar month. . . .”  58 Pa. Cons. Stat. § 2301 (emphasis added).  Because Pennsylvania’s Oil and Gas Act relieves owners of stripper wells from paying impact fees, the determination of the term became financially important to the Petitioner, Snyder Brothers, Inc., who claimed that several of its wells were stripper wells because they did not produce more than 90,000 cf of gas per day in at least one calendar month.  Pennsylvania’s Public Utility Commission contended that Snyder Brothers owed significant impact fees and penalties as to the purported stripper wells because the wells indeed produced more than 90,000 cf of gas per day during several months of the year.

In a 5 to 2 decision, the court held that the plain English definition of “any” is unambiguous and, thus, signifies only “one or a singular month.”  As such, when an unconventional gas well cannot produce more than 90,000 cf of gas in at least one month, it is a stripper well and not subject to impact fees.

Ohio Court Provides Further Guidance on Who is a “Holder” Under the ODMA

Posted in Energy

Following up on its recent decision in M&H P’Ship v. Hines, Ohio’s Seventh District Court of Appeals has offered further guidance on the term “holder” as used in the Ohio Dormant Mineral Act (ODMA)—finding that heirs of the record holder of a dormant mineral interest are “holders” for purposes of the statute, even if they did not acquire their interest through a chain of title of conveyances or probate estates that specifically transmitted the dormant mineral interest. See Warner v. Palmer (March 22, 2017).

In Palmer, the surface owner argued that heirs of the now-deceased record holders of the dormant mineral interest did not have standing to challenge its notice of abandonment. Under the ODMA, only the “holder or a holder’s successors or assignees” are permitted to record a claim to preserve dormant mineral interests in response to a notice of abandonment. And the word “heir” is omitted from the statute, the surface owner noted. Moreover, in this particular case, the record showed that the dormant mineral interest was omitted from the record holders’ estate inventories. According to the surface owner, these facts established that the heirs were neither the record holders of the dormant mineral interest nor “successors or assignees” of the record holders.

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White House Approves Keystone XL Pipeline

Posted in Energy, Environment

The White House issued a permit today approving Keystone XL, “bringing the mammoth oil pipeline a step closer to fruition more than a year after former President Barack Obama blocked its construction,” writes The Wall Street Journal. The paper notes that the pipeline, which will carry up to 830,000 barrels of oil a day once completed, “still faces state-level legal challenges in Nebraska and South Dakota that could cause further delays.” Click here to read the full story (subscription required).

Ohio Court Construes the Term “Holder” under the 2006 DMA to include the Heirs and Devisees of the Record Owner

Posted in Energy

Ohio’s Seventh District Court of Appeals recently interpreted the term “holder” under the 2006 version of the Ohio Dormant Mineral Act (R.C. § 5301.56) (“2006 DMA”) and held that the term should be construed broadly to include the heirs and devisees of the record owner of the severed mineral interest that succeed to the severed mineral interest by intestacy or devise.

In M&H P’ship v. Hines, 2017-Ohio-923, the plaintiff surface owners published a notice of abandonment to have the subject mineral interest deemed abandoned under the 2006 DMA. Within the statutorily prescribed time period, the defendant mineral owners, who are the grandchildren of the now-deceased record owners (“Original Owners”), recorded a claim to preserve in response. The trial court found that the defendant mineral owners sufficiently preserved their mineral rights and the plaintiff surface owners appealed.

In one of their assignments of error, the plaintiff surface owners argued that the trial court erred in holding that the defendant mineral owners proved that they are the successors in interest to the Original Owners. As such, the defendant mineral owners did not have standing to challenge the plaintiff surface owners’ notice of abandonment by filing a claim to preserve. The Court rejected the plaintiff surface owners’ argument and ultimately affirmed the trial court’s decision. In doing so, the Court found that the “broad definition of holder” includes the defendant mineral owners.

The term “holder” means “the record holder of a mineral interest, and any person who derives the person’s rights from, or has a common source with, the record holder and whose claim does not indicate, expressly or by clear implication, that it is adverse to the interest of the record holder.” R.C. § 5301.56(A)(1). In this case, the defendant mineral owners derived their mineral rights from, or had a common source with, the Original Owners because they succeeded to the Original Owner’s interest by intestacy and devise. As such, the defendant mineral owners were “holders” of the subject mineral interest and had standing to challenge the plaintiff surface owners’ notice of abandonment.

Click here to read the full opinion.

Ohio Court Rules Landmen Need to be Licensed Real Estate Brokers to Receive Compensation

Posted in Energy

Ohio’s Seventh District Court of Appeals recently held that landmen are subject to the requirements of R.C. Chapter 4735 requiring real estate broker’s licenses in order to be entitled to compensation for brokering deals with landowners on behalf of oil and gas companies.

In Dundics v. Eric Petroleum Corp., plaintiff landmen alleged that they were not compensated by the defendant oil and gas company for their work in assisting the company with negotiating and obtaining oil and gas leases in Ohio.  The company moved to dismiss the lawsuit, asserting that the landmen were not licensed Ohio real estate brokers, and therefore, were barred from recovering under R.C. 4735.21, which precludes the recovery of compensation for “real estate. . . brokerage transaction[s]” unless the person brokering the transactions is a licensed estate broker.

Agreeing with the lower court’s ruling, the appellate court held that “real estate,” for purposes of the statute, was broadly defined to include “leaseholds as well as any and every interest or estate in land” ­ ­– which, under Ohio law, includes oil and gas rights.  And so, to be entitled to compensation for brokering in oil and gas rights, the landmen needed to be licensed.  The court rejected the landmens’ argument that R.C. 4735.21 was inapplicable because oil and gas was different from traditional real property, noting that “the fact that oil and gas rights are different does not excuse third parties who ask the courts to enforce their engagement with either owners of surface real estate or those who wish to extract subsurface oil and gas from the real estate broker’s license requirement at issue here.”   Also, based on its conclusion that the statute was unambiguous, the Court declined to consider “legislative intent, legislative history, public policy, [or] the consequences of [its] interpretation.”

Click here to read the full opinion.

Bohlen v. Anadarko

Posted in Energy

Earlier this week, the Supreme Court of Ohio heard oral arguments in Bohlen v. Anadarko.  The Bohlens entered into a lease with Alliance in 2006 for a one year primary term.  Paragraph 3 of the lease contained a delay rental provision:

This lease, however, shall become null and void and all rights of either party hereunder shall cease and terminate unless the Lessee shall thereafter pay a delay rental of $5,500.00 Dollars each year, payments to be made yearly, but in no event not less than yearly, for the privilege of deferring the commencement of a well.

In an addendum, the parties also provided:

In the event that during any calendar year the total royalties paid from production of the leased premises, shall be less than the annual rental of $5,500.00, Lessee shall tender to Lessor such sum that will equal to the $5,500.00 annual rental payment.

Within seven months of signing the lease, Alliance drilled two wells, one of which was a producer.  Between 2008 and 2013, Alliance paid royalties to the Bohlens, but the royalty amounts fell below the $5,500 per year required by the lease.

The Bohlens filed suit, making a twofold argument that the lease had terminated.  First, they claimed that the lease had lapsed due to Alliance’s failure to pay the entire $5,500 minimum annual royalty payment, which the Bohlens characterized as a delay rental required by Paragraph 3 of the lease (and therefore, subject to the termination provision in the delay rental clause).  Next, the Bohlens claimed that regardless of whether the lease had terminated for failure to pay the required payments, the lease allowed Alliance to make delay rental payments during the secondary term, and therefore was a perpetual lease that was void ab initio as offensive to Ohio public policy.

When it heard the case, the Fourth District Court of Appeals didn’t find either argument persuasive, ruling that the minimum royalty provision in the addendum was not incorporated in the delay rental clause in paragraph 3 of the lease, and therefore, that the royalty shortfall did not trigger the automatic termination of the lease.  The appellate court also ruled that the lease did not allow Alliance to make delay rentals during the secondary term, and therefore, was not a perpetual lease.

During Wednesday’s oral arguments, the justices also appeared skeptical of the Bohlens’ claims.  You can watch the arguments here.

Sixth Circuit Holds WOTUS Case Pending Supreme Court Review

Posted in Energy, Environment

On January 25, 2017, the Sixth Circuit granted a motion to hold in abeyance litigation regarding U.S. EPA’s rule defining “waters of the United States” (WOTUS) pending the Supreme Court’s review of whether the Sixth Circuit has jurisdiction to hear the case. The Supreme Court granted certiorari to settle the jurisdictional issue on January 13, 2017.