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Energy & Environmental Law Blog

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ODNR Temporary Orders for Oilfield Waste Remain in Effect

Posted in Environment

On February 15, 2018, the Supreme Court of Ohio denied an appeal of a mandamus action seeking to force ODNR to rescind temporary orders that ODNR had issued to a number of facilities across the state for the storage, recycling, treatment, processing, or disposal of brine and other oilfield waste.  R.C. 1509.22(B)(2)(a) requires that “on and after January 1, 2014, no person shall store, recycle, treat, process, or dispose of in this state brine or other waste substances associated with the exploration, development, well stimulation, production operations, or plugging of oil and gas resources without an order or a permit….”  R.C. 1509.22(C) requires that “[ODNR] shall adopt rules regarding storage, recycling, treatment, processing, and disposal of brine and other waste substances.”

As a temporary measure before developing rules and a formal permitting program, ODNR had allowed facilities to process oilfield waste via temporary Chief’s Orders.  An environmental citizens’ group, FreshWater Accountability Project (“FWAP”), brought a mandamus action in the Tenth District Court of Appeals, arguing that the temporary orders issued by ODNR were unlawful by virtue of ODNR’s failure to adopt rules and a permitting program.  The Tenth District dismissed the mandamus action, but did not reach the merits of FWAP’s claims, instead holding that FWAP lacked standing to bring the lawsuit.  A divided Supreme Court affirmed the Tenth District’s decision.  Thus, the temporary orders issued by ODNR remain in effect.

That said, ODNR is actively working to develop rules under R.C. 1509.22, and has produced a Statement of Intent discussing what the general contours of the new rules will be.  Once final rules are promulgated those facilities holding temporary orders (as well as any new facilities brought into operation after promulgation of the final rules) will be required to obtain a permit from ODNR, per ODNR’s guidelines for the issuance of the temporary orders.  Interested parties should monitor the continuing development of these rules with ODNR.  The rulemaking process may be tracked on ODNR’s website.

Oil and Gas Title Washing Survives Another Judicial Challenge

Posted in Energy

In its February 2018 unpublished decision of Woodhouse Hunting Club, Inc. v. Hoyt, the Pennsylvania Superior Court upheld yet another challenge to the Commonwealth’s unique, historical concept of “title washing.”  Many oil and gas title attorneys are familiar with the concept, whereby reservations of oil and gas underlying “unseated” lands are erased following tax sales.  The scheme primarily originated in the timber areas of Pennsylvania, when a lumber company that owned land with a prior oil and gas severance allowed taxes on that land to become delinquent, and then utilized a “straw” purchaser at a tax sale to purchase the land from the county treasurer.  Typically, the straw purchaser further failed to record the treasurer’s deed for a period of two years – a time period conveniently coinciding with the expiration of the statutory tax redemption period.  This title washing merged the subsurface estate into the surface estate and divested the prior subsurface owners of their oil and gas reservation.  This contrivance was given the imprimatur of the courts, which implicitly justified their holdings based upon the failure to alert the tax assessor of the severance and the failure to pay taxes on the oil and gas estates.  That same judicial holding was contemporarily affirmed by the Pennsylvania Supreme Court in its 2016 decision of Herder Spring Hunting Club v. Keller, 143 A.3d 358.

Although a bit dated, the following article published in the January 2013 edition of the Pennsylvania Bar Association Quarterly covers title washing and two other unique title issues of which oil and gas title attorneys should be aware:

Title Washing and Other Unique Pennsylvania Title Matters.

 

 

U.S. EPA Finalizes Rule Delaying WOTUS Applicability Date

Posted in Environment

This post provides an important update to our January 22, 2018 entry.  On January 31, 2018, U.S. EPA and the Army Corp finalized a rule that makes the 2015 WOTUS Rule applicable two years following publication of the applicability date rule in the Federal Register.  The final rule provides that the scope of Clean Water Act jurisdiction will be administered nationwide as it was prior to the 2015 WOTUS rule, and is intended to establish a framework for an interim period of time that avoids inconsistencies, uncertainty, and confusion, pending further rulemaking action by the agencies. Though it appears the applicability rule will be the subject of additional litigation.

An unofficial version of the rule may be viewed here.

Supreme Court of Ohio Rejects Constitutional Challenge to Unitization Order

Posted in Energy

On January 30, 2018, the Supreme Court of Ohio rejected a constitutional challenge to a statutory unitization order issued by the Ohio Department of Natural Resources, Division of Oil and Gas Resources Management. In State ex rel. Kerns v. Simmers, the Division issued an order under Ohio’s unitization statute, R.C. 1509.28, that consolidated the relators-landowners’ lands with other lands into a unit for oil and gas development.  The landowners unsuccessfully challenged the issuance of the order before the Ohio Oil and Gas Commission.  Afterwards, they commenced a mandamus action before the Supreme Court of Ohio, alleging that the Division’s order resulted in an unconstitutional taking of their property and asked the Court to require the Division to commence appropriations proceedings.

In its decision, the Court denied the landowners’ mandamus request on procedural grounds, concluding that the landowners were not entitled to the writ of mandamus because they failed to demonstrate an adequate remedy at law. The Court concluded that following the landowners’ unsuccessful appeal to the Oil and Gas Commission, the landowners could have pursued a further appeal to the Franklin County Common Pleas Court. Although their claim was beyond the purview of the Oil and Gas Commission, the common pleas court could have addressed the landowners’ challenge to the constitutionality of R.C. 1509.28.  That remedy was complete, beneficial, and speedy, the Court found.  Because the landowners’ mandamus request was procedurally deficient, the Court did not reach the merits of their takings claim.

[Disclosure: Vorys attorneys Gregory D. Russell, John J. Kulewicz, and Ilya Batikov represented amici curiae The Ohio Oil and Gas Association, The Southeastern Oil and Gas Association and producer amici in this case.]

U.S. Supreme Court Determines Jurisdiction for WOTUS Challenges

Posted in Energy, Environment

On January 22, 2018, the U.S. Supreme Court held that lawsuits challenging the joint EPA-Army Corps rule defining “waters of the United States” (WOTUS) must be filed in federal District Courts. The Supreme Court’s decision overturns the Sixth Circuit’s February 2016 decision that the federal Circuit Courts have exclusive jurisdiction, pursuant to Section 1369(b)(1) of the Clean Water Act (CWA), to adjudicate challenges to the WOTUS rule. Notably, the Supreme Court determined that the WOTUS Rule does not fall within any of the seven categories of EPA actions for which the Circuit Courts have exclusive jurisdiction to review under CWA § 1369(b)(1). With respect to the two specific categories of EPA actions at issue, the Court held that the WOTUS rule is not: (1) an “effluent limitation” or “other limitation” under CWA § 1369(b)(1)(E), or (2) an EPA action “in issuing or denying any permit under section 1342” pursuant to CWA § 1369(b)(1)(F).

With the District Courts having jurisdiction over challenges to the WOTUS rule, the cases pending in the Circuit Courts are to be dismissed per the Supreme Court’s instruction. The cases in District Courts that were stayed pending the Supreme Court’s decision will likely move forward. It should also be noted that the WOTUS rule remains on the books for now. With respect to the status of the WOTUS rule, interested parties should monitor two proposed rules issued by the EPA and Army Corps: (1) rule that would rescind the WOTUS rule and recodify the prior regulatory definition of WOTUS (82 Fed. Reg. 34899), and (2) proposed rule that would set a new effective date for the WOTUS rule two years from the date of the final action on the proposed rule (82 Fed. Reg. 55542). The WOTUS rulemaking process may be tracked on EPA’s website.

Supreme Court of Ohio Rejects Implied Covenant to Explore Further in Oil and Gas Leases

Posted in Energy

In a January 3, 2018 decision, the Supreme Court of Ohio held that Ohio does not recognize an implied covenant to explore further as a distinct implied covenant in oil and gas leases.  See Alford v. Collins-McGregor Operating Co., Slip Opinion No. 2018-Ohio-8.

Read more about this case in our Client Alert.

PA DEP Halts Mariner East II Pipeline

Posted in Energy

Yesterday, the Pennsylvania Department of Environmental Protection halted construction of Sunoco Logistic LP’s Mariner East II pipeline, citing violations of environmental laws, reports the Pittsburgh Tribune-Review:

Sunoco violated its permits, using unauthorized drilling methods that leaked nontoxic drilling fluid into trout streams and water wells across the state, according to the DEP.

The state discovered Sunoco was using unauthorized drilling methods after learning of a drilling fluid leak into a Berks County creek in November, the DEP order states.

Over the next few weeks, the state discovered numerous other sites in Berks, Blair, Cumberland, Dauphin, Huntingdon, Perry and Washington counties where unauthorized drilling methods were being used, often resulting in drill fluid leaking into nearby bodies of water, several of which were designated trout streams, according to the DEP.

You can read the full article here.

Ohio Appellate Court Finds The Duhig Rule Persuasive

Posted in Energy

In Talbot v. Ward (2017-Ohio-9213), Ohio’s Seventh District Court of Appeals found the Duhig rule “persuasive” in interpreting a deed containing an exception for royalties, bonuses, and rentals. The Duhig rule, first enacted in Texas in 1940, bars a grantor and his successors and assigns from claiming title in a reserved fractional mineral interest when doing so would, in effect, breach the grantor’s warranty of title. Talbot is the first reported appellate decision in Ohio to ever discuss the Duhig rule.

In Talbot, E.M. Ward conveyed certain land to Dow Mellot excepting “½ of the oil and gas royalty and ½ of all rentals and bonuses.” Thereafter, Dow Mellot conveyed the same land to John and Minnie Tomolonis repeating the earlier reservation by E.M. Ward.  One of the issues on appeal was whether Dow Mellot reserved an interest in the oil and gas estate by the Mellot-Tomolonis Deed.

The appellate court held that the Mellot-Tomolonis Deed did not reserve such an interest. The deed clearly indicated that one-half of the oil and gas royalty, bonus, and rental were excepted from the grant. The deed did not, however, account for the other one-half of the oil and gas royalty, bonus, and rental. As such, by the deed’s plain language, the surface and one-half of the oil and gas royalty, bonus, and rental were conveyed to the Tomolonises.

Although the court of appeals’ holding was grounded in ordinary rules of deed construction, the appellants argued, and the appellate court agreed, that the case was similar to Duhig v. Peavy-Moore Lumber Co., 135 Tex., 503, 144 S.W.2d 878 (1940). Duhig states that if both the grant and reservation in a deed cannot be given effect, then the reservation must fail. In Talbot, the appellate court noted that the facts before it compelled the same result as Duhig requires. That is, even if Dow Mellot did reserve a one-half interest in the oil and gas royalty, bonus and royalty under the Mellot-Tomolonis Deed, that reservation failed because Dow Mellot breached his warranty of title due to earlier reservation by his predecessor, E.M. Ward.

Click here to read the decision.

Recent Ohio Oil and Gas Decisions

Posted in Energy

Over the last several weeks, Ohio courts issued a few decisions involving oil and gas issues that we wanted to briefly mention:

  • Schillo v. Chesapeake Exploration, LLC (Harrison Cty. C.P., Oct. 16, 2017) – Here, the dispute was whether the lessee properly extended an oil and gas lease through the tender of delay rental payments.  The lessee tendered the rentals by certified mail to the lessor’s known address, but the lessor apparently did not retrieve them.  Nonetheless, she claimed that the lease had expired because the lessee had failed to tender the delay rentals.  Granting summary judgment to the lessee, the common pleas court remarked that “[i]t would be moronic to allow leases to expire by simply allowing lessors to ignore tendered payment of delay rentals.”

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Eclipse Res.—Ohio, LLC v. Madzia

Posted in Energy

Last week, the United States Sixth Circuit Court of Appeals issued its decision in Eclipse Res.—Ohio, LLC v. Madzia, concerning a dispute between a landowner and a lessee regarding the latter’s drilling rights.  Among other things, the court found:

  • The lease, which conveyed to the lessee a broad grant of rights to use the landowner’s property for drilling—including the right to transport oil and gas through the property “from other lands”—authorized drilling a horizontal well through the landowner’s property from a well pad located thereon and producing from adjacent property not owned by the landowner;
  • A separate subsurface-easement agreement, which only pertained to drilling operations on the landowner’s property, did not modify the lease to restrict off-lease production, in the absence of any language in the easement evidencing an intent to modify the lease; and
  • The lessee did not breach a lease provision requiring the lessee to “comply with all applicable federal, state and local laws and regulations” by reusing an executed coal ownership affidavit when applying for permits from the Ohio Department of Natural Resources (ODNR). After the landowner refused to execute a coal ownership affidavit covering new wells that were to be drilled on adjacent lands from the landowner’s well pad, the lessee reused the landowner’s previous affidavit executed in connection with wells previously drilled on the landowner’s lands off of the same well pad. The court concluded that at the time, ODNR’s practice was to accept such affidavits. Additionally, the landowner breached the lease himself by refusing to execute a new coal ownership affidavit in contravention of a lease provision requiring the landowner to execute all documents “convenient” to carrying out the provisions of the lease.

Read the full decision here.