On April 10th-11th, the Energy and Mineral Law Foundation (EMLF) will be hosting a Special Institute on Petrochemicals in Pittsburgh, PA. Among the speakers are Vorys’ own Allen Rutz and Dick Schwartz. To learn more or to register, click here.
Today, the Ohio Department of Natural Resources, Division of Oil and Gas Resources Management invited comments on a draft rule package that would amend the Division’s existing well spacing rules for conventional and horizontal wells. As the Division explains in its Statement of Intent:
The DOGRM intends to amend the existing well spacing rule by revising the minimum acreage requirements for conventional wells and establishing new provisions pertaining to the minimum distance requirement from which a new horizontal shale well may be drilled from boundaries of drilling units and other horizontal wells. The standards will be applied statewide. The intent of this rule amendment is to replace the existing acreage requirement with one that is consistent with the minimum setback distance to drilling unit boundaries and to create a drilling unit that is more compact than that which is created under the current rule.
Click on the links below to read the rule package. Comments are due by Tuesday, April 10, 2018. You can follow the progress of the proposed rules on the Division’s website.
Recently, in Shilts v. Beardmore (2018-Ohio-863), the Seventh District Court of Appeals analyzed whether a surface owner complied with the notice requirement of the 2006 version of the Ohio Dormant Mineral Act (Revised Code 5305.56) (the “2006 DMA”). Under the 2006 DMA, in order to abandon a dormant mineral interest, a surface owner must first serve a notice of abandonment upon the holder of the dormant mineral interest. The 2006 DMA requires the surface owner to serve this notice by certified mail, return receipt requested. However, if service of notice cannot be completed by certified mail, the 2006 DMA permits the surface owner to publish the notice in a newspaper of general circulation in each county where the subject land is located.
In Shilts, one of the central issues on appeal was whether the surface owner was required to at least attempt to serve his notice of abandonment by certified mail prior to serving his notice of abandonment by publication. In this particular case, the Seventh District Court of Appeals held that service by publication was sufficient. The surface owner established that he had exercised reasonable efforts to locate the unknown heirs of the record owners of the dormant mineral interest, who reserved the mineral interest in 1914. Specifically, the surface owner searched the records of the county recorder’s office and probate court where the subject land is located. He also searched the records of the Ohio Department of Natural Resources, Division of Oil and Gas Resources Management, that were applicable to the subject land and conducted an online search. None of these sources revealed the names and addresses of the unknown heirs. Because “it became clear that service [of the notice of abandonment] could not be completed by certified mail,” service by publication was sufficient. As the Court stated, “[i]t would be absurd to absolutely require an attempt at notice by certified mail when a reasonable search fails to reveal addresses or even the names of potential heirs who must be served.”
The Court’s decision can be read in full here.
On February 28, 2018, the Supreme Court of Ohio announced that it has accepted an appeal of Blackstone v. Moore (2017-Ohio-1639). Blackstone is a Seventh District Court of Appeals decision that analyzed the Ohio Marketable Title Act (R.C. 5301.47 et seq.) (the “OMTA”) and adopted a four factor test to determine whether a reference to an interest inherent in the muniments of the chain of record title is “specific” – and thus not extinguished by the OMTA – or “general.” You can read our prior blog on the Blackstone decision here. In the appeal, the Supreme Court of Ohio will address the following two propositions of law:
- The specific identification contemplated in R.C. 5301.49(A) requires sufficient reference that a title examiner may locate the prior conveyance by going directly to the identified conveyance record in the recorder’s office without checking conveyance indexes; and
- The exception to a person’s marketable record title under R.C. 5301.49(A) does not include interests and defects, created by a recorded title transaction prior to the root of title, of which the person has actual knowledge, if the reference to such recorded title transaction is general rather than specific.
Vorys will continue to monitor Blackstone and update this blog once the Supreme Court of Ohio renders its decision.
On Friday, March 9, 2018, West Virginia Governor Jim Justice signed into law a state statute permitting the leasing of oil and gas interests owned by seven or more “royalty owners,” if at least 75% of the owners agree to the lease. The law, which takes effect on July 1, 2018, eliminates the need to lease all co-owners (which was the previous law) and helps avoid complicated partition proceedings, the legal concept of waste and lengthy trespass actions. Known as the Co-Tenancy Modernization and Majority Protection Act, the law permits non-consenting owners to receive a pro-rata share of lease bonuses and royalties or become a working interest owner in the natural gas well. Royalties for unknown owners are placed into a State Treasurer’s account and, after seven years, may escheat to the state for statutorily specified purposes. Also, after that seven year period, the surface owner may file a quiet title action seeking the interest of the unknown or unlocatable interest owners and, thereafter, shall be entitled to future proportionate royalties. Finally, the law generally requires the surface owner’s permission for surface use.
A copy of the enacted law (W. Va. Code § 37B-1-1) can be found at this link: Co-Tenancy Modernization and Majority Protection Act.
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.
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:
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.
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.]
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.