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Second Circuit Affirms Decision Rejecting Gathering Service Agreements in Bankruptcy

Posted in Energy

On May 25, 2018, the United States Court of Appeals for the Second Circuit upheld a district court’s decision that Sabine Oil & Gas Corporation could reject certain gathering service agreements in bankruptcy.  The agreements, with Nordheim Eagle Ford Gathering, LLC, provided that Nordheim would supply Sabine with certain gathering, transportation and treatment services for Sabine’s natural gas and condensate production.  The Court of Appeals determined that the agreements were not “real covenants that run with the land,” and therefore, could be rejected in bankruptcy as executory contracts.  Under Texas law, horizontal privity was required for a covenant to run with the land—i.e., “there must have been some common interest in the land other than the purported covenant itself at the time it was executed.”  That was not the case here, the court found.  Nor was the horizontal privity requirement satisfied by a separate agreement between Sabine and Nordheim providing for the conveyance of a pipeline easement and a separate parcel of land.  As a result, the agreements could be rejected in bankruptcy.

Click here to read the decision.

Federal Court Affirms Decision to Lift Stay on Litigation Challenging WOTUS Rule

Posted in Environment

On May 1, 2018, a federal judge for the U.S. District Court for the District of North Dakota affirmed a Magistrate’s decision to lift the stay on a group of 13 States’ lawsuit challenging U.S EPA’s the Army Corps’ 2015 rule defining “waters of the United States” (“WOTUS”) under the Clean Water Act.  The Court stayed the case in May 2016 in light of the Sixth Circuit’s decision that exclusive jurisdiction to review the 2015 WOTUS Rule rests in the courts of appeal under the Clean Water Act’s judicial review provision.  However, the U.S. Supreme Court reversed the Sixth Circuit’s decision on January 22, 2018, and ordered all lawsuits challenging the WOTUS Rule be filed in the federal District Courts.

Following the Supreme Court’s directive, a Magistrate Judge granted a motion filed by 7 of the 13 states to the lift the Court’s stay of the proceedings.  U.S. EPA and the Army Corps challenged the Magistrate’s decision, but the Chief Judge for the Court affirmed the Magistrate’s decision.  The Chief Judge noted that “it is especially telling that the Supreme Court rejected a stay of proceeding based upon the prospect of additional rulemaking . . . [and] such a possibility does not insulate the Defendants from challenges to the original rule while the original rule remains in place.”

Federal Court Upholds Stay of Waste Prevention Rule Phase-In Provisions

Posted in Environment

On April 30, 2018, the U.S. District Court for the District of Wyoming denied a motion to stay its April 4, 2018 order staying the phase-in implementation provisions of the Bureau of Land Management’s (BLM) Waste Prevention Rule, pending an appeal of the Court’s April 4th order filed by various environmental groups, California and New Mexico.  The Court denied the motion, holding “Intervenor-Respondents have not met their burden of showing the circumstances here warrant a stay pending their appeal of this Court’s order.”  The Court explained that “a stay of the phase-in provisions is necessary to preserve the status quo and to prevent irreparable injury pending these review proceedings” while the BLM reconsiders the Waste Prevention Rule.  The Court also clarified that its April 4th order only applies to the phase-in provisions of the Waste Prevention Rule.

Supreme Court of Ohio Rules Youngstown Anti-Fracking Measure Must Be Placed on the May 2018 Ballot

Posted in Energy

The Supreme Court of Ohio ruled yesterday that the Mahoning County Board of Elections must place a proposed city charter amendment—the so-called “Youngstown Drinking Water Protection Bill of Rights”—on the May 2018 ballot, which includes several anti-fracking provisions. State ex rel. Khumprakob v. Mahoning Cty. Bd. of Elections, Slip Opinion No. 2018-Ohio-1602.  According to the Court, “[t]he proposed amendment, if adopted by Youngtown’s electors, would in general terms (1) recognize certain rights of Youngstown residents and of ‘ecosystems and natural communities within the city’ to ‘clean water, air, and soil’ and to be free from certain fossil-fuel drilling and extraction activities, (2) require the city to prosecute violations of the amendment and allow the city to recover attorney fees and expert costs incurred in prosecuting violations, (3) impose strict liability on any government or corporation that violates the rights established by the amendment, (4) restrict the use of funds allocated to the city’s water and sewer infrastructure, and (5) give the people of Youngstown the right ‘to compel their governments to protect their rights, health, and safety.’” Id. at ¶1. The Mahoning County Board of Elections previously voted not to place the proposed amendment on the ballot believing the proposed amendment contained provisions beyond the city’s power to enact. Id. at 2. The Court disagreed and found the proposed amendment’s provisions are “vague and largely aspirational” and “do nothing without further legislative action by the city.” Id. at ¶8. Thus, the Mahoning County Board of Elections abused its discretion in finding that the measure exceeds the city’s legislation power. Id.

The entirety of the Court’s decision can be read here.

Ohio Division of Oil and Gas Invites Comments on Revised Well Spacing Rules

Posted in Energy

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.

Statement of Intent

Executive Summary

1501:9-1-01 Definitions

1501:9-1-04 Spacing of wells

Court of Appeals Addresses Notice Requirement Under 2006 DMA

Posted in Energy

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.



Supreme Court of Ohio Takes Up Marketable Title Act

Posted in Energy

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:

  1. 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
  2. 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.

West Virginia Co-Tenancy Bill Signed into Law

Posted in Energy

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.


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.