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Is There a Right To Appeal an Oil and Gas Drilling Permit in Ohio? [UPDATE]

Posted in Contracts and Leases, Ohio, Real Estate, Regulatory

Surface owners, neighbors and others indirectly affected by the issuance of an oil and gas well drilling permit might be surprised to learn that they do not have a clear right to challenge the terms contained in that permit.  But, recent cases in Ohio and West Virginia have forced courts to more clearly define who can appeal the issuance of an oil and gas well drilling permit.

In most States, when an operator wants to drill a new well, it has to obtain a drilling permit from the State agency charged with regulating those activities.  Those permits affect other parties, namely landowners, neighbors, and other oil companies. In both Ohio and West Virginia, landowners are asking courts to recognize a right of appeal to challenge the issuance of an oil and gas well drilling permit.  The laws in both States will inevitably be litigated and that process has begun.

Who Has The Right To Appeal The Issuance Of A Drilling Permit Under Ohio Law? 

The Ohio statute that governs drilling permits is not entirely clear about this, though recent changes to these laws and a case pending before the Ohio Supreme Court both address the issue.

The issue is this: the section of the Ohio Revised Code (Chapter 1509), which governs oil and gas regulation in the State, grants a right to appeal decisions of the State’s oil and gas regulatory agency.  Later in the same Code section are specific rules for issuing drilling permits (R.C. 1509.06), which includes language suggesting that drilling permits are not appealable.

Take a look: here the Ohio Revised Code provides a general right to appeal a permit issuance:

Any person adversely affected by an order by the chief of the division of oil and gas resources management may appeal to the oil and gas commission for an order vacating or modifying the order.

R.C. 1509.36 (emphasis added).  The statute goes on to permit any party to the hearing before the Commission to appeal to the Court of Common Pleas. R.C. 1509.37.

There is another general right to appeal, by way of the Administrative Procedure Act, in a different part of R.C. 1509:

Any order issuing, denying, or modifying a permit or notices required to be made by the chief pursuant to this chapter shall be made in compliance with [The Administrative Procedure Act]…Every order issuing, denying, or modifying a permit under this chapter and described as such shall be considered an adjudication for purposes of [The Administrative Procedure Act]. (R.C. 1509.03(B)(1))

Left alone, these sections provide a general right to appeal.  But take a look at R.C. 1509.06, which outlines the procedure for obtaining drilling permits,  and it states:

“…the issuance of a [drilling] permit shall not be considered an order of the chief.”

(R.C. 1509.06(F))

Because the right to appeal only exists for “orders of the chief”, this language creates a potential carve-out for drilling permits rendering them un-appealable.

A recently filed case in the Supreme Court of Ohio seeks to clarify this potential ambiguity.

In Chesapeake Exploration LLC v. Oil and Gas Commission et al, Case No. 12-207 (2012), Chesapeake is the lessee of an oil and gas lease for land owned by Summitcrest.  When Chesapeake was issued a drilling permit in February 2012, Summitcrest appealed to the Ohio Oil and Gas Commission to vacate the permit arguing that the lease is invalid.  The Division of Oil and Gas Resources Management and Chesapeake both moved to dismiss the appeal on the grounds that the Commission did not have jurisdiction, which is the issue currently before the Supreme Court of Ohio.  Chesapeake argues that the language in R.C. 1509.06(F) removes drilling permits from the appellate jurisdiction of the Oil and Gas Commission.  The Oil and Gas Commission argues that R.C. 1509.06(F) is insufficient, by itself, to remove their power to hear an appeal in the face of two general grants of jurisdiction in R.C. 1509.36 and R.C. 1509.03(B), cited above.

The Supreme Court of Ohio has asked for further briefing on the issue, and will issue a decision in the future.

Interestingly, in the middle of all the events in the Chesapeake case, above, Senate Bill 315 went into effect and expressly exempted drilling permit issuances from being subject to the Administrative Procedure Act (amendment to R.C. 1509.03(B)(1)).   This takes away one leg of the Commission’s argument that they have the power to hear permit appeals.  The other leg, R.C. 1509.36 was unchanged by S.B. 315.

Does this create more confusion, or will the Supreme Court’s ruling in the Chesapeake case settle the issue?  Until the Supreme Court of Ohio issues its opinion, it is unclear who has the right to appeal drilling permits, if those rights exist at all.

Ask The Neighbors: West Virginia Supreme Court Will Hear A Similar Case

A very similar issue is in front of the West Virginia Supreme Court in the case Martin v. Hamblet, Case No. 11-1157 (2012).  Matthew Hamblet is a fractional owner of a large surface estate in West Virginia and claims that previous wells drilled on his land by EQT Production Company, an operator, caused “substantial damage” in his words.  This included heavily eroded and rutted access roads, silted streams, and felled timber left in inaccessible hillside locations.  EQT applied for, and received, a permit for a new well.  EQT contends that they have followed the statutory procedure for obtaining a permit and will comply with all safety and environmental regulations.

In this case the issue is framed differently: the West Virginia statute does not allow for appeals from surface owners (or is at least more clear about it than the Ohio statutes), but Mr. Hamblet argues that appeal rights have been recognized by a previous West Virginia Supreme Court ruling.  Moreover, Mr. Hamblet argues that denying his right to appeal violates his constitutional right to due process.

UPDATE: The WVSC issued its opinion on November 21, 2012, denying Mr. Hamblet a right to appeal the well drilling permit.  The Court said that the West Virginia Code “is clear and unambiguous with regard to who may object to the well proposed to be drilled. Notably absent from the statute is any mention of the surface owner of the subject property.”  Read the full opinion here.

Waiting for Clarification

So, this issue is being viewed through multiple lenses.  Landowners are wanting their day in court and are seeing constitutional problems.  The State regulatory agency and its judicial counterpart, the Oil and Gas Commission, are seeing threats to their jurisdiction.  The operators are seeing regulations that are designed to fast-track production and wondering whether the Oil and Gas Commission is the appropriate forum for issues like title disputes.   Once the Supreme Court of Ohio rules on Chesapeake, we will know much more about the right to appeal drilling permits.