Oil & Gas Law Report

Paycheck Protection Program loan necessity questionnaire

Borrowers of Paycheck Protection Program (PPP) loans – together with their affiliates – who have loans in excess of $2 million and seek loan forgiveness will potentially need to complete necessity questionnaires according to the Small Business Administration. There are separate forms for for-profit and non-profit businesses and will likely affect 52,000 borrowers.

My colleagues Jack Beeler, Cat Rice and Jack Meadows explain the purpose and questions asked in these questionnaires in this law alert.

Supreme Court of Ohio to decide three cases regarding subsurface rights

Ohio landowners and holders of mineral interests should soon receive clarification regarding certain mineral rights. On Sept. 1, 2020, the Supreme Court of Ohio accepted Fonzi v. Brown for review, a case involving the Ohio Dormant Mineral Act (ODMA). Fonzi joins Gerrity v. Chervenak and West v. Bode, as the third major case on the court’s docket that raises questions about the ODMA and/or Marketable Title Act (MTA).

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New Ohio regulations reduce minimum spacing requirements for horizontal oil and gas wells

The Ohio Department of Natural Resources – Division of Oil & Gas Resources Management (DOGRM) recently revised its rules governing spacing of horizontal oil and gas production wells. The new rules, which became effective on Oct. 10, 2019, will bring Ohio’s horizontal well spacing regulations in line with what accepted science and drilling data indicates is a more efficient and productive spacing for horizontal wells in Ohio.

Under the prior version of Ohio Administrative Code §1501:9-1-04, which applied to both conventional and horizontal wells, any oil and gas production well drilled into a pool located at least 4,000 feet in depth must be set back at least 500 feet from the boundary of the leased tract or drilling unit. That prior version of the rule also required a spacing of at least 1,000 feet between wells producing from the same pool. Continue Reading

Reference to oil & gas royalty interest deemed sufficient under the Marketable Title Act

The Ohio Supreme Court recently settled an open question under Ohio’s Marketable Title Act (MTA), determining that a reference to the type of interest created and to whom it was granted is all that is necessary under the MTA to preserve the interest. And interestingly, despite the existence of the Dormant Mineral Act (DMA), the Supreme Court applied the MTA to an oil and gas interest.

In Blackstone v. Moore, landowners filed a lawsuit against the owners of an oil and gas royalty interest underlying the landowners’ property, seeking to extinguish the interest under the MTA (Because the appellees (Kuhn heirs) had filed an affidavit to preserve their mineral interest within sixty days of receiving the Blackstones’ notice of intent to declare the mineral interest abandoned, there was no question that they had preserved their interests under the DMA). Created in 1915, the oil and gas royalty interest arose prior to the “root of title” (the last recorded title transaction before the preceding 40 years from when marketability is being determined) and therefore was subject to extinguishment under the MTA.

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State Legislature exempts oil and gas landmen from real estate license requirements

On Dec.19, 2018, Gov. John Kasich signed SB 263 into law, which amends ORC 4735 to exempt oil and gas land professionals (landmen) from the licensure requirements imposed on real estate agents and brokers. The revisions to sections 4735.01 and 4735.023 introduce the concept of an “oil and gas land professional” (new ORC 4735.01(GG)), and exempts landmen from the definition of “real estate broker,” “real estate salesperson,” “foreign real estate dealer” and “foreign real estate salesperson” through new ORC 4735.01(I)(1)(h) and (i).

SB 263 also introduces a new section 4735.023, requiring ongoing registration requirements for landmen, an annual fee, an obligation for landmen to maintain membership in a national oil and gas land professional group (such as the American Association of Professional Landmen, or AAPL), and specific disclosure requirements to landowners.

The new law will take effect in 90 days, and is a direct response to the Ohio Supreme Court’s decision in Dundics et al. v. Eric Petroleum Corp., 2018-Ohio-286, where the Court held that landmen who negotiate oil and gas leases must be licensed as real estate agents and otherwise comply with the requirements of ORC 4735.  As a result, SB 263 now provides a welcome distinction between landmen and real estate agents, and imposes more appropriate requirements and obligations for oil and gas landmen.

New Ohio tax law clarifies and expands sales and use tax exemptions for the oil and gas industry

Many thanks to Kevin Scott for his assistance in preparing this post.

On June 14, 2018, Governor Kasich signed into law H.B. 430 which will go into effect in September of 2018. The bill clarifies the language covering sales and use tax exemptions for certain oil and gas industry participants. Specifically, the new law modifies the existing statute governing the sales and use tax exemption for property used directly in producing oil or gas. Following recent actions by the Ohio Department of Taxation, H.B. 430 can help to ensure predictability and stability by reaffirming the sales tax exemptions received by Ohio oil and gas operators and service providers. Continue Reading

West Virginia joins majority view on oil and gas leasing with new cotenancy statute

On March 5, 2018, the West Virginia Legislature passed new legislation known as the Cotenancy Modernization and Majority Protection Act, W. Va. Code § 37B-1-1 et seq. (Cotenancy Statute). This new Cotenancy Statute, which became effective June 3, 2018, is intended to facilitate oil and gas development of West Virginia properties that have numerous fractional oil and gas owners. It applies to tracts in which there are seven or more owners of the oil and gas in place, and changes West Virginia law by allowing an operator to produce oil and gas without the consent of all oil and gas owners under certain circumstances.

Background

Prior to passage of the Cotenancy Statute, West Virginia law mandated consent of 100 percent of the oil and gas owners before an operator could lawfully develop the oil and gas estate. If any oil and gas owner refused to sign a lease, regardless of how small that non-consenting owner’s fractional interest, the operator was compelled to either forego development or file a partition action under W. Va. Code § 37-4-3. Through partition, an operator could acquire the non-consenting owner’s interest at fair market value, as appraised by three special commissioners appointed by the court. Continue Reading

Ohio Supreme Court rejects implied covenant to explore further

The Ohio Supreme Court’s latest oil and gas decision is good news for the industry. On Jan. 3, 2018, the Court decided Alford v. Collins-McGregor Operating Co., Slip Opinion No. 2018-Ohio-8, which held that under Ohio law, “there is no implied covenant to explore further separate and apart from the implied covenant of reasonable development.” Id. at ¶25.

The facts are straight forward and did not seem to make much difference in the decision. The Plaintiff-appellant filed suit in 2015 in Washington County against Defendant, a conventional oil and gas operator who had continuously operated a conventional Gordon Sand well on Plaintiff-appellant’s 74 acre parcel since 1981.   Continue Reading

Federal district court finds that Ohio allows deduction of post-production costs from royalty payments required to be calculated “at the well”

Last week the Ohio Northern District Court, Eastern Division issued a decision in Lutz v. Chesapeake Appalachia, LLC, N.D. Ohio No. 4:09-cv-2256, 2017 U.S. Dist. LEXIS 176898 (Oct. 25, 2017), which involved a dispute about whether Ohio follows the “at the well” rule (which allows oil and gas royalty payments to be downward adjusted to account for a lessor’s pro rata share of post-production costs) or the “marketable product” rule (which does not allow producers to adjust royalty payments to account for post-production costs).

The case has an interesting history. In 2015 District Judge Lioi certified a question of law regarding post-production costs to the Ohio Supreme Court. The Ohio Supreme Court accepted briefing and heard oral argument before returning the issue to the Judge Lioi with instructions to interpret the disputed leases according to their plain language. The Ohio Supreme Court held, “[u]nder Ohio law, an oil and gas lease is a contract that is subject to the traditional rules of contract construction. Because the rights and remedies of the parties are controlled by the specific language of their lease agreement, we decertify the question of law submitted by the United States District Court for the Northern District of Ohio, Eastern Division.”
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