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Fifth Circuit Affirms $44.4 Million Jury Award for Trade Secret Misappropriation of Software Developed for Oil and Gas Industry

The Fifth Circuit Court of Appeals recently affirmed a jury verdict awarding $26.2 million in compensatory damages and $18.2 million in punitive damages for trade secret misappropriation of software that enabled oil and gas companies to “plan, procure and pay for complex services” online. See Wellogix, Inc. v. Accenture, LLP, Case No. 11-20816 (5th Cir. May 15, 2013). The Fifth Circuit stated: “Had we sat in the jury box, we may have decided otherwise. ‘But juries are not bound by what seems inescapable logic to judges.’ Morissette v. United States, 342 U.S. 246, 276 (1952).”

The case highlights the importance of taking steps to protect the secrecy of confidential and proprietary business information, including securing confidentiality agreements before sharing such information with other parties such as investors, customers and marketing partners. Because the plaintiff — Wellogix, Inc. — established that it had disclosed its proprietary software and technology to the defendant subject to a confidentiality agreement, it was able to meet its burden of showing that it had taken sufficient measures to guard the secrecy of its software and that the defendant had improperly relied on Wellogix’s software to pursue another business opportunity in breach of the parties’ confidential relationship.…

ODNR Releases 2012 Utica Shale Production Results

Ohio law requires oil and gas operators to report prior year production from oil and gas wells on an annual basis — by March 31 of the following year. The Ohio Department of Natural Resources (ODNR) recently unveiled the 2012 production results from Ohio’s Utica shale play. These figures have been much anticipated by investors, land owners and the oil and gas industry, who are all trying to glean insights about the most productive areas and the overall potential of the play.

First, a Look Back at 2011

The first production from Ohio’s Utica Shale was realized in 2011 and reported on March 31, 2012. That data showed that merely nine Utica wells were in production during some part of 2011 — all drilled by Chesapeake Appalachian, LLC. Six of those wells were located in Carroll County. The remaining data came from wells in Portage, Harrison and Mahoning counties.

Though none of those nine wells were in production for all of 2011 (all but two were in production for less than six months), combined they still produced 2.56 billion cubic feet of natural gas and 46,326 barrels of oil, which amounted to 3.5% of the state’s overall gas production and 1% of oil production for that year. These are impressive statistics considering that Ohio had more than 50,000 conventional (vertical) wells reporting production in 2011.…

Common Oil and Gas Lease Conundrums

Understanding rights and obligations associated with oil and gas leases can be challenging. Imprecise lease language, implied legal duties, formulaic statutes and evolving case law all affect oil and gas leases in different ways. We’ve written several articles on these topics during the past several months and have compiled them into an eBook to help bring clarity to some of these issues. Download our Common Oil and Gas Lease Conundrums eBook.…

Ownership of Minerals Under Adjoining Waters

This post is the first of two articles examining ownership of minerals located under bodies of water and roads.

Who owns the minerals under bodies of water? When oil and gas were being produced in meager quantities, not many people cared. But the story is different when lease bonuses are thousands of dollars per acre and royalties could be worth millions. Now, every acre in eastern Ohio is cast in a different light and suddenly there is enormous interest in figuring out who owns the minerals beneath Ohio’s lakes, rivers, ponds, streams and reservoirs. The following press release helps drive home the point about what is at stake:…

Unitization in Ohio: Compelled Participation in the New Context of the Utica Shale

In many ways, the Utica Shale play caught Ohio off guard. The state became a main focus of the oil and gas industry almost overnight. Ohio responded by updating its oil and gas laws, including major overhauls resulting from Senate bills 165 in 2010 and 315 in 2012. But in some cases, operators and regulatory agencies are still applying old law that was written with conventional drilling methods in mind. In this post, part 3 of our series on compelled participation (see Part 1 and Part 2), we look at unitization — one of these old laws being put to new use.

What Is Unitization?

Unitization is the creation or designation of a contiguous area of land, called a “unit,” for the efficient development of the oil and gas resources underlying that land. Units can be formed by order of the Ohio Department of Natural Resources (ODNR), on application from an operator. Units also can be formed voluntarily by consent of interest owners, usually owners of the leasehold. Inevitably, the land sought to be unitized — really the geologic formation below the surface — is subject to a patchwork of different ownership interests. The operator attempts to negotiate lease rights with all such land or mineral rights owners, but it is often the case that the operator cannot reach an agreement with all of them. When an operator has the consent of all but a small portion of the land for a unit, Ohio law allows the operator to …

ODNR Issues Two More Unitization Orders for Horizontal Utica Shale Wells

The Ohio Department of Natural Resources (ODNR) recently issued two more unitization orders pursuant to R.C. 1509.28. These two orders bring the total number to four since the beginning of the Utica Shale play.

As we discussed after the last order was released, this statute is becoming a valuable tool for operators as they cobble together the rights to drill horizontal production wells. In the early stages of the Utica shale play, each new unitization order is noteworthy for operators who are trying to plan drilling units and to help companies evaluate their lease holdings.

The process of unitization is conceptually related to mandatory pooling (R.C. § 1509.27), and is part of our ongoing blog series on Ohio’s compelled participation laws. (Read part 1 and part 2.). A unitization order allows oil and gas operators to join, or unitize, recalcitrant mineral owners to create large tracts of land — often comprising hundreds of acres — necessary to profitably and efficiently produce hydrocarbons from shale formations while protecting each owner’s correlative rights.…

Exploring the Disposal of Fracking Waste Water — UIC Class II Wells in Ohio

As discussed in an earlier post about the management of oil field wastes, most exploration and production waste is not regulated as a hazardous waste. Instead, it is regulated as a solid waste. Even so, as discussed in a recent article by Stephen Ellis:

“One of the biggest problems in the oil and gas industry today is water management. Solving the technical and economic challenges around managing the millions of gallons of water used to properly fracture tight oil and gas wells has been called the holy grail of the industry by Southwestern Energy CEO Steve Mueller. He estimates that water transportation (primarily trucking) costs around $1.5 million (25%) of the $6 million that an average Marcellus well costs.”

See: Stephen Ellis, “Oilfield Water Management: The Oil And Gas Industry’s Holy Grail,” Seeking Alpha, March 31, 2013.

Water Used in Operations

Water is used in the drilling of the well. It is also used in the stimulation — i.e., fracking — of the well. According to the Ohio Department of Natural Resources (ODNR), most of the water used in fracturing remains thousands of feet underground in the formation. However, about 15-20 percent returns to the surface through a steel-cased well bore and is temporarily stored in steel tanks or lined pits. The wastewater that returns to the surface after hydraulic fracturing is called flowback. Later, as the well is producing hydrocarbons, it also produces water named, appropriately enough, “produced water.”…

Management of Oil Field Wastes

The disposal of wastes associated with oil and gas production continues to draw the attention of regulators and concerned citizens. In a series of articles we will examine the waste issue from the characterization of these wastes (discussed below) and their ultimate disposal in underground injection wells.

A Brief History of Waste Management and RCRA

By the 1960s it was becoming clear that the country had a waste management problem. The only modern environmental law on the books at the time was the Clean Air Act. So the Solid Waste Disposal Act of 1965 was enacted as an amendment to the air law. This initial foray into comprehensive waste regulation proved inadequate in many respects.  The treatment, storage and disposal of waste — even defining what a waste is — is complicated, especially when recycling is considered.

The modern regulation of solid and hazardous waste can be traced to 1976 with the enactment of the Resource Conservation and Recovery Act (RCRA). Generally, when looking at the world through the lens of RCRA, all material is either a product or a solid waste. A subcategory of solid waste is hazardous waste that is regulated under Subtitle C of RCRA.…

ODNR Issues Second Unitization Order for Horizontal Utica Shale Wells

The chief of the Division of Oil and Gas Resources Management (DOGRM) recently issued a new unitization order pursuant to R.C. §1509.28. This is only the second such order since the beginning of Ohio’s shale drilling boom. The unitization statute has become an increasingly important legal tool for oil and gas operators. We are seeing a new body of law take shape in Ohio, and last week’s order doubled its volume.

The process of unitization is conceptually related to mandatory pooling (R.C. § 1509.27), and is part of our ongoing blog series on Ohio’s compelled participation laws. (Read part 1 and part 2.) A unitization order allows oil and gas operators to join, or unitize, recalcitrant mineral owners to create the large tracts of land — often comprising hundreds of acres — that are necessary to profitably and efficiently produce hydrocarbons from shale formations while protecting each owner’s correlative rights.…

A Tool of Last Resort: Mandatory Pooling in Ohio

This is the second in a multi-part series on the practice of compelled participation – forcing unwilling mineral rights owners to participate in oil and gas production from their property. Part I discussed the history and constitutionality of this practice in the U.S.

Every day, crowds of title researchers and landmen pack county offices in Eastern Ohio looking for the owners of unleased property. They are discovering a quilt of landowners with varying degrees of interest in leasing their land for oil and gas drilling. But even after attempting to negotiate with landowners, oil and gas companies often cannot lease enough land to comply with Ohio’s minimum spacing laws. As a result of those laws, uncooperative landowners threaten to interfere with landowners who have leased and want to have oil produced from their land.

Fortunately, under the right circumstances, an operator or the consenting landowners may be able to invoke Ohio’s mandatory pooling laws, the most common form of compelled participation. Mandatory pooling laws force hold-out landowners to submit their mineral rights to oil and gas operations when their recalcitrance prevents an operator from meeting state spacing requirements. Read more about these and other industry terms in a previous post.…

When Is an Assignment of a Lease not an Assignment of Obligations?

When oil companies transfer oil property among themselves, they frequently do so by an assignment of lease rights. Sometimes they assign all their interest under a lease, but they often assign just a portion of the lease, or reserve some interest in the property. In the event of multiple assignments — such as when party A assigns to party B, who assigns to party C, and so on — there can be confusion about what was assigned, and who is obligated to do what.

This kind of controversy set the stage for the recent decision by the North Dakota Supreme Court captioned Golden v. SM Energy Co., 2013 ND 17, Feb. 1, 2013. The Golden decision presents an interesting discussion about royalty payments, division orders and assigned obligations. Does this case portend what can happen in Ohio? Only for companies that do not learn from mistakes made in other states.…

Ohio EPA Accepting Comments on Revisions to Model General Air Permits

Ohio law authorizes the Ohio Environmental Protection Agency (Ohio EPA) to “develop a model general permit for any category of air contaminant sources, or specific portions of any category of air contaminant sources,” subject to certain specified conditions. Ohio law also permits certain categories of air pollution sources to avoid the Permit-To-Install and Operate (“PTIO”) process and, instead, effectively obtain a permit-by-rule, if they meet certain rule-based “criteria, emission limitations, conditions for operation and [record-keeping and reporting] requirements.” 

On Feb. 15, 2013, the Ohio EPA announced proposed revisions to the existing general permit for oil and gas well-site production operations that incorporate the requirements of the New Source Performance Standards (NSPS) for the Oil and Natural Gas Sector (Subpart OOOO), published by the United States EPA in August 2012.

On Feb. 15, 2013, the Ohio EPA also announced a proposed new alternative general permit for oil and gas well sites. The Ohio EPA explained that the new general permit would “allow[ ] the owner/operator to install a larger flare/combustion device if they are willing to live with a tighter limit on total horsepower of the natural gas engines.”

Finally, on Feb. 15, 2013, the Ohio EPA announced proposed revisions to the general permit for unpaved roadways and parking areas with a maximum of 120,000 vehicle miles traveled per year and a new permit-by-rule for well flow back operations. 

Interested parties may submit comments on the proposed changes through March 22. Additional information about the proposed rule changes and …

ODNR’s Preemption of Oil & Gas Regulation Upheld

As we discussed in an earlier post about regulatory structures, the question of who is authorized to regulate oil and gas operations in Ohio pits local governments against the state government. The state won the first round earlier this week — and it may have landed a knock-out punch.

In State ex rel. Morrison v. Beck Energy Corp., 2013-Ohio-356 (Ninth Dist.) Beck obtained a permit from the Ohio Department of Natural Resources (ODNR) to drill an oil and gas well on property located within the city of Munroe Falls, Summit County, Ohio. When Beck began drilling, the city issued a stop work order and filed a lawsuit. The city claimed that Beck’s activities were illegal because Beck did not comply with city ordinances that required Beck to obtain a city drilling permit (and pay the associated application fee), a zoning certificate, rights-of-way construction permits, post a performance bond and attend a public hearing. The trial court agreed with the city and issued an injunction. Beck appealed.

The appellate court framed the issue on appeal as, “whether the City of Munroe Falls can enforce its ordinances governing oil and gas drilling and related zoning and rights-of-way issues despite the state’s comprehensive statutory scheme for drilling set forth in R.C. Chapter 1509.” The court added that this was a case of first impression; i.e., the first time the court had considered this question.…

Is There a Right To Appeal an Oil and Gas Drilling Permit in Ohio? [UPDATE: No]

Ohio Supreme Court Rules Drilling Permits Are Not Appealable to the Oil and Gas Commission

The Ohio Supreme Court this week ruled in the case Chesapeake Exploration, LLC v. Oil and Gas Commission, Slip Opinion No. 2013-Ohio-224, agreeing with Chesapeake and holding that there is no right to appeal a drilling permit in Ohio. In doing so, the Court decided that R.C. 1509.06(F) does exclude drilling permits as appealable orders. This means that once a drilling permit is issued by the Chief, it cannot be appealed to the Oil and Gas Commission. You can read the whole opinion (it’s short). 

To learn more about this topic, read our original post.…

Ohio Oil and Gas Association Joins Ranks of Those Opposed to New Air Quality Regulations on the Oil and Gas Industry

As we reported in the Oil & Gas Law Report on August 29, the U.S. Environmental Protection Agency issued new air regulations for the oil and gas industry on April 17, 2012. 
As summarized by the EPA:

The newly established NSPS for the Crude Oil and Natural Gas Production source category regulate volatile organic compound (VOC) emissions from gas wells, centrifugal compressors, reciprocating compressors, pneumatic controllers, storage vessels and leaking components at onshore natural gas processing plants, as well as sulfur dioxide (SO2) emissions from onshore natural gas processing plants.  . . .  [The rulemaking] also revises the NESHAP for glycol dehydration unit process vents and leak detection and repair (LDAR) requirements.

A somewhat lengthier overview of the rulemaking can be found on the EPA website.

EPA was required to issue the new rules under a consent decree issued by the United States District Court for the District of Columbia in a case called WildEarth Guardians v. Jackson. Now, numerous parties are suing to overturn the revised regulations.  The American Petroleum Institute, Gas Processors Association, Domestic Energy Producers Alliance, Independent Petroleum Association of America, Western Energy Alliance, and the State of Texas have all filed petitions for review, along with the Ohio Oil and Gas Association (OOGA) and the oil and gas associations of Indiana, Illinois, Kentucky, Pennsylvania, Texas, and West Virginia.  The Virginia Oil & Gas Association has moved to intervene in the proceedings as well.  According to the oil and gas associations’ …

Reserving Fractional Mineral Interests – A Trap for the Unwary

“Pipeline lawyers” represent the crude oil purchaser (the company that typically owns the pipeline where the oil is delivered).  They are called upon to interpret deeds, wills, assignments, and other documents whereby a grantor purported to convey or reserve some interest in oil and gas. They also ascertain legal title to the oil delivered to the pipeline  and prepare a “Division Order Title Opinion.” The Division Order Title Opinion was the foundation for a Division Order that specified how the payments for the oil and gas were apportioned. It can be more difficult than it sounds, especially when people who don’t know what they are doing have drafted the instrument.

More Money, More Problems

Oil and Gas Pipeline Companies Can Condemn Private Property in Ohio

In Ohio, private pipeline companies regulated as common carriers or public utilities have the power of eminent domain to “condemn” or “appropriate” private property in certain situations. 

It is well known that the power of eminent domain is available to government authorities.  But, the reality of modern America is that carefully regulated private companies, not government entities, furnish much of the energy resources and utilities we enjoy everyday.  Pipeline companies that transport oil and gas to market are classic examples of private companies that do a job that serves the public welfare.  Accordingly, under certain circumstances pipeline companies have the power of eminent domain under both Ohio and federal law. 

Federal Law Allows Condemnation for Gas Pipelines in the “Public Interest.”

Currently, control of interstate natural gas pipeline construction is preempted by the federal Natural Gas Act, which assigns regulatory responsibility for almost all aspects of natural gas pipelines to the Federal Energy Regulatory Commission (“FERC”). 

Under the Natural Gas Act, natural gas companies have the right to condemn property for natural gas pipelines as long as FERC determines that the project is in the public interest and issues a certificate of public convenience and necessity to the company. 15 USC §717f.  Once that determination is made, a natural gas company may condemn property in federal district court where the property is located.  But despite federal jurisdiction, the Natural Gas Act requires the federal condemnation action to “conform” as closely as possible “with the practice and procedure in a similar …

Employment Relations Seminar – Columbus

Porter Wright’s Labor and Employment Practice will host their Fall Employment Relations Seminar in Columbus on Tuesday, October 30.    As some of the topics may be of interest, we wanted to share the information with you.

“What Lurks In the Shadows? Facing What Haunts Your Workplace” will focus on the following topics:  

  • Trick or Treat?   The Shadowy Problems of  Prescription Drug Use in the Workplace 
  • Who’s Really Under that Mask?   How Far Can Employers Go to Vet Applicants
  • Re-Vamping Your Evaluation Process   Developing and Managing an  Effective Feedback Process
  • Finding Your Way Out of the Darkness:  Crafting “Exit Strategies” for Problem Employees

For more information,  click here.

 

 …

USGS Confirms Potential of the Utica Shale; Finds Ohio Shale Oil “Sweet Spot”

Part of the mission of the Energy Resources Program of the United States Geological Survey (“USGS”) is to determine the location, quantity, and quality of U.S. mineral and energy resources.  In pursuit of that mission, the USGS recently conducted a survey of the potential of the Utica shale across the Appalachian Basin. 

The results of the USGS survey are summarized in its report, Assessment of Undiscovered Oil and Gas Resources of the Ordovician Utica Shale of the Appalachian Basin Province, 2012, recently published on the USGS website

The USGS concluded that Maryland, New York, Ohio, Pennsylvania, Virginia, and West Virginia are all in the Utica shale play.  The survey also makes some rather eye-popping findings about the potential of the Utica shale in Ohio.  The survey found that based on certain observed characteristics of the Utica shale and assumptions grounded in observations in other shale plays, Ohio is in an oil “sweet spot.”  The USGS actually defined both an oil sweet spot and a gas sweet spot in the Utica shale play as shown on the following map*: 

*Kirschbaum, M.A., Schenk, C.J., Cook, T.A., Ryder, R.T., Charpentier, R.R., Klett, T.R., Gaswirth, S.B., Tennyson, M.E., and Whidden, K.J., 2012, Assessment of undiscovered oil and gas resources of the Ordovician Utica Shale of the Appalachian Basin Province, 2012: U.S. Geological Survey Fact Sheet 2012–3116, 6 p., Figure 4.

The USGS survey projected the mean “technically recoverable continu­ous (unconventional) oil and gas resources” from the Utica and Point Pleasant shale …

Oil and Gas Surge Impacts Title Searches and Policies of Title Insurance – Part Two of a Two Part Series

As I  touched on in a recent post, the surge in oil and gas exploration and the accompanying concern with mineral rights and interests have created significant challenges for county recorders and title insurance companies across the state.  The strong demand on county offices (often in counties still feeling effects from the recession) for time to search the official record often exceeds the office’s resources and hours. The results range from interested parties banking on uncertain alternative search companies to underwriters denying mineral interests in their loan policies. 

Read on after the jump.…

EPA’s Clean Air Act New Source Performance Standards for the Oil and Gas Sector Finally Appear in the Federal Register

On April 17, 2012, the United States Environmental Protection Agency (EPA) issued final revised New Source Performance Standards (NSPS) and National Emission Standards for Hazardous Air Pollutants (NESHAPs) for the oil and natural gas industry.  Four months later, EPA published those rules in the Federal Register.

EPA’s website provides summaries of the new rules’ requirements for natural gas well sites, natural gas gathering and boosting stations, gas processing plants, natural gas transmission compressor stations, and the oil industryIn short, the rules:…

Ownership of Oil and Gas in Ohio

“The basic underlying theme of oil and gas law is still undeniably rooted in property concepts developed over the past 1000 years.”

Bruce Kramer, “The Mangling of Common Law Property Concepts”,
33 Washburn Law Journal 540, 568 (1994)

If you own land in Ohio, do you own the oil and gas under your feet?
We expect that most landowners would say, “Yes.” It would seem to follow, as our concept of land ownership is that one’s property includes, as they say, everything to the heavens and to the center of the earth. That concept has served us well in many aspects of real property law, but it has its limits. If a plane flies over your property is it trespassing? Closer to the point, if there is a wild raccoon on your land, do you own it? Is oil and gas like coal and trees or more like moving water? If you do own the oil and gas under your property, your property is more valuable, isn’t it? Can you be taxed for that value?
Can you
 

  • use it as security and grant a mortgage in it?
  • leave it to your children in your will?
  • sever your rights from the ownership of the surface?
  • lease your rights to it like an apartment?

On the other hand, if the landowner cannot own oil and gas in place (which is apparently the case in Ohio, like other “non-ownership” states), what is being bought and sold in that oil and gas lease? If

Ohio’s Oil Boom – Why It Will Be Different This Time

This is not Ohio’s first oil and gas boom. There has been a series of them. I think it is fair to say that in the past the oil and gas business had a freer rein (some would say reign). But this time things are likely to be different. With the internet, higher land prices, higher cost wells, financially-strapped governments, more laws and regulations, and environmental awareness — fundamentally, people’s expectations are different. As a result, the relationships between oil companies, mineral owners and regulators, who represent the public in general, are changing.

As in the past, the cost and availability of energy will have a major impact on Ohio. Energy independence is apparently within our grasp and Ohio needs the economic development that comes with energy resources more than ever. Do we have the will to realize it? Surely, as any “fracktivist” will tell you, whatever is realized will be the product of a new and different process.…

Waterless Alternatives to Fracking Attract Attention

As public concern about hydraulic fracturing (“fracking” or “fracing”) grows and historic drought conditions parch most of the country, the limelight is focused on technologies that offer alternatives to traditional hydraulic fracturing, which uses large volumes of water. 

One of the more established technologies in this emerging market is a process that uses liquid petroleum gas (or “LPG”) gel to replace water in traditional fracking operations.  The LPG gel is composed primarily of propane or butane gas.  GasFrac Energy Services, Inc. has used its proprietary LPG gel fracking process on more than 1,000 wells in Canada and the United States.  GasFrac is expected to dramatically expand its operations in the Utica and Marcellus shale plays in the coming months and years. 

Another alternative to traditional hydraulic fracturing that operators have been testing uses carbon dioxide or nitrogen foam instead of water.  This technology, being marketed by Baker Hughes under the trade name “VaporFrac,” uses merely 10% of the water needed for traditional fracking.  Earlier this year Chesapeake reported that it fracked a well in Portage County, Ohio using carbon dioxide foam.

Finally, Chimera Energy Corporation is pioneering a new process it describes as a “revolutionary exothermic non-hydraulic extraction process.”  Although Chimera has not disclosed the details of the process, its website explains that the process relies on a chemical reaction among various metal oxides to create extreme heat and pressure to force open shale fractures and release trapped oil and gas.  The process is apparently completely waterless but …

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