The Seventh District Court of Appeals issued a decision concerning the automatic termination of an oil and gas lease. The case involved an oil and gas lease which required two wells to be put into production by November of 1989 or the lease would automatically terminate. The second well was not put into production until 1995. Despite the fact that the property owner received free gas and accepted certain de minimus royalty checks, the court held that no waiver or ratification occurred and the lease automatically terminated.
On May 9, 2014, in the case of Herder Spring Hunting Club v. Keller, the Superior Court of Pennsylvania issued an opinion addressing the termination of outstanding oil and gas interests through a tax sale in Pennsylvania. The property at issue was subject to a severance of oil and gas rights in 1899, and then later sold in a 1935 tax sale to the Centre County Commissioners. The appellants argued that the 1935 unseated tax sale extinguished all prior oil and gas interests and was a “title wash” which divested all prior owners of their respective interests. The Superior Court agreed with the appellants, reversing the trial court and granting summary judgment in their favor. The Superior Court held that the appellees’ predecessors failed to follow certain procedures in place at the time of the 1935 tax sale that could have preserved their interest in the oil and gas. This case is the first appellate decision addressing the “title wash” of subsurface property rights since the development of the Marcellus Shale formation in Pennsylvania began.
The Belmont County Court of Common Pleas ruled that a recorded will is a title transaction for purposes of Ohio’s Dormant Mineral Act. In Albanese v. Batman the trial court held that a will recorded in the county recorder’s office qualifies as title transaction and savings event even where no certificate of transfer relating to the real estate was filed. The court cited Ohio appellate courts that have held that title to real estate passes by testate succession at the time of the property owner’s death. The certificate of transfer is not that actual conveyance document, but rather the recorded will is the vehicle that transfers the property.
A Harrison County trial court issued a decision in a Dormant Mineral Act case addressing the issue of whether a release of an oil and gas lease is a title transaction affecting and preserving a severed mineral interest from being abandoned. The trial court in Schucht v. Bedway Land and Minerals ruled that a release of an oil and gas lease constitutes a title transaction under the Dormant Mineral Act. The court found that given the nature of the interest conveyed by an oil and gas lease, the release of an oil and gas lease affects title to the mineral interest as well. This conclusion was further supported by Ohio’s lease forfeiture statute (R.C. 5301.332), which provides a mechanism for oil and gas leases to be cancelled of record.
An Ohio trial court issued a decision in Marshall v. Beekay Company. The case involved an action seeking declaratory judgment as to leasehold rights for formations below the Germantown Sand Formation. The court ruled that there was no breach of the implied covenant to reasonably develop, or actual abandonment, of the rights to deeper geological formations when production was only found in “paying quantities” for formations located above the Germantown Sand Formation. The ruling is important for oil and gas producers against landowners seeking to terminate those portions of oil and gas leases covering the rights to deeper geological formations because of an alleged breach of the implied covenant to reasonably develop them when only shallower formations are being explored and produced.
The Fifth District Court of Appeals affirmed the trial court’s decision in Trico Land Company, LLC v. Kenoil Producing LLC, upholding the right to have and enforce a change of ownership clause in an oil and gas lease. The case involved a property subject to a 2008 oil and gas lease that was transferred to a new owner, who did not notify the lessee of the change in ownership. No well was drilled nor were the annual delay rental payments made until 2011 when the lessee paid all delay rental payments due under the lease. The court, quoting the Ohio Supreme Court in Harris v. Ohio Oil Co., stated that an oil and gas lease is a contract and the parties should be held to the written terms in the agreement. Because the lessor failed to comply with the condition precedent requiring written notice of a change of ownership, the lessee was relieved of its obligation to pay delay rentals annually and the lease was determined to be valid upon the lessee’s payment of the past due delay rentals.
On April 10, 2014, a federal judge granted a preliminary injunction forcing Hempfield Township to permit ION Geophysical of Houston (ION) to perform seismic testing on the Township’s roads. Hempfield Township argued that it does not specifically permit seismic testing and, that by restricting the seismic testing, it was protecting the rights of property owners who did not have an agreement with ION. U.S. District Court Judge Maurice Cohill disagreed, finding that the Township was preempted by the Oil and Gas Act from prohibiting seismic testing and the Township’s refusal to negotiate an agreement with ION deprived ION of the ability to conduct seismic testing without the ability to appeal. Judge Cohill ruled that the testing will not hurt the Township and that Hempfield would be likely to lose on the merits.
On April 9, 2014, Pennsylvania Commonwealth Court President Judge Dan Pellegrini denied the petition to intervene of the Pennsylvania Independent Oil and Gas Association, Marcellus Shale Coalition and American Petroleum Institute in the Act 13 litigation, which was remanded by the Supreme Court back to the Commonwealth Court in December. However, Judge Pellegrini granted the trade groups a total of five minutes to argue as amicus curiae at a hearing scheduled for May 14, 2014 on the remanded issues. Issues to be argued in May include the jurisdiction of the PA Public Utility Commission, eminent domain, notice requirements for spills, and the provision prohibiting disclosure by health professionals of chemicals use in hydraulic fracturing.
The Seventh District Court of Appeals issued a ruling concerning application of the Ohio Dormant Mineral Act. In Walker v. Noon, the appeals court upheld the ruling of a Noble County trial court finding that the 1989 version of the Dormant Mineral Act applied and that a severed mineral estate became vested with the owner of the surface by operation of the statute.
The New York Attorney General’s office has filed motions to dismiss two lawsuits that seek to force Governor Cuomo to end a delay in deciding the future of shale drilling within the State. The two lawsuits, filed separately by a group of landowners and the bankruptcy trustee for Norse Energy, argue that that the State’s delay in issuing an environmental review of hydraulic fracturing is illegal and amounts to an unconstitutional “taking” of the plaintiffs’ property without just compensation. The State asserts in the motions for dismissal that the landowner group and the bankruptcy trustee lack standing to bring the suits.
The Ohio Supreme Court has accepted jurisdiction of a discretionary appeal in Dodd v. Croskey, which involves Ohio’s Dormant Mineral Act (“DMA”). Under the DMA there are several “savings events” which may occur in the previous twenty years that will prevent the abandonment and vesting of a severed mineral interest in the owner of the surface. One of the savings events involves the holder of the severed mineral interest filing a “claim to preserve” the mineral interest after receiving notice of the surface owner’s intent to declare it abandoned.
The Seventh District Court of Appeals previously held that the claim to preserve did not have to occur during the twenty-year period prior to the surface owner providing notice to the holder of the mineral interest. Instead, the present act of filing the claim to preserve after receiving notice was sufficient. The Ohio Supreme Court is poised to decide whether the present act of filing a claim to preserve satisfies the DMA or whether it must have been filed during the previous twenty-year period.
The Pennsylvania Supreme Court on Friday, February 21, 2014, denied an Application for Reargument or Reconsideration filed by the Commonwealth of Pennsylvania regarding the Act 13 decision. The December 19, 2013 Opinion and Order of the Supreme Court will stand. However, in a dissenting statement, Justice Saylor wrote that, “I am fully in line with the position that ‘[f]undamental fairness to a co-equal branch of government, as well as adherence to this Court’s precedent and established procedure, mandates that the [Commonwealth parties] be afforded a reasonable opportunity to present evidence before any judicial proclamation is made about whether Act 13 satisfies the newly-mandated balancing test under Section 27’ of Article I of the Pennsylvania Constitution. . . . The judiciary simply does not possess the ability to divine the consequences of a legislative enactment absent a developed factual record.”
On January 27th, 2014, the Commonwealth Court of Pennsylvania overruled in part and sustained in part the preliminary objections of Seneca Resources Corporation (Seneca) to a complaint filed by the Pennsylvania Game Commission (Commission). The Commission requested injunctive and declaratory relief against Seneca relative to the development of oil and gas under State Game Lands 39 in Venango County, Pennsylvania. The controversy stemmed from the interpretation of two severance deeds. A 1928 deed to the Commission excepted and reserved “all the oil and gas in or under the herein[-]described lands, with the right to operator for same by ordinary means now in use” (emphasis added). A 1932 deed excepted and reserved “all petroleum and oil and natural gas together with the right to prospect for, drill and bore for, produce and remove the same.” Seneca is the owner of the oil and gas rights that were excepted and reserved from the two deeds. Although the Commission conceded that Seneca acquired the oil and gas, it maintained that it owns the development rights to extract the oil and gas by “modern means” since horizontal drilling and hydrofracturing were not available practices at the time of the severance, and therefore, the parties could not have contemplated such practices as “ordinary means now in use.” With regard to the 1932 deed, the Court held that there were no limitations on the manner of extraction. With regard to the 1928 deed, the Court stated that the language was ambiguous with regard to whether “modern” extraction methods were prohibited and that the litigation would proceed to determine that claim.
Two Ohio trial courts issued new decisions on Ohio’s Dormant Mineral Act (“DMA”) addressing an unsettled issue of law concerning whether the 1989 or 2006 version of the DMA should apply to current disputes over the ownership of severed mineral rights. Both trial court decisions held that the 2006 version of the DMA applies to current disputes, which indicates a further reversal of the trend favoring claims made by surface owners that severed mineral interests “automatically vest” under the 1989 DMA. This blog previously reported on Dahlgren v. Brown Farm Properties, which was one of the first trial court decisions to apply the 2006 DMA and provided a short background of the two versions of the law. The blog post is available here.
In M&H Partnership v. Hines, Plaintiffs proceeded under a theory that the 1989 DMA applied “automatically” to extinguish the rights of the owners of a severed mineral estate. After considering the application of both the 1989 and 2006 versions of the DMA, the trial court found that the 2006 DMA applied. The court cited the Seventh District Court of Appeals’ decision in Dodd v. Croskey and noted the 2006 DMA’s procedures comport with the Ohio Marketable Title Act’s purpose of simplifying and facilitating title transactions. Further, the surface owner’s theory of “automatic vesting” under the 1989 DMA was contrary to the purpose of the Ohio Marketable Title Act because it would not allow people to rely on the record chain of title for a property. Applying the 2006 DMA, the trial court found that the surface owners had not complied with its procedural requirements and that the mineral owners had properly preserved their interest in the mineral estate.
The second recent trial court decision applying the 2006 DMA was issued by the Monroe County Court of Common Pleas. In Gentile v. Ackerman, the trial determined that the 2006 DMA applies to current lawsuits based on the precedent of Dodd v. Croskey. The trial court held it was expressly required to follow the Seventh District Court of Appeals’ decision in Dodd and that the procedures of the 2006 DMA must be followed to achieve abandonment and vesting of a severed mineral estate in a surface owner.
The Sixth Circuit Court of Appeals ruled that unitizing a property can be sufficient to extend a lease beyond its primary term. In Henry v. Chesapeake Appalachia, the dispositive issue concerned whether “operations” were conducted on the landowner’s property prior to the lease’s expiration. The lease permitted Chesapeake to pool or unitize the landowner’s property with other land to create one or more drilling units. Chesapeake filed a Declaration and Notice of a Pooled Unit (“DPU”) which included the landowner’s property in a drilling unit and specified that production would be allocated to the lease. The Court held that the filing of the DPU was an act incidental to the endeavor to obtain production of oil and gas from the landowner’s property and constituted “operations” as defined by the lease. The Court ruled in Chesapeake’s favor finding that the lease had been extended beyond its primary term.