Shale Energy Law Blog

The 2021 Babst Calland Report Highlights Legal and Regulatory Perspectives at a Transformational Time for the U.S. Energy Industry

A Recent Conversation with U.S. Senator Joe Manchin Featured in this Report

Law firm Babst Calland today published its 11^th annual energy industry report: The 2021 Babst Calland Report – Legal & Regulatory Perspectives for the U.S. Energy Industry. Each of our nation’s energy sectors is impacted by local, state and federal policies, many of which are addressed in this inclusive report on legal and regulatory developments for the energy industry in the United States.

The Babst Calland Report represents the timely collective perspectives of more than 45 energy attorneys on the current state of the U.S. natural gas and oil, coal, and renewable energy sectors. For the first time, this Report is presented as an easy-to-navigate digital site featuring 12 sections, addressing the following key topics:

• Business Outlook for the U.S. Energy Industry
• Climate Change Initiatives from the Biden Administration
• Pipeline & Hazardous Materials Safety Administration Priorities
• Environmental Law Developments
• Environmental Justice Issues
• Appalachian Basin Regional Developments
• Coal Mining Regulatory Changes
• Expansion of the U.S. Renewable Energy Market
• Real Estate & Land Use Developments
• Litigation Trends
• Changes in Employment & Labor Law
• Emerging Technologies Affecting the Energy Industry

Joseph K. Reinhart, shareholder and co-chair of Babst Calland’s Energy and Natural Resources Group, said, “The energy industry, once again, is at an inflection point and a moment of resiliency as it experiences a rebound in pricing and recovers from the impact of the global pandemic. Evidenced by the signing of several Executive Orders, President Biden has made climate change a focal point of U.S. energy policy. The full impact of the new administration’s “government-wide” approach to regulatory and social environmental policies will be unclear for months.

“This transformational time promises to bring significant changes for the U.S. energy industry. It is vital for any energy organization to consider the forewarnings, the risks, and the legal and regulatory implications to its business.”

Report Features Video Commentary from U.S. Senator Joe Manchin

This edition features commentary from Senator Joe Manchin (D-WV), Chairman of the U.S. Senate Energy and Natural Resources Committee, who spoke with Babst Calland energy clients at a special briefing on June 25, 2021. A link to the webinar recording is available in this Report.

To request a copy of The 2021 Babst Calland Report, click here.

Updates on key developments in energy and natural resources law beyond this Report are available directly by the attorneys who represent clients in a wide spectrum of industry sectors and legal practice areas.

The Babst Calland Report Highlights Legal and Regulatory Challenges for the U.S. Oil and Gas Industry

The law firm of Babst Calland published its 10^th annual energy industry report: The 2020 Babst Calland Report – The U.S. Oil & Gas Industry: Federal, State, Local Challenges & Opportunities; Legal and Regulatory Perspective for Producers and Midstream Operators. 

In this Report more than 50 energy attorneys provide perspective on the current state of the U.S. natural gas and oil production industry and its growth to historic highs due to more than a decade of advances in on-shore horizontal drilling and high-volume hydraulic fracturing. It asserts that despite current challenges, a maturing shale industry is poised for future growth as natural gas and oil producers have driven down the costs of production. Transportation options for moving these natural resources from growing areas of production to customers continue to be built, even with new hurdles from regulators and other stakeholders.

Joseph K. Reinhart, shareholder and co-chair of Babst Calland’s Energy and Natural Resources Group, said, “The U.S. natural gas and oil industry has experienced tremendous growth and change since we first published this Report in 2011. Fast forward to an unprecedented 2020 with a pandemic, a corresponding economic slow-down and oversupply of natural gas and crude oil. With increased public and government pressure, sustained low prices, and less-reliable financing options, resiliency will continue to be the driving force of a dynamic energy market that continues to evolve.”

Report highlights

The Babst Calland Report is an annual review of the issues and trends at the federal, state and local level in the oil and gas industry over the past year. The 102-page Report covers a range of topics from the industry’s business outlook, regulatory enforcement and rulemaking to developments in pipeline safety and litigation trends. The Firm’s collective legal experience and perspectives on these and related business developments are highlighted in this Report, including those summarized below:

• Long-term, U.S. energy production appears poised to continue to outstrip domestic consumption due in some measure to increased consumption efficiency, along with the obvious ramifications from the natural gas revolution.
• The regulatory environment is focused on climate change, reducing emissions, water quality developments, and enforcement. Increased volumes of written agency guidance, enforcement, and penalties continue to challenge the industry.
• Citizens groups continue to actively challenge federal and state initiatives designed to expand natural gas and oil development, creating delays and uncertainties.
• Land use and zoning challenges continue at the local level. Increasing industry headwinds have resulted in a slowdown of new permitting activity amid ongoing challenges and ordinance restrictions.
• Public interest in pipeline safety has grown amid opposition and new rules from the Pipeline and Hazardous Materials Safety Administration in response to increased public and congressional pressure to initiate and finalize new or revised pipeline safety regulations. Operators seek to install new or replace existing pipelines throughout the U.S. while advocacy groups aggressively oppose many pipeline projects.
• Title legislation and court decisions vary by state and basin. In Pennsylvania, for example, Act 85 took effect in January 2020 and defines the conditions in which oil and gas producers may drill a lateral wellbore that crosses between two or more pooled units.
• Although 2019 saw renewed claims of adverse health effects allegedly related to oil and gas development, support for such claims continues to be limited, as now noted by numerous publications.
• Unmanned aircraft systems take hold in the energy sector. Despite the pandemic and its impacts, unmanned aircraft systems (UAS) have emerged as essential tools for the energy industry for conducting complex inspection and monitoring of difficult to access infrastructure and locations.
• From a workforce standpoint, COVID-19 conditions and other wage and hour regulations, amendments to the Family Medical Leave Act, and expanded unemployment benefits under the CARES Act have had an impact on companies across the country.

The natural gas and oil industry continues to expand its reach and impact on U.S. energy supply and independence. Each company has its own set of opportunities and challenges to navigate based on its financing, debt, shareholder goals, and operations and infrastructure footprint. Nonetheless, the United States’ plentiful supply of natural gas and oil is expected to continue to fuel the country’s economic future and support national security.

Request a copy of the Report

Babst Calland’s Energy and Natural Resources attorneys support clients operating in multiple locations throughout the nation’s shale plays. To request a copy of the Report, contact info@babstcalland.com.

Legislative Update: Ohio Governor Signs House Bill No. 197 into Law

On Friday, March 27, Ohio Governor Mike DeWine signed Amended Substitute House Bill Number 197 (“House Bill 197”), passed by the 133rd General Assembly of the State of Ohio. The purpose of House Bill Number 197 is to provide emergency relief to Ohioans during the COVID-19 pandemic, in part by confirming that “essential operations of state government” will continue during the declared state of emergency, which began in Ohio on March 9, 2020.

Section 21 of House Bill 197 is of particular import to the oil and gas industry. Section 21 requires the title offices of all courts of common pleas, as well as the county map office of each county, to remain open and operational, and to allow land professionals physical access to the offices as necessary to search the records. It is intended to maintain title searchers’ access to documents that either have not been digitized or are otherwise unavailable for viewing online. Section 21 provides that each county office may impose limitations on this access, such as operating during limited hours or permitting only visits of a limited duration, and further stipulates that title searchers may be subject to “requirements and restrictions in the interest of public health.” In addition, the Bill requires all “essential services to effectuate a property transfer” (i.e., deed recording and similar services) to remain open and available across all county offices.

Section 22 extends tolling periods for various statutes of limitation, including the period of limitation for an administrative action or proceeding. It provides that any statutes of limitation set to expire between March 9, 2020 and July 30, 2020, shall be tolled for the duration of the state of emergency. This section is retroactive and relates back to March 9, 2020, the date the emergency was declared, and expires on the date the period of emergency ends or July 30, 2020, whichever is sooner.

For additional information, please contact Meredith Calfe or Scott McKernan.

Ohio Supreme Court to Tackle Whether Marketable Title Act Applies to Severed Oil and Gas Interests

The Ohio Supreme Court accepted the appeal of the owners of a severed royalty interest in West v. Bode, Case No. No. 18 MO 0017, 2019-Ohio-4092. The sole issue before the Court is whether the Ohio Dormant Mineral Act supersedes and controls over the Ohio Marketable Title Act for disputes involving severed oil and gas interests.  The Seventh District had ruled that both the Ohio Marketable Title Act (MTA) and the Ohio Dormant Mineral Act (DMA) are available to surface owners seeking to reclaim previously severed oil and gas interests; rejecting the royalty owners’ argument that the DMA is the sole remedy for these disputes. The Ohio Supreme Court’s decision should bring clarity to ownership of oil and gas rights in Ohio.

Ohio’s Statutory Unitization Amended to Clarify Inclusion of Partially Leased Tracts

Ohio recently passed HB 166, effective October 17, 2019, amending Section §1509.28 of Ohio’s statutory unitization statute.  The prior version of Section §1509.28 did not specify whether all mineral owners in a tract must be leased to be included in the accounting for the minimum 65% operator ownership interest, which is the threshold required in order to apply for statutory unitization.  The Section also did not address whether an operator could count partial net-acreage interests in a tract.  For example, under the prior version of Section §1509.28, if a 10 acre tract was owned jointly by five owners, two of which had leased their oil and gas interests, it was unclear whether the operator was required to represent the leased interest as only four net acres or whether the operator was required to represent the tract as wholly unleased until all owners in the tract had entered into oil and gas leases.  The new amendment added the following clarification to the Code: “In calculating the sixty-five per cent, an owner’s entire interest in each tract in the proposed unit area, including any divided, undivided, partial, fee, or other interest in the tract, shall be included to the fullest extent of that interest.”  The amendment makes clear that for tracts with multiple owners, any type of interest held by the applicant-operator in a unitized tract counts towards the minimum 65% threshold required to apply for an order permitting forced unitization from the chief of the division of oil and gas resources management.

Ohio Supreme Court to Address Whether the Dormant Mineral Act Requires Internet Search

The Ohio Supreme Court accepted mineral owner Timothy Gerrity’s appeal in Gerrity v. Chervenak, a Dormant Mineral Act (“DMA”) case from Ohio’s Fifth District Court of Appeals. The Fifth District upheld the summary judgment granted by the Guernsey County trial court in ruling that the surface owner had successfully served notice by publication under the DMA process and abandoned Gerrity’s interest in the oil and gas. Following a search of the Guernsey County records (the property’s location) and a search of the Cuyahoga County records (location of Gerrity’s predecessor’s last known address), the surface owner served notice by certified mail to Gerrity’s predecessor at an address that the predecessor had not lived at since 1967. Following failure of service as “Vacant – Unable to Forward,” the surface owner published notice in a newspaper as proscribed in the DMA and completed the remainder of the DMA process, thereby acquiring Gerrity’s oil and gas interest. Gerrity’s appeal alleges that the surface owner failed to exercise reasonable diligence in attempting to locate Gerrity by not conducting an online internet search.

The level of diligence required by the surface owner in a DMA process in attempting to locate and serve notice by certified mail on the holders of the mineral interest is now squarely before the Ohio Supreme Court. The Ohio Supreme Court will decide whether a search of the county records where the property is located satisfies the reasonableness standard under the DMA or whether serving notice under the DMA requires a more comprehensive search, such as including the internet.

Ohio’s Marketable Title Act Quickly Becoming Preferred Method for Surface Owners Seeking Ownership of Severed Mineral Interests

Since the Ohio Supreme Court’s decision in Corban v. Chesapeake Exploration, L.L.C., et al, 149 Ohio St.3d 512, 2016-Ohio-5796, many have questioned the interplay and availability of the Ohio Marketable Title Act (“MTA”) and the Ohio Dormant Mineral Act (“DMA”) for surface owners claiming previously severed oil and gas interests.  The Ohio Seventh District Court of Appeals recently answered many of those questions and illustrated the power of the MTA for surface owners. In Senterra Ltd. v. Winland, Case No. 18 BE 0051 (Ct. App. Oct. 11, 2019), the Seventh District again confirmed that both the MTA and the DMA are available to surface owners claiming ownership of severed oil and gas interests.  That court held that the MTA remains available for surface owners even after availing themselves to the DMA process.  The court also determined that the reference, “excepting all the oil and gas rights underlying said described premises” is considered a general reference under the Blackstone inquiry due to the reference failing to identify the party reserving the interest.

In addition to expanding on whether a reference is specific or general, the Seventh District’s analysis rendered the date determining marketability under the MTA as irrelevant.  That date controls what instrument operates as the root of title, being the most recent instrument of record at least 40 years prior.  Because the MTA statute (O.R.C. 5301.47, et. seq.) fails to define which date should be used to determine marketability, courts have previously used the following dates to begin its MTA analysis: (1) trial/summary judgment; (2) summons; or (3) a severed mineral holder filing a notice of preservation. In Senterra, the Seventh District determined that regardless of using the date of summons or the date of the trial court’s determination, a 1971 deed in the chain of title operated as the root of title for a portion of the land at issue.  However, in looking at the time period between 1971 and 2011 (the 40-year period required by the MTA), the record indicated an unspecified event occurred on July 14, 2000, which may have preserved the interest for its holder.  Therefore, the court looked to the previous deed in the chain of title, being a 1954 deed, and conducted its analysis using this deed as the root of title.  In determining that the surface owner had an unbroken chain of title from 1954 through 1994 with the mineral owner failing to preserve their interest during that time, the court held that the 1954 deed qualified as the root of title purporting to create the interest claimed by the surface owner and extinguished the interest of the mineral owner.  Therefore, regardless of what initial date is used in determining marketability, a proper analysis will step through each deed in order to determine if a 40-year unbroken chain of title has occurred.

The Senterra decision continues a series of victories for surface owners and establishes the MTA as an invaluable tool to claim severed oil and gas interests.  However, it remains to be seen if the case will be reviewed by the Ohio Supreme Court.

Ohio’s Seventh District Court of Appeals Clarifies Past Holdings, Confirms Marketable Title Act Available to Surface Owners Seeking to Extinguish Severed Mineral Interests

Ohio’s Seventh District Court of Appeals recently ruled that Ohio’s Marketable Title Act (the “MTA”) does not conflict with the Dormant Mineral Act (“DMA”), and that both statutes can be utilized by a surface owner to claim ownership of severed minerals. W. v. Bode, 2019-Ohio-4092 (Ct. App.). The Monroe County trial court found that the DMA irreconcilably conflicted with the MTA and that the surface owners were limited to the process set forth in the DMA to claim ownership of a severed royalty interest. However, the Seventh District reversed and determined that, although the DMA provides a separate procedure, both the MTA and the DMA are available to surface owners attempting to claim ownership of a severed mineral interest.

In addition to Bode, the Seventh District issued two opinions clarifying earlier 2019 decisions pertaining to the MTA. Hickman v. Consolidation Coal Co., 2019-Ohio-4077 (Ct. App.) and Miller v. Mellot, 2019-Ohio-4084 (Ct. App.). In its previous decisions, the Seventh District held that if the surface owner’s root of title contained any reference to an oil and gas exception/reservation, the surface owner was precluded from claiming the mineral interest had been extinguished under the MTA. In Hickman and Miller, the Seventh District clarified that it reached that conclusion solely due to the void in the post-severance/pre-root deed history contained in the record in these cases. Because the records were silent as to the interest owned by the grantors in the root of title deeds, the court could not ascertain that the exception/reservation contained therein operated as a reference instead of an original severance. The Seventh District confirmed that the Blackstone analysis¹ applies where the root of title contains a reference to a prior reference.

Enacted in 1961, the MTA operates to extinguish interests after 40 years unless a statutory exception applies. While originally excluding minerals from its application, a 1973 amendment caused the MTA to apply to all minerals except coal. In 1989, the Ohio legislature amended the MTA to include the DMA, which provides a method to have severed minerals “deemed abandoned” after 20 years absent a savings event. Therefore, the DMA provides a method, including service of notice on the holders, of declaring a mineral interest abandoned after only 20 years and the MTA results in an automatic extinguishment of an interest after 40 years. The availability of these coextensive alternatives depends on the time passed and the nature of the chain of title for both the surface and minerals. In holding that both the DMA and MTA apply to minerals, the Seventh District provided greater flexibility to surface owners and operators seeking to develop oil and gas in Ohio.

__________________

¹ (1) Is there an interest described within the chain of title? (2) If so, is the reference to that interest a “general reference”? (3) If the answers to the first two questions are “yes,” does the general reference contain a specific identification of a recorded title transaction?

The 2019 Babst Calland Report Highlights Federal, State and Local Challenges and Opportunities for the U.S. Oil and Gas Industry

The law firm of Babst Calland today released its annual energy industry report: The 2019 Babst Calland Report – The U.S. Oil and Gas Industry: Federal, State and Local Challenges & Opportunities; Legal and Regulatory Perspective for Producers and Midstream Operators.

In this Report, Babst Calland energy attorneys provide perspective on issues, challenges, opportunities and recent developments in the oil and gas industry that are relevant to producers and midstream operators.

According to the International Energy Agency, “the second wave of the U.S. shale revolution is coming” and the United States will account for a 70 percent increase in global oil production and a 75 percent expansion in LNG trade in the next five years. 

On a year-over-year basis, natural gas production continues to increase in each of the seven largest shale basins in the United States. Most notably, oil and natural gas production is being driven by three of the largest producing basins including Appalachia in Pennsylvania, West Virginia and Ohio, the Permian Basin in Texas and New Mexico, and the Haynesville Basin in southwestern Arkansas, northwest Louisiana, and east Texas.

Joseph K. Reinhart, shareholder and co-chair of Babst Calland’s Energy and Natural Resources Group, said, “Domestic shale producers and operators continue to face myriad legal and regulatory challenges by regulatory agencies, the courts, activists, and the market. This annual review is a snapshot of the issues and trends on the federal, state and local level in the oil and gas industry over the past year.”

The 92-page Babst Calland Report covers a range of topics from the industry’s business outlook, regulatory enforcement and rulemaking to developments in pipeline safety and litigation trends. A few of the Report’s highlights include:

• The U.S. Department of Energy’s Energy Information Administration (EIA) reports both oil and dry natural gas production set U.S. records this year. Oil production hit 12.4 million barrels per day in May, natural gas soared above 90 billion cubic feet per day. U.S. production of gas liquids also set records and now account for over a quarter of U.S. petroleum product output.
• This year, the oil and gas industry received mixed messages regarding environmental matters. On the federal level, the Trump administration generally loosened regulatory and/or statutory constraints, such as narrowing the Clean Water Act definition of “Waters of the United States.” In contrast, at the state level, some agencies introduced or considered more rigorous standards, including Pennsylvania’s proposed cap-and-trade program.
• Public interest in pipeline safety has grown significantly in recent years. Consequently, operators’ installation of new pipeline infrastructure to transport energy products from the nation’s shale plays to domestic and foreign markets has resulted in increased scrutiny.
• In Pennsylvania, the contours of the Robinson Township II decision continue to be litigated and legislated by local governing bodies, while the Commonwealth Court provided clarity concerning a municipality’s right to determine the location of oil and gas operations. In West Virginia, the extent of a county government’s ability to investigate alleged nuisances is being considered in the state’s highest court. In Colorado, new legislation has empowered local governments to take a much more active role in regulating oil and gas development.
• Significant title issues concerning oil and gas property rights continue to be addressed in states in shale plays throughout the country. The desire to improve efficiencies has resulted in the use of allocation wells and cross unit drilling, particularly in Texas and Oklahoma.
• Nuisance claims, alleging that excessive noise, traffic, dust, light, air pollution and impaired water quality interfere with the use and enjoyment of private property, continue to be asserted across the shale plays.
• An increasing number of oil and gas companies recognize the advancements in commercial unmanned aircraft systems (UAS) technology and the utility and cost savings associated with using UAS to inspect and monitor assets such as pipelines and infrastructure.

After more than a decade, the shale gas industry continues to expand its reach and impact on our country’s energy supply and independence. Babst Calland’s Energy and Natural Resources attorneys support clients operating in multiple locations throughout the nation’s shale plays. To request a copy of the Report, contact info@babstcalland.com.

Sixth District Court of Appeals Analyzes Date Marketability Determined under Ohio Marketable Title Act

Ohio’s Sixth District Court of Appeals recently ruled that Ohio’s Marketable Title Act (the “MTA”) extinguished restrictive covenants on a parcel located in a residential subdivision due to a gap in excess of 40 years without being identified in the parcel’s chain of title. David v. Paulsen, No. OT-18-032, 2019 Ohio App. LEXIS 2229 (Ct. App. May 31, 2019).  The MTA allows an owner to establish marketable title, being title free from reasonable doubt of litigation, by relying on a record chain of title to extinguish interests and claims existing prior to the root of title unless an exception applies. The root of title is the most recent instrument of record at least 40 years prior to the time marketability is being determined. While not immediately impacting the oil and gas industry, at the heart of the dispute in Paulsen was when marketability is determined under the MTA, which may affect future oil and gas ownership claims under the MTA.

The Appellants, members of a subdivision seeking to enforce the restrictive covenant against the landowner Appellees’ building of a shed, argued that the date of the 2009 deed where the landowners took title to the lot should be used to determine marketability. If so, the root of title would be a 1964 deed which predated the restrictions of the subdivision. Therefore, the MTA would not extinguish the restrictions, as they would post-date the root of title. The landowners countered with the argument that the date the members of the subdivision filed their summary-judgment motion, being the date most recent in time, should be the date the court uses to determine marketability.

Finding fault with both positions, the court instead determined marketability when the members of the subdivision sought to enforce their purportedly-superior right, being the date they filed their complaint. Thus, the court found that a July 3, 1973 deed, being the first deed of record 40 years prior to the filing of the complaint, operated as the root of title for the land in dispute. The court concluded that the MTA extinguished the restrictions because the restrictions existed prior to the root of title and were not stated or identified in the July 3, 1973 deed or specifically referenced in any of the documents of the chain of title in the 40 years following the root of title.

While only binding on courts located within the jurisdiction of the Sixth District in northwest Ohio, Paulsen is the first appellate decision in Ohio to analyze the date that marketability is determined under the MTA. If adopted by other courts of appeal, particularly the Seventh District, Paulsen may render the MTA toothless in reclaiming title to previously severed oil and gas interests. Because the court in Paulsen determined marketability on the filing date of the complaint, a landowner would arguably be required to file a quiet title action to claim severed oil and gas interests under the MTA – an action not contemplated by the statute.

Ohio’s Seventh District Court of Appeals Rules on Marketable Title Act and Dormant Mineral Act Claims

Ohio’s Seventh District Court of Appeals recently issued three separate opinions involving Ohio’s Marketable Title Act (the “MTA”) and Dormant Mineral Act (the “DMA”): Miller v. Mellott, 2019-Ohio-504 (Ct. App.); Soucik v. Gulfport Energy Corp., 2019—Ohio-491 (Ct. App.); and Hickman v. Consolidation Coal Co., 2019-Ohio-492 (Ct. App.). Despite ruling that the severed royalty and/or fee interests were subject to both the MTA and the DMA, the Seventh District held that the mineral/royalty interests had not been abandoned and/or extinguished by either.

In its MTA analysis, the court scrutinized the language of the root of title deed used by the surface owners to establish title to the severed interest. If the surface owner’s root of title contained a reference to an oil and gas reservation, the court found that the surface owner was precluded from claiming the mineral interest had been extinguished under the MTA. The court determined that even a perfunctory exception to oil and gas “as heretofore reserved” barred the surface owner from claiming title to the mineral interest under the MTA. Finding that the severed minerals survived extinguishment under the MTA, the court addressed underlying defects in the surface owner’s DMA procedure.

In denying the surface owners’ claims under the DMA in Miller and Soucik, the court determined that the surface owners failed to satisfy the diligence required by Ohio law in identifying the mineral holders before permitting notice by publication. Even though the margins of the deeds severing the mineral interests contained notations of abandonment, the court permitted examination of the underlying procedure to determine whether abandonment was proper. Surface owners carry the burden to establish that they attempted service by certified mail prior to proceeding to notice by publication. Because the surface owners in Miller and Soucik failed to provide evidence through affidavits or otherwise that they even attempted to serve notice by certified mail, the court found that the surface owners failed to comply with the notice provisions of the DMA. Therefore, the court ruled that the severed mineral interests had not been abandoned under the DMA.

Ohio Supreme Court Clarifies Details Required for Specific Reference Under the Marketable Title Act

On December 13, 2018, the Ohio Supreme Court in Blackstone v. Moore, 2018-Ohio-4959, affirmed the Seventh District Court of Appeals decision preserving a severed royalty interest from extinguishment under the Marketable Title Act (the “MTA”) because of a specific reference in the surface owners’ chain of title. The MTA allows an owner to rely on a record chain of title to establish ownership and operates to extinguish interests and claims existing prior to the root of title unless an exception applies. The root of title is the most recent instrument of record at least 40 years prior to the time marketability is being determined.  In addition to actively preserving their interest from extinguishment through their own actions, an interest may be preserved, even with no action by its owner, if specifically identified in the record chain of title of the individual attempting to extinguish the interest.

The Blackstones (surface owners) claimed that the royalty interest created in 1915 owned by the Moores had been extinguished by operation of law under the MTA. However, the Blackstones’ 1969 root of title referenced the outstanding oil and gas royalty interest by its owner’s name but failed to include a volume/page reference to the instrument that created the interest. The court rejected the Blackstones argument for a bright-line rule requiring the volume and page number, as the legislature did not require this specificity in the statute. Accordingly, the court determined that the Blackstones’ 1969 root of title specifically referenced the Moores’ interest, thereby preserving the Moores’ interest from extinguishment.

Justice DeGenaro, who is leaving the court at the end of 2018, wrote a concurring opinion emphasizing the narrow scope of the holding. She opined that the MTA no longer applies to severed mineral interests following the 1989 enactment of the Dormant Mineral Act (the “DMA”). While the issue of whether the MTA applies to severed mineral interests was not before the court in Blackstone, this issue is currently before the Seventh District Court of Appeals in a separate, unrelated case. The Seventh District had previously applied both the DMA and MTA to the Moores’ severed royalty interest when Blackstone was on appeal before them.

Ohio’s Seventh District Court of Appeals Rules on Dormant Mineral Act’s Requirement of Reasonable Due Diligence Prior To Notice by Publication

On November 26, 2018, Ohio’s Seventh District Court of Appeals in Sharp v. Miller, 7th Dist. Jefferson No. 17 JE 0022, 2018-Ohio-4740, affirmed the abandonment of oil and gas interests pursuant to the Dormant Mineral Act (O.R.C. §5301.56) (the “DMA”). The issues before the court were: (i) whether the surface owners’ (the Millers) service of notice by publication to the mineral owners (the Sharps) properly complied with Section (E)(1) of the DMA; and (ii) whether the oil and gas leases executed by the Millers, prior to claiming the minerals under the DMA, constituted savings events for the Sharps. The court held in favor of the Millers on both issues confirming the abandonment of the Sharps’ oil and gas interests.

The Sharps alleged that they received insufficient notice of the surface owners’ intent to abandon the minerals, claiming that a reasonable search by the Millers would have revealed the identities and addresses of the Sharps, and thus required notice to be served by certified mail instead of by publication. In rejecting the Sharps’ argument that the Millers failed to exercise reasonable due diligence, the court used the failed results of the Sharps’ own search to establish that the Millers’ search was sufficient. In line with its recent decision Shilts v. Beardmore, 7th Dist. Monroe No. 16 MO 0003, 2018-Ohio-863, the Seventh District again declined to establish an objective bright-line rule for when notice by publication is permitted or to define “reasonable due diligence.” Instead, the court will continue to apply a subjective test and look to the facts and circumstances in each individual case to determine if the surface owners conducted a reasonable search in attempting to identify the mineral interest holders. Additionally, whether a surface owner’s search was reasonable may depend on the outcome of the mineral owner’s search using alternative resources, such as searching the records of adjacent counties, search engine inquires, and searching for heirs on subscription websites like ancestry.com.

In a matter of first impression, the court rejected the argument that oil and gas leases executed by the Millers, prior to claiming the minerals under the DMA, constituted savings events for the Sharps. While the Ohio Supreme Court has held that a recorded oil and gas lease is a title transaction (Chesapeake Exploration, L.L.C. v. Buell, 144 Ohio St.3d 490, 2015-Ohio-4551, 45 N.E.3d 185, ¶66), the Seventh District noted that the Millers did not own the minerals at the time of the lease. Therefore, the mineral interest was not the “subject of” the title transaction. As such, the leases did not constitute savings events under the DMA for the Sharps and did not preclude abandonment of the Sharps’ interest under the DMA.

The Sharps have until January 10, 2019 to appeal the Seventh District’s decision to the Ohio Supreme Court.

The 2018 Babst Calland Report Focuses on the Appalachian Basin Oil & Gas Industry Forging Ahead Despite Obstacles

Babst Calland today released its annual energy industry report: The 2018 Babst Calland Report – Appalachian Basin Oil & Gas Industry: Forging Ahead Despite Obstacles; Legal and Regulatory Perspective for Producers and Midstream Operators.  This annual review of shale gas development activity in the Appalachian Basin acknowledges an ongoing rebound despite obstacles presented by regulatory agencies, the courts, activists, and the market. To request a copy of the Report, contact info@babstcalland.com.

In this Report, Babst Calland attorneys provide perspective on issues, challenges, opportunities and recent developments in the Appalachian Basin and beyond relevant to producers and operators. According to the U.S. Energy Information Administration’s May 2018 report, the Appalachian Marcellus and Utica shale plays account for more than 40 percent of U.S. natural gas output, compared to only three percent a decade ago. Since then, the Appalachian Basin has become recognized in the U.S. and around the world as a major source of natural gas and natural gas liquids.

The industry has been forging ahead amidst relatively low natural gas prices, infrastructure building, acreage rationalization and drilling plans that align with business expectations. The policy landscape continues to evolve with ever-changing federal and state environmental and safety regulations and tax structures along with a patchwork of local government requirements across the multi-state region.

Joseph K. Reinhart, shareholder and co-chair of Babst Calland’s Energy and Natural Resources Group, said, “This Report provides perspective on the challenges and opportunities of a shale gas industry in the Appalachian Basin that continues to enjoy a modest rebound. While more business-friendly policies and procedures are emanating from Washington, D.C., threats of trade wars are raising concerns about the U.S. energy industry’s ability to fully capitalize on planned exports to foreign markets.”

To read more: click here.

Federal Court Upholds Constitutionality of Ohio’s Unitization Statute

A federal district court in Ohio recently upheld the constitutionality of Ohio’s forced pooling statute (R.C. § 1509.28) in Kerns v. Chesapeake Exploration, LLC, et al., N.D. Ohio No. 5:18 CV 389 (June 13, 2018). R.C. § 1509.28 establishes the procedure for owners to combine contiguous acreage and interests to efficiently and effectively develop the oil and gas resources underlying that land. Additionally, the statute grants the chief of the division of oil and gas resources management the authority to compel landowners unwilling to lease their land to join in drilling operations. The constitutional challenge in Kerns involved the same group of landowners whose writ of mandamus was rejected by the Ohio Supreme Court in January. Following their unsuccessful challenge at the Ohio Supreme Court, the landowners alleged that R.C. § 1509.28 violated their constitutional rights under the Fifth and Fourteenth Amendments by authorizing an impermissible taking of their property. In rejecting the constitutional challenge, the federal district court relied on previous decisions from the United States Supreme Court holding that the statute was a legitimate exercise of Ohio’s police powers to protect correlative rights and reduce waste. In deeming R.C. § 1509.28 constitutional, Ohio courts join the well-settled national consensus that unitization procedures do not constitute an impermissible taking of property.