Oil and Gas Protection Leases – A Good Idea?

What’s a Protection Lease?
Suppose there is an issue with the title to minerals under a 100 acre farm and it is clear that either Party A owns those minerals or Party B owns them.  Suppose further that this farm sits in the middle of a planned unit for a horizontal Utica shale well.  What can an oil and gas producer do to fix that situation?  More frequently, producers are using ‘protection’ leases to address this situation.
In the above example, the producer would obtain leases from both Party A and Party B, paying only a nominal amount upon signing of the lease.  A side agreement is also signed where all agree that any production royalties due on the acreage will be …

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Unresolved Issues with Ohio’s Dormant Mineral Statute

Background
Over the past few years, Ohio’s courts, at all levels, have dealt with a number of issues pertaining to O.R.C. 5301.56, often referred to as Ohio’s dormant mineral statute. At this point in time, several such issues are about to be ruled upon by Ohio’s Supreme Court. One issue of importance, however, has received little mention in court rulings to date. That issue concerns the notice requirements by a landowner seeking to recapture dormant minerals. More particularly, what are those requirements?
Notice Requirements
(E) Before a mineral interest becomes vested under division (B) of this section in the owner of the surface of the lands subject to the interest, the owner of the surface of the lands subject to the interest shall …

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Oil and Gas Lease Ownership Challenges

Below are the materials the National Business Institute asked me to prepare for a seminar on Oil and Gas law.
LEASE / OWNERSHIP CHALLENGES, DISPUTES AND NEGOTIATIONS
A.  Recent case law and litigation trends
Though Ohio was one of the earliest states to have commercial production of oil and gas, surprisingly, it has not developed much of a body of case law in the field of oil and gas.  Frequently, the laws of other states must be reviewed to find cases on point – Texas, Oklahoma and Louisiana seem to have the most published opinions concerning oil and gas.
The advent of the Utica shale has changed things.  Numerous oil and gas cases have been filed in Ohio over the last several years and …

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Forced Pooling – Trends, Benefits and Detriments

Recently I wrote about Ohio’s mechanisms for forcing unleased mineral owners into a drilling unit.  Oil and gas producers have increasingly started to rely on these mechanisms to drill  horizontal wells to the Utica / Point Pleasant shale formation in eastern Ohio.  These same laws require transparency for these procedures, and as part of a public records request, I obtained several recent orders approving the forced unitization of unleased mineral owners in various parts of Ohio.   I was hoping that I could gain some insight on the issue of whether a landowner is better off signing a proposed lease or being forced into a drilling unit under the applicable statute.  Having reviewed these unitization orders, I offer the following observations:
Producers …

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Forced Pooling

Before drilling an oil and gas well in the state of Ohio, a driller must first apply for a permit from the Ohio Department of Natural Resources (ODNR).  Part of the driller’s permit application includes a map indicating the leased lands the driller wants to include in the drilling unit.  Several considerations dictate the size this drilling unit can be.  The underlying oil and gas lease, for example, might specify a maximum unit size.  Ohio law also speaks to minimum well unit sizes. Generally speaking, the deeper the well, the larger the unit size must be.   A vertical well drilled deeper than 4,000 feet requires 40 acres of unitized land.  Horizontal wells, like those drilled in the Utica shale have …

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Implied Covenant to Reasonably Develop – Geologic Formations

In a previous post I wrote about certain terms that are implied in all mineral leases: the covenant to reasonably develop.  In that article I described how a judge might cancel a certain area of an oil and gas lease if the producer hadn’t reasonably developed all of it.
This same idea can be applied to unused geological formations.  Let’s assume an energy company (the “lessee”) takes a lease for a 200 acre farm.  Let’s also assume that the lessee successfully drills five 40-acre wells on the acreage thirty years ago.  These five wells are all relatively shallow, and seek to produce oil and gas from the Clinton Sandstone geological formation.  Now, it should be pretty clear that the lessee has …

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Implied Covenant to Reasonably Develop – Acreage

Many of my clients come to me hoping that I can help break their oil and gas lease.  As a general proposition, oil and gas leases are hard to terminate.  Given that they are drafted by oil and gas companies, it should not be surprising that they often favor the oil and gas companies themselves.  Every landowner’s situation will be different, but as long as the lessee to the oil and gas lease (the producer) pays a royalty to the lessor (the landowner), the lease is nearly bullet-proof.
However, there might be other ways to terminate an oil and gas lease even if the lessee is paying a royalty to the landowner.  One particular method to cancel an oil and gas …

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Class Action Landowner Royalty Litigation

Twice I have successfully represented large groups of landowners regarding the proper calculation of landowner royalties.  The first case was Charton v. MB Operating Co. Inc., (1990 CV 110417), which involved about two thousand landowners in Tuscarawas County, Ohio; the matter was filed as a class action.  In that case, it was alleged that MB Operating was deducting about 25% of landowner’s natural gas royalties to cover its costs of transporting and marketing same.  Because MB Operating used a number of different lease forms, and because those forms did not have consistent language which addressed how royalties were to be calculated, there was a concern that the class members claims might not meet the commonality requirement under class action rules.  …

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Ohio’s Dormant Minerals Act – Ohio’s Courts Weigh In

Below is an excerpt from a presentation I gave on November 8, 2013 for the Ohio Association of Justice Seminar.  A broader overview of Ohio’s Dormant Mineral’s Act can be found here.
I.  Introduction
Commencing in the spring of 2010, eastern Ohio experienced an unprecedented oil and gas leasing boom due to the discovery of the Utica Shale.  In the recent past, Ohio landowners might expect to receive $10-20/acre for signing an oil and gas lease.  Presently, prices in the range of $3,000-6,000 have become the norm.  Hundreds of wells have now been drilled throughout eastern Ohio into the Utica shale, with some being prolific producers.
Private ownership of lands in Ohio began around the mid 1800’s when grants were given out by …

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Ohio’s Dormant Minerals Act – Overview

This is the first part of a series of articles about Ohio’s Dormant Minerals Act.  Click here for a more detailed description of how Ohio Courts interpret Ohio’s Dormant Minerals Act.
Oil and gas companies go to great lengths to determine if the person who signed a lease is in fact the true owner of the minerals.  It is not uncommon for a landowner to sign a lease and only be paid for 1/2 of what was originally promised, simply because the landowner only actually owned 1/2 of the minerals underneath her land.  At that point, the oil and gas company tracks down the other 1/2 mineral owner so they can enjoy the full benefits of leasing a 100% mineral interest.  …

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