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 …

Read More

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.  …

Read More

Oil and Gas update – October 2013

We have been quite busy since our last update.  Most -if not all- of the most valuable lands have already been leased, and energy companies have essentially staked out their positions.  An incredible 169 wells are currently producing from the Utica shale in eastern Ohio.  Chesapeake Energy is far and away the biggest producer in the region, as they operate 114 of these 169 wells.  The lion’s share of these producing wells are in Carroll county.  Carroll saw such a boom due to its underlying geology, but also because it had never seen significant oil and gas development.  As a result, energy companies like Chesapeake did not need to navigate around already existing wells and older leases: it had a …

Read More

Landowner Royalty Calculations

One of the questions we’ve been getting a lot of recently is: “how are my oil and gas royalties calculated?”  There are actually a few different ways to answer this question.  The first angle has to do with how a royalty is calculated as part of a drilling unit.  Let’s say that you own 50 acres in a 100 acre drilling unit.  Your lease probably says you are to earn 1/8 (or 12.5%) of all oil and gas produced from the premises.  The premises in this instance is the 100 acre drilling unit, of which you only own 1/2 (50 acres = 1/2 of 100 acres).  Therefore, the entire drilling unit will earn 1/8 as a royalty.  Because your land …

Read More

Mortgage Subordinations

Lately we have spoken with a number of clients about mortgage subordination.  Drillers typically ask the landowner’s bank to subordinate their interest in the land (the mortgage) to the driller’s interest (the oil and gas lease).  The driller, of course, was concerned that they would lose their interest in the land if the bank foreclosed on the property.  If the bank’s interest was subordinated to the driller’s, however, the driller would retain their interest even in the event of foreclosure.  In the past, banks granted subordinations without hesitation.  Lately, however, banks are approaching mortgage subordinations much more carefully.  The general concern involves the enormous amounts of money involved in recent Utica shale drilling.  Larger banks sometimes have a policy against …

Read More

Arbitration Considerations

Just what is arbitration and how does it differ from court proceedings?  Generally speaking, both court proceedings and arbitration proceedings are adversarial processes in which a third party (or parties, in the case of a jury trial) is asked to settle a dispute.   In both court and arbitration, an award of some kind will be issued to the prevailing party.  Courts issue final judgments against parties that usually require them to take some action (i.e. pay damages).  These judgments carry the full weight of the law and must be followed by the parties.  Similarly, the award issued via arbitration proceedings is also legally binding on the parties.  That is, the results from an arbitration proceeding carry no less weight than results …

Read More

Oil and Gas Update – December 2012

Since my last update in July, I have perceived a trend of a southward movement of the Utica play. There
is presently a good deal of leasing activity in Belmont, Harrison, Noble and Guernsey Counties. Word
is that some of the best wells to date have been drilled in that area. Certainly, Carroll County and
Columbiana Counties are seeing large numbers of wells drilled, but leasing there is not as active as it
once was; companies are primarily focused on filling in planned drilling units and not much interested in
taking random leases. The basic attitude seems to be – ‘don’t call us, we’ll call you if we need you.’ In
areas where there is a single company with a dominant lease position, lease prices are …

Read More

Title Defects

Before a landowner will be paid a signing bonus for executing an oil and gas lease, the Lessee needs to make sure that the person who signed the lease is the person who owns the oil and gas underneath the subject property.   To know for sure, the energy company has to spend a good amount of time doing research at the local courthouse.   There, they search through old deed books and try to determine if any prior owner to the land had reserved the oil and gas rights.  If another person reserved the oil and gas rights, then that party is, by law, the only person entitled to enter into the oil and gas lease.  In this case, the landowner …

Read More

Arbitration

Before the recent interest in eastern Ohio’s utica shale, gas leases were written a little differently.  One big difference between the leases of old and the new leases has to do with how the Lessor (the landowner) and Lessee (the energy company) settle disputes.  Where old leases didn’t quite restrict the methods by which the parties could settle their disputes, new leases can include some pretty strict language that make landowners follow specific procedures for addressing their concerns.
Arbitration clauses have become common in oil and gas leases here in Ohio.  The leases that include such language usually require the landowner to have their concerns addressed by a neutral arbitrator rather than a judge or jury. Because most folks (and most …

Read More