Transcript UTICA UPDATE Presented By: John K. Keller Vorys, Sater, Seymour and Pease LLP 614.464.6389 | [email protected] April 28, 2015 © Copyright 2015, Vorys, Sater, Seymour and.

UTICA UPDATE
Presented By:
John K. Keller
Vorys, Sater, Seymour and Pease LLP
614.464.6389 | [email protected]
April 28, 2015
© Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
© Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
© Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
© Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
© Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
© Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
© Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
© Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
© Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
© Copyright 2015, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved.
ORC 1509.02
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1509.02 Division of oil and gas resources management –
chief – oil and gas well fund.
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There is hereby created in the department of natural resources the division of
oil and gas resources management, which shall be administered by the chief
of the division of oil and gas resources management. The division has sole and
exclusive authority to regulate the permitting, location, and spacing of oil and
gas wells and production operations within the state, excepting only those
activities regulated under federal laws for which oversight has been delegated
to the environmental protection agency and activities regulated under
sections 6111.02 to 6111.028 of the Revised Code. The regulation of oil and
gas activities is a matter of general statewide interest that requires uniform
statewide regulation, and this chapter and rules adopted under it constitute a
comprehensive plan with respect to all aspects of the locating, drilling, well
stimulation, completing, and operating of oil and gas wells within this state,
including site construction and restoration, permitting related to those
activities, and the disposal of wastes from those wells. Nothing in this section
affects the authority granted to the director of transportation and local
authorities in section 723.01 or 4513.34 of the Revised Code, provided that the
authority granted under those sections shall not be exercised in a manner
that discriminates against, unfairly impedes, or obstructs oil and gas
activities and operations regulated under this chapter.
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ORC 5301.09
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5301.09 Recording lease of natural gas and petroleum.
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In recognition that such leases and licenses create an interest in real estate, all leases, licenses,
and assignments thereof, or of any interest therein, given or made concerning lands or
tenements in this state, by which any right is granted to operate or to sink or drill wells thereon
for natural gas and petroleum or either, or pertaining thereto, shall be filed for record and
recorded in such lease record without delay, and shall not be removed until recorded. No such
lease or assignment thereof shall be accepted for record after September 24, 1963, unless it
contains the mailing address of both the lessor and lessee or assignee. If the county in which the
land subject to any such lease is located maintains permanent parcel numbers or sectional
indexes pursuant to section 317.20 of the Revised Code, no such lease shall be accepted for
record after December 31, 1984, unless it contains the applicable permanent parcel number and
the information required by section 317.20 of the Revised Code to index such lease in the
sectional indexes; and, in the event any such lease recorded after December 31, 1984, is
subsequently assigned in whole or in part, and the county in which the land subject thereto is
located maintains records by microfilm or other microphotographic process, the assignment
shall contain the same descriptive information required to be included in the original lease by
this sentence, but the omission of the information required by this section does not affect the
validity of any lease. Whenever any such lease is forfeited for failure of the lessee, the lessee’s
successors or assigns to abide by specifically described covenants provided for in the lease, or
because the term of the lease has expired, the lessee, the lessee’s successors or assigns, shall
have such lease released of record in the county where such land is situated without cost to the
owner thereof.
No such lease or license is valid until it is filed for record, except as between the parties thereto,
unless the person claiming thereunder is in actual and open possession.
Amended by 130th General Assembly File No. TBD, HB 9, §1, eff. 3/23/2015.
Effective Date: 09-20-1984.
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ORC 2305.041
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2305.041 Action for breach of oil or gas lease or license.
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With respect to a lease or license by which a right is granted to
operate or to sink or drill wells on land in this state for natural gas
or petroleum and that is recorded in accordance with section
5301.09 of the Revised Code, an action alleging breach of any
express or implied provision of the lease or license concerning the
calculation or payment of royalties shall be brought within the
time period that is specified In section 1302.98 of the Revised Code.
An action alleging a breach with respect to any other issue that the
lease or license involves shall be brought within the time period
specified in section 2305.06 of the Revised Code.
Effective Date: 04-06-2007.
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ORC 1302.98
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1302.98 Statute of limitations in contracts for sale – UCC 2-725.
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An action for breach of any contract for sale must be commenced within four years
after the cause of action has accrued. By the original agreement the parties may
reduce the period of limitation to not less than one year but may not extend it.
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A cause of action accrues when the breach occurs, regardless of the aggrieved
party’s lack of knowledge of the breach. A breach of warranty occurs when tender
of delivery is made, except that where a warranty explicitly extends to future
performance of the goods and discovery of the breach must await the time of such
performance, the cause of action accrues when the breach is or should have been
discovered.
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Where an action commenced within the time limited by division (A) of this section
is so terminated as to leave available a remedy by another action for the same
breach, such other action may be commenced after the expiration of the time
limited and within six months after the termination of the first action unless the
termination resulted from voluntary discontinuance or from dismissal for failure
or neglect to prosecute.
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This section does not alter sections 2305.15 and 2305.16 of the Revised Code on
tolling of the statute of limitations, nor does it apply to causes of action which
have accrued before July 1, 1962.
Effective Date: 07-01-1962.
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ORC 1509.31
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If a mortgaged property that is being foreclosed is subject
to an oil or gas lease, pipeline agreement, or other
instrument related to the production or sale of oil or
natural gas and the lease, agreement, or other instrument
was recorded subsequent to the mortgage, and if the lease,
agreement, or other instrument is not in default, the oil or
gas lease, pipeline agreement, or other instrument, as
applicable, has priority over all other liens, claims, or
encumbrances on the property so that the oil or gas lease,
pipeline agreement, or other instrument is not terminated
or extinguished upon the foreclosure sale of the mortgaged
property. If the owner of the mortgaged property was
entitled to oil and gas royalties before the foreclosure sale,
the oil or gas royalties shall be paid to the purchaser of
the foreclosed property.
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Severance Tax
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Current: Oil – $0.20 bbl
Gas – $0.03 mcf
But … after CAT and ad valorem equals about 2% of gross
Administration proposal: 6.5% of “national index”
gas/oil/NGL
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Because of market discount in Ohio effective rate expected to
be 9-11% actual proceeds
Removed by House from Budget Bill, not yet re-introduced
Potential outcome (unauthorized):
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2.5% actual proceeds (net of processing costs)
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Cost recovery
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Adjustment of CAT and ad valorem on production
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House Bill Eight
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House Bill Eight passed the Ohio House of representatives and is currently being considered by the
Ohio Senate’s Energy and Natural Resources committee. The process of addressing House Bill Eight
in the senate has stopped and may or may not restart depending on unrelated political matters. The
main focus of House Bill Eight is § 1509.28. However, House Bill Eight will also make uniform the
application of ad valorem taxes to only apply to oil and gas only once it has been extracted. The table
below summarizes the impact of the bill on § 1509.28.
Currently
Applications must be filed 120 days before a hearing.
Under HB8 as passed by the House
Hearing no more than 45 days after filing an application.
Orders have no mandated timeframe, orders for units
addressing privately-held lands take around 75 to 80
days
State lands are not addressed in the statute and ODNR
currently will not issue orders effecting state lands.
The Division’s review of applications for completeness
is informal.
Order issued no more than 30 days following a hearing.
Non-consenting interests are subject to risk penalty set
by the Division (commonly 200% for the initial well and
150% for subsequent wells). Although, the Division has
ordered between 100% and 300%.
Surface use is not addressed by the statute; however,
every order has included a no surface use of unleased
lands provision.
Current guidelines require five newspaper notices prior
to a hearing.
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State lands can expressly be unitized. State parks cannot be
unitized.
Mandated completeness review includes notice from the Division
setting out deficiency. If the Division does issue a deficiency
notice within 5 days of receipt of an application, a hearing must
be scheduled within 45 days of receipt of the application.
Mandated minimum non-consent risk penalty of 200%
Mandates that the Division cannot order surface use of unleased
lands without a separate agreement.
Not more than three newspaper notices in the nearest
newspaper of general circulation.
House Bill Sixty-Four
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House Bill Sixty-Four is the budget bill which, passed the house as a three thousand page document effecting
numerous statues. House Bill Sixty-Four does have some impact on oil and gas regulation in Chapter 1509,
although, the majority of items impacting oil and gas were removed from the as introduced bill prior to it passing the
Ohio House of representatives. The most significant items removed from House Bill Sixty-Four are the Lupo
Language and a rewriting of § 1509.28. Section 1509.232 or the Notice Provision is the most controversial of Chapter
1509 items remaining in the bill, although there have been significant efforts by industry representatives and the
ODNR to develop a mutually satisfactory draft what was passed by the house is far from a consensus version. The
following significant items remain in the bill and impact Chapter 1509.
Clarifies the § 1509.01 definition of tract to allow for a portion of a tract of land.
Removes the exception allowing for a permit to plug back a well to another formation not to pay the permitting fee.
Removes emergency planning language from other 1509 sections and creates §1509.231 which; contains the existing
community right to know requires and allows the chief to make rules to regarding what information shall be included
in a database of community right to know act information.
Creates §1509.232 which requires an owner, a person to whom an order of the chief is issued, or holder of
registration certificate or a contractor performing services for them to notify the chief via a toll free phone number
maintained by the chief, within a half an hour of becoming aware of any of the following taking place at a facility
regulated under chapter 1509.
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A release of 100 mcf of gas;
A release of 210 gallons of oil;
A release of brine, drill cuttings or other drilling waste;
A release of hydrogen sulfide related to a production operation;
A release of a semi-solid substance from a production operation;
A fire or explosion;
The response of a fire department;
Gives the chief rulemaking authority necessary to administer the section.
Clarifies §1509.27 allows for multiple tracts, requires notice to mineral owners, specifies surface operations require
the agreement of the surface owner.
Increases fines under 1509.33 to not more than ten thousand dollars, from either not more than four thousand or not
more than two thousand. Penalties under § 1509.33 can apply for violations of a term or condition of a permit or
order under chapter 1509. Also changes §1509.33 from not allowing for civil penalties under the section and criminal
penalties to not allowing for fines under the section and fines under § 1509.99.
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Litigation
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Home Rule: Beck; Broadview Heights
Lease Challenges:
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Notary
Paying quantities
Implied covenants
Fraud/unconsionability/lease divisibility
Dormant Mineral Act:
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Issues pending Ohio Supreme Court
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Is 1989 version self-executing
Is 1989 version fixed or rolling
Can 1989 version be claimed after 2006 amendment
What is “title transaction”
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Execution of lease
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Expiration of lease
DMA vs MTA
Perpetual Lease: Hupp
Royalty: Lutz
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Induced Seismicity
• Disposal
― AWMS appeal
• Completion
• Status State position
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