Ohio Leased Landowners must read.

This could get rid of the unit size stated in your lease.  Read it please,

Hidden in a massive budget bill introduced in the Ohio General Assembly last month are proposed changes in state law that could rip away an important provision of many mineral rights leases.

Unless concerned mineral rights lessors and their advocates can stop the bill from becoming law, they may lose a popular tool to maximize the value of their rights.

House Bill 64, introduced Feb. 11 by State Rep. Ryan Smith of Gallipolis and known as the “Main Operating Budget,” is a monster bill of some 2,783 pages that amends some 934 existing statutes and touches myriad legislators’ pet issues, like e-cigarettes. (You can download a copy here, but it is a massive file.)

The bill also includes huge proposed changes to Ohio's unitization law (pp. 437-446). 

Background on unitization law

At the moment, that law, Ohio Revised Code Section 1509.28, allows for a unitization by owners of drilling rights on land overlying a defined pool of oil and gas.

The law was barely used from 1965 until 2011, when horizontal well drillers started hatching creative means of applying it to their benefit. Since then, the ODNR has been flooded with unitization applications.

The statute gives the Chief of the Division of Oil and Gas Resources Management the authority to "force" participation in a unit by unleased owners and owners of working interest rights who do not want to play ball with the majority working interest owners.

The statute does not address what is to happen if an energy company lessee claims its drilling rights under a lease that restricts a drilling unit size in conflict with the unitization applied for.

This has given lessors leverage to demand consideration from unitization applicants in return for amending existing leases to allow larger unit sizes.

Of course, the lessees (usually big oil and gas company assignees of original lessees) do not appreciate this inconvenience, and have been espousing novel legal theories to avoid it. Courts have not yet reviewed the issue.

Devil in the details of new bill

However, the new "operating budget" bill does raise the issue and proposes to shift the law against the rights of landowners.

The bill’s drafters (likely oil and gas company lobbyists) do not suggest clear language like, "The Chief can tear up existing leases and ignore negotiated unit limits." 

Rather, buried in proposed RC 1509.28 (E) (page 440), in language just ambiguous enough to hide its intent, a new provision says that if an applicant for unitization has not reached a voluntary agreement with a mineral rights owner as to the proposed unit, the rights owner (apparently whether under a lease or not) "shall be considered an unleased mineral rights owner." 

In other words, unitization limits specified in a lease would be of no effect.

Lessors, do you hear the sound of your lease being ripped up by ODNR?

It is time to be contacting your state legislators to express your concern. Your carefully negotiated oil and rights are at stake!

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Alan D. Wenger is an oil & gas lawyer in Youngstown, Ohio, and chair of the Oil & Gas Law Practice Group at HHM.

http://hhmlaw.com/blog/oil-gas-lessors-beware-terrible-changes-prop...

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Replies to This Discussion

Permalink Reply by Joseph-Ohio on March 10, 2015 at 9:11am
How is it legal to write new laws that sieze - without compensation - valuable consideration / gas and oil mineral rights from land / gas and oil mineral rights owners ?
Permalink Reply by Dexter Green on March 13, 2015 at 10:18pm

"How is it legal to write new laws that sieze - without compensation - valuable consideration / gas and oil mineral rights from land / gas and oil mineral rights owners ?"

It's not.  The Ohio Constitution makes it clear that a government body cannot change the terms of a contract.

Permalink Reply by Joseph-Ohio on March 14, 2015 at 5:58am
Why does the Bill then apparently permit it (as this post / poster appears to me to indicate) ?

Let me not fail to mention once again also the threat of being forced into a deficient lease without bargaining ability which is valuable consideration in itself.
Permalink Reply by Joseph-Ohio on March 14, 2015 at 8:09am
If this Bill / Proposed Legislation contains language that permits ignoring any leases and un-leased parcels that contain 'a defined pool' and it is in conflict with Ohio's Constitution how can it even be presented for deliberation ? ?

Sounds like a colossal waste of time, taxpayer monies (paid to the politicians to deliberate nonsense) to me.

Recall all of them involved and let them go find jobs perhaps working for their apparent O & G benefactors is what I say.
Permalink Reply by Dexter Green on March 14, 2015 at 12:16pm

The effect of the language in this bill does little more than clarify the already-existing power of the Chief.  Now whether that power is Constitutional in the first place, well, that's a different conversation.

This is an attorney trying to make a buck from creating a tempest in a teapot.

Permalink Reply by Joseph-Ohio on March 14, 2015 at 1:59pm
Hated the 'Trailer' as a trespass and hate the 'Movie' as a clarified / enhanced trespass even more - as, IMHO, all Ohio land / mineral owners should.
Permalink Reply by wandering juju on March 24, 2015 at 11:28am

Self Promotion.. is what these thieving Lawyers do to the max.. since Oil and Gas became a New Job Description.. Sure.. sheeple .. follow the leaders who will continue to take a percentage of both up front monies and royalties..   who is the good guy here.. ??  The land owner who gets to know his Oil and Gas Developer or Drilling Contractor..  If the Oil and Gas company needs to make changes in the Unit to make drilling more Profitable and or Easier to work..  YOU .. the Land Owner will make monies you Never had before..  all without more Thieving Lawyers getting in the way

Permalink Reply by Joseph-Ohio on March 10, 2015 at 2:42pm
Wrote about concerns of being 'Un-leased' but included / force pooled /force unitized into an old 'Pre-Utica Tailgate Class' lease agreement a long while ago.

This sounds like legislative movement toward making such a tresspass much easier for the E & P to implement.

Seems to me that the only saving grace is that the E & P has to move toward leasing the unleased landowner prior.

If there's a Utica Class 'Signing Bonus' accompanying the proposed lease and land / landowner cognizant protections it could work out OK - but who knows what the proposed lease agreement would look like / read until you see it ?

We're still un-leased and concerned.

Good luck to all of us - we need it if you ask me.
Permalink Reply by Professor-JV on March 13, 2015 at 12:25pm

 Just another reason we cant trust our politicians. Is there a person who can honestly be elected for all the right reasons anymore. And how much can you really trust this person. I am in belief that everybody is out for themselves any more. And along with my grand parents generation passing ,so did humility for others.  

Permalink Reply by wandering juju on March 24, 2015 at 11:29am

OH sure.. Trust the Layyers..  you're being led up the Golden Road.. again.. sheesh

Permalink Reply by Bill Bergseid on March 14, 2015 at 1:26am

Mr. Wenger and visitors to this sight should contact their respective legislators to have them clarify many parts of this bill.  The bill is similar to laws found in most oil producing states.  Most in the oil and gas industry feel that, all in all, forced unitization statutes do increase the hydrocarbons recovered and do prevent waste--especially the drilling of unnecessary wells.  A 40 acre tract underlain by the Utica really can't be effectively or economically produced by a well on only the 40 acres.  If the 40 acres are in the middle of a 600 acre unit in which 4 horizontal Utica wells are to be drilled, even an unleased mineral owner will usually be better off under a forced unitization than if he owner were to develop the 40 acres independently.  Consequently, most states have similar arrangements.  There are some better protections provided in other states' laws, that Ohio really ought to consider.  A few of these:

Few states provide for only a 1/8 royalty to the non-participating owner (Wyoming comes to mind).  No. Dakota requires the royalty to be the weighted average of all lease royalties in the unit.  This is probably the fairest arrangement.  N. Dakota also provides that the non-consent penalty for non-participating mineral owners is less than for a non-consenting working interest owner. Oklahoma allows the owner a choice based on the highest bonuses paid in a unit for different royalty  rates.  For example, if there are leases in the proposed unit with a 1/8 royalty and 3/16, the unleased owner might be offered a bonus of $100/acre and a 3/16 royalty or $200/acre with a 1/8 royalty.  If no election is made, the unit operator gets to choose.

The issue of the effect of forced unitization on pre-existing leases has come up in those states that did not address it in the legislation.  The supreme court in OK has said on maybe a dozen occasions

a statute will not be applied retroactively if it alters the rights and duties under an existing contract unless expressly intended by the legislature

and if

the result would be to impair an obligation of a contract (e.g., a lease existing prior to the statute).

It would be better to explicitly address the issue in the bill, specifically as to unit size limitations in a lease granted prior to the statute.

It would also be good to address the situation where part of a lease is unitized.  Several states provide that only the lands inside the unit are held by production from the unit. 

I would urge everyone to raise these issues with their legislators.  The unitization statute in general is to everyone's advantage as it allows more hydrocarbons to be produced at a lower cost.  However, some language in the statute is necessary to reduce even further those who do not benefit from the unitization.

Permalink Reply by Joseph-Ohio on March 14, 2015 at 5:50am
In Ohio, there are Utica leasehold agreements with signing bonus amounts ranging from several thousands of dollars per acre and upward (read about bonuses of 3k, 4.25k, 15k, 20k per acre). That's a far cry from .1k and .2k per acre you discuss above occurring in Oklahoma. The .1k and .2k figures to me are likened to pre-Utica 'Tailgate' class leasehold agreements which are much different than the 'paid up' Utica leases we've all read about on these pages. Important factors I think also to consider are the population density / smaller parcel sizes as Ohio (I would say off hand) is significantly more densly populated than Oklahoma.

Then there are all the landowners / folks who we are reading about on these pages whose signing bonus amoumts / payments and royalty terms are not being honored by the E & P Developers.

It's all very daunting to us (I and my wife) to say the least.

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