Judge's ruling limits shale developer's drilling rights

Judge's ruling limits shale developer's drilling rights

CADIZ, Ohio -- Sparsely populated Harrison County, in the rolling foothills of the Appalachians, boasts a rich vein of U.S. history.

The county was a hotbed of abolitionist activity in the years leading up the Civil War. It's where General George Armstrong Custer and Edwin Stanton, President Lincoln's secretary of war, were born. And on Charleston Street, in the county seat of Cadiz, is a two-story, white frame house that is the birthplace of actor Clark Gable.

In recent years though, Harrison County has been out of the spotlight, but a judge's ruling could change that.

Harrison County Common Pleas Judge Michael Nunner has sharply limited Chesapeake Exploration's ability to drill for shale gas and oil from a property where the company has leased the mineral rights. The ruling is rattling an industry that Cleveland State University economists predict could pump $5 billion a year into the state's economy by 2014.

"It could affect Chesapeake and other drill companies across Ohio," said David Hudson, who represents the Jewett Sportsmen and Farmers Club, the landowner that sued Chesapeake.

Nunner said while Chesapeake can vertically extract gas and oil from underneath the hunt club's 187 acres of woods and fields, the energy company can't use the land to drill sideways to get at reserves from adjacent land.

He ordered Chesapeake, a dominant player in Ohio's shale production, to stop horizontal drilling that extends beyond Jewett's property line unless it gets the club's permission to go ahead.

Extracting natural gas and oil from shale formations depends on lateral drilling to carry millions of gallons of water under intense pressure to fracture surrounding rock. Horizontal bores can extend up to 10,000 feet, or almost two miles, from the drill hole. Chesapeake already had poured a 12-acre concrete pad for rigs but has sunk no wells.

"They don't have a right to come in and destroy our surface without fair compensation," said Jewett club president John Harris.

A spokesman for the Oklahoma-based Chesapeake declined comment. So did North American Coal Co., which owns the mineral rights and leased them to Chesapeake.

The coal company, in a motion earlier this month, asked Nunner to reconsider his order that effectively halted Chesapeake's ability to profitably plumb the shale rock some 8,000 feet below ground.

North American Coal, in its motion, said that the order directly conflicts with Ohio public policy to encourage development of natural resources "by halting any oil and gas production through the use of contemporary horizontal drilling methods on this property."

By creating an "erroneous new law, it would impede or prevent the development of oil and gas elsewhere in Ohio, with significant adverse effects for the state's economy," the company said.

Harris said the club's 190 members are about evenly divided between those looking for a good settlement from Chesapeake in exchange for their approval on drilling and those wanting the company to go away.

The club, in the center of Harrison County, about seven miles north of Cadiz, dates back to 1959 when its 12 founders took out a bank loan to buy a chunk of land they were leasing to hunt white-tailed deer, jackrabbits and wild turkey.

"It makes us a unique piece of property because there's no houses around," Harris said. "We're sitting right there in the middle of nowhere."

Members today raise money by renting out a lodge for wedding and graduation parties, throwing annual corn roasts and raffling off all-terrain four-wheelers. They spend about $1,000 a year stocking three lakes at the club with bass, blue gills and crappies.

After Nunner blocked horizontal drilling, Chesapeake approached Harris about starting from square one and working out a deal.

"We sent our (monetary) demands and have not heard another word since," Harris said. He would not elaborate on the proposed settlement.

North American Coal deeded the land to the club in 1959, said Gregory Brunton, a lawyer for the Cleveland-based Reminger law firm that represents the club.

Coal companies across eastern Ohio often sold off surface real estate when they were done mining. But those companies held on to the underground mineral rights in case they wanted to go back in and take out more coal, or oil and gas.

Ohio law says owners of such "severed" mineral interests have a right to "reasonable" use of the surface to get at the minerals.

Brunton said the club's deed didn't anticipate shale gas extraction -- which requires not only long horizontal wells, but also large well pads with multiple wellheads on each, storage tanks on site, and convoys of trucks hauling in millions of gallons of water.

The Jewett lawsuit is one of the latest legal fights shaping up over shale gas drilling in Ohio.

In a separate lawsuit filed this month, 33 landowners in Columbiana County contend that land men concealed or actively misled them about how much surface and below-ground disruption was involved in shale gas extraction. And in Akron, Chesapeake sued 95 landowners in January for attempting to get out of their leases and sell them to another bidder.

In this latest case, Reminger attorneys representing the sportsmen's club have been fielding calls from other lawyers who wonder about the impact of the Harrison County case on the landowners they represent.

If Jewett Sportsmen and Farmers Club and Chesapeake can't settle their dispute, the case is expected to go to trial on the club's claim that Chesapeake trespassed on its property.

"It may have potentially wide ramifications," said Brunton, who considers the case precedent-setting in Ohio.

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Jim ShoosPermalink Reply by Jim Shoos on March 15, 2012 at 9:39am

No Paul "we" don't know, but I'd bet my next paycheck that the coal company lease with CHK has a very generous pooling/spacing clause... CHK doesn't take leases that don't have pooling/spacing clauses, no exceptions allowed. 

Permalink Reply by Marc on March 17, 2012 at 1:44pm

Equity may also take into account the fact that CHK is making huge amounts of money off this well and and that CHK's well is impacting the Sportsman Club's enjoyment of it's property in ways that a traditional vertical well would not. As you said, the case must be "properly framed".

Permalink Reply by Marc on March 17, 2012 at 2:37pm

If you are suggesting that a mineral lease can retroactively alter the meaning of deed language for the property under which those minerals lay, or, for that matter, the meaning of mineral deed language, that's just obviously wrong. Also, if old leases do not give operators the rights they need for modern drilling, common sense dictates that they sign mineral and/or landowners to new modern leases.

Jim ShoosPermalink Reply by Jim Shoos on March 16, 2012 at 5:08am

Gayle... I'll stick with my noodle, and its still intact.  Why this gets overturned on appeal is the fact that the appellate judge(s) won't bury their head(s) in the sand, and they won't limit their vision to what the express language of the deed contains. 

...and by the way Harc0...

http://www.nedstratton.com/media/Surface%20Owner%20v%20Mineral%20Ow...

Jim ShoosPermalink Reply by Jim Shoos on March 16, 2012 at 7:50am

Gayle,

You seem fixated on my noodle...just an observation.  The article link for Harc0 was for purposes of enlightening him to the fact that Ohio is not one of the jurisdictions that has subscribed to theory that the mineral estate is on equal footing with the surface estate...it is still the dominant estate. 

The paycheck bet, if you will re-read was with respect to CHK's lease with the coal company having a pooling clause, so I'll be hanging onto my check... in fact if you are willing to put up collateral on your side, I will double the bet.  I never saw anything where you said "I'll accept that wager".

Jim ShoosPermalink Reply by Jim Shoos on March 16, 2012 at 8:40am

Nah... I am a human Uzi.  I have more bullets than you have barbs.  The wife never kids about that topic. 

Permalink Reply by Marc on March 17, 2012 at 1:49pm

If you're saying CHK loses so long as the court sticks to the plain language of the contract, then I'm not sure Ohio statutory law will matter much in the end.

Permalink Reply by Marc on March 17, 2012 at 2:19pm

Excuse me, now that I'm paid eight of the forty four page PDF you linked to, I see that you were talking about Ohio case law. But those cases offer do not help CHK's cause.

Permalink Reply by Marc on March 18, 2012 at 5:43am

Agreed. Seems pretty straight forward. If you want a property right you have to pay for it. You hope you can pay for it when it's cheap rather than expensive, but the other party feels the opposite. My understanding is their predecessor had written into the deed an option to acquire precisely the rights CHK currently lacks, but they failed to exercise it.

Permalink Reply by Paul Martinelli on March 14, 2012 at 5:55am

Jim...I understand what you are saying now....it will be interesting to see if it gets overturned.

The pooling clause may prove to be the point that gets it overturned....didn't think of that one.

Permalink Reply by time will tell on March 14, 2012 at 2:24pm

Sounds like a pretty sweet gig for the O-G companies . Were they paying the sportsman club a delay rental for the surface ? I hear that Ohio has something in law that dormant land has a time limit , I think its 20 yrs. now and the surface owner can apply for the minerals .If anyone is sure on this please comment . Was Chesapeake paying the taxes on the un used minerals or do they have to in WV , not sure on that either but I was told that the mineral owner has to either produce the land or pay taxes on the minerals .

From what I understand with the Sportsman Club they own the surface , if thats the case 

Chesapeake should be held liable for damages and any legal fee's .

My experience with this industry is they are exempt from most things , they have a different set of laws than us or did up till just recently .

This should be a good example of things to come to the landowners that are not doing there homework .

Permalink Reply by Susan Tribett on March 25, 2012 at 1:24pm

The way the law reads if there wasn't a saving event between 1969 &1989 the minerals revert back to surface(ohio Dormant Mineral Act 1989

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