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 Bill Bergseid on March 14, 2015 at 4:40am

Joseph-Ohio:  The Oklahoma numbers were just an example.  The operator has to provide the Oil and Gas Commission with proof of the highest bonus amounts paid for leases in the unit and the offer to non-consenting parties has to match the highest bonuses paid for the given royalty.  So if the highest bonus paid in a proposed Ohio unit was $10,000 for a lease with 3/16 royalty, that would be the offer.  If there were leases in the proposed unit with different royalties, the non-consenting parties would have a choice.  Say $12,000 and a 1/8 royalty lease or $6,000 and a 3/16 royalty lease.

The other good things about the forced pooling in Oklahoma, the order of the commission is only good for 180 days (extendable to 1 year) and if the well isn't drilled in that time, the order is of no effect.  It also provides that depths below that drilled in the well are still unleased, so the mineral owner would get royalties on the production from that well, but could still lease depths below that depth

 You are wrong about tract size in Ohio vs. Oklahoma.  While Western Oklahoma would have bigger tracts, the areas around cities would have smaller tracts.  The minerals in those tracts in  Oklahoma are generally much more cut up than in Ohio.  Fractions of the minerals under a tract have been sold over the years and inherited by many.  Some wells may have over 1000 mineral owners in them. 

Permalink Reply by Joseph-Ohio on March 14, 2015 at 6:29am
I don't like to be wrong but history has taught me that my intuition takes me only so far - so thank you for your advice Bill.

J-O
Permalink Reply by wandering juju on March 24, 2015 at 4:32am

very good discussion guys..  thanks to you both.

Permalink Reply by DESJR on March 14, 2015 at 2:37am

I wonder if this would allow forced unitization into larger units (1280 vs 640) which seems like a lot of the OG companies are pushing for. I know a few people who more or less were coerced into a larger unitization ( belmont county), even though there original lease was 640.

Seems to me that this would allow more acres to be held by production, even though there may not be an actual acres were not in a producing lateral?

Permalink Reply by Bill Bergseid on March 14, 2015 at 5:24am

Bigger units are not necessarily bad for the mineral owner.  The reserves recoverable from a well are often expressed in mcf/1000 feet of lateral.  The longer the lateral the more the reserves.  While a larger unit dilutes your interest, you get more reserves.  Plus, longer laterals allow for cheaper recovery of the reserves (It's cheaper to drill another 1000 ft. laterally than to drill another vertical+horizontal section to reach the same reserves.  When you only own under a small tract, it is almost always better to spread your interest over a larger unit (unless they are drilling a vertical well right on your tract). 

Permalink Reply by Joseph-Ohio on March 14, 2015 at 10:28pm
The faults I find are the trashing of lease terms without re-negotiation and the spectre / probability of automated inclusion of un-leased land / mineral rights owner(s) into an undesireable / punitive leasehold on the basis of the O & G / E & P defining a 'pool', specifying a 'Unit' and making their application with the ODNR to develop.
Permalink Reply by Joseph-Ohio on March 14, 2015 at 11:52pm
We remain Pro Development, Pro Drilling, Pro Landowner, Pro Mineral Rights Owner and Pro Private Ownership Rights.

We are Anti-Trespass / Over-reach of any of the above by any and all.
Permalink Reply by Joseph-Ohio on March 14, 2015 at 6:25am
Can't rule it (or anything) out the way it reads to me.
Permalink Reply by wandering juju on March 24, 2015 at 4:33am

Harrison county close to Tusc..  Chevron signed unitization clauses up to 2500 acres.. 

Permalink Reply by wandering juju on March 24, 2015 at 4:30am

Maybe Bill should become a Lawyer..  good information .. finally

Permalink Reply by Robert Bond on March 14, 2015 at 2:04am

Sounds like we need a letter or even a petition listing the changes needed for this legislation set up on this site and then it could be emailed to all the state legislators with our names and locations on it.  It could be similar to the one Bill Bergseid posted on this thread.

Just my thoughts it could be a major help with this issue.

Thank You all for Your input!!!!!

Permalink Reply by Joseph-Ohio on March 15, 2015 at 12:08pm
Right now I see only eight (8) of us interested enough to even begin discussing / voicing concern about these matters.

The letter / petition sounds like a good idea to me and my Mrs.

We would endorse it if it covered all of our concerns.

Who would write the letter / petition ?

How could we circulate it among all of those concerned / those who should be ?

Seems to me that we would have to (at least) friend one another on this page and confide our identity and addresses as well as the location of our land and Permanent Parcel Numbers to get the ball rolling and then circulate the letter / petition to neighboring land / mineral rights owners.

Sounds like you would need an all Ohio landowner group to be most effective.

It gets complicated.

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