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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Permalink Reply by william on March 13, 2012 at 5:05am

I read this article this morning. Ho hum... What will happen will be an "agreement" reached with the sportsman's club(more money please). People are viewing this as a landmark decision where the drilling companies are seeing this as a blip.

Mineral owners have a legal right to their sell their minerals. Horizontal drilling allows even more remote access since you can reach underneath a property without actually drilling on it. Money will settle this dispute. When Chesapeake begins to walk away then I'm sure the holdouts in the club will seriously rethink their decision. If not, Chesapeake will drill somewhere else.

Permalink Reply by Billy Park Whyde on March 13, 2012 at 5:28am

 I believe Chesapeake will fight this tooth and nail. If they settle for money it will be what they view as extortion upon them, and they will not walk away. They will try every avenue to prevent this from taking away the power of O&G to do as they please.

Permalink Reply by william on March 13, 2012 at 8:37am

The verdict will get appealed. Too much money on the table. I respect the sportsman club members but their gripe should be with company who leased the drilling rights to Chesapeake. This looks pretty cut and dry to me.

Permalink Reply by Inchworm antenna on March 14, 2012 at 11:26am

I bet not.  The people there in the hunting club like it as a hunting club.  What's the club going to do with the extra cash?  Buy more corn to feed the deer, fancy treestands.  I like the ruling.  It creates a stalemate when 2 parties disagrees.   No one wins, but then again no one looses.

Jim ShoosPermalink Reply by Jim Shoos on March 13, 2012 at 9:49am

What is published in this article isn't the whole story.  While on its face it appears to be a judicial reversal of 150 years of property law which generally provides that the mineral estate is the dominant estate and that as much of the surface as is reasonably necessary can be utilized for the purposes of extracting those minerals (in this case Utica gas/oil), this is really about what rights were or were not reserved in the conveyance to the surface owner when the mineral owner gave them surface rights many years ago.  Somehow this less than informed Judge allowed himself to get sidetracked into limiting Chesapeake's rights to being those granted in the mineral rights reservation, versus what the established laws allow.  It would be hard to conclude that the mineral owners reservation (which specified use of the surface to extract minerals underlying the property) was, in any way, intended to limit what the law otherwise allows...but that's precisely what this particular judge concluded.  This decision will not withstand the appeal process. 

Permalink Reply by Paul Martinelli on March 13, 2012 at 12:34pm

You are wrong.

What right was ever granted in the lease to use the land to extract minerals under someone else's land?

 

The 150 years of property law did not forsee the use of lateral drilling used in todays drilling.

The conclusions drawn in the future courts may have a huge impact on how old leases (HBP) are interpreted. 

Permalink Reply by gary smith on March 13, 2012 at 1:12pm

seems somebody at the club was using their head .you can drill for my stuff but you can't get the neighbors without paying me.   just like some pipeline agreements. shipping somebody elses gas across me will cost you.  i guess the clubbers and  land men have some things in common.

Permalink Reply by time will tell on March 14, 2012 at 1:54am

I side with the sportsman club , reason : if they let the drillers go where ever they want with out permission were does that leave us ? The dillers need to know you need our permission to disturb our land and paid . Did you see the case when it first started on the news . Chesapeake came on there land with out permission with there equipment and did what  they wanted .

It was like shot first and ask question later .

Would any of you really be ok with that ? Where do you draw the line ?

This was the right decision by the Judge .

Nice try Chesapeake to avoid paying for the surface when you didn't have it .

It would of been a lot cheaper to asked and offered a fair price rather than come in with your guns a blazin .

Now look  this could so things down and it didn't have to be that way .

Who does Chesapeake think  they are the goverment that rams anything they want down our throat , no- way !!!

This is the kinda thing that happens in 3rd world countries not in the free world .

Permalink Reply by Paul Martinelli on March 14, 2012 at 2:02am

There reason I have issue with all this HBP old leases is the following......

 

Old lease basically says come in, use what water/land/pipeline,install what ever equipment you want....even to facilitate drilling efforts on land you don't own.

 

In the past, all this really meant is that gathering pipes from surrounding wells, wells you may not get royalties from, could be laid on your land.

 

Fast forward to 2012.....this now means that they can come in, fence off 30 acres, install a huge compressor statation, lay pipeline, dig retention ponds....and pay you ZERO......and possibly not even iclude your property in a drilling unit.

 

Is this in the " spirit"  of the old leases?

Permalink Reply by Dan on March 14, 2012 at 2:49am

Looks like we need a new law school in Eastern Ohio.  Probably a lawyer for every roughneck in the future.

Permalink Reply by Paul Martinelli on March 14, 2012 at 3:12am

Dan,  not sure what you mean by this?

 

All I'm saying is that these old leases did not forsee this type of drilling footprint.

 

Permalink Reply by Dan on March 14, 2012 at 3:45am

Paul,

With many old leases having little description it seems the legal field will be expanding, legitimate cases and not.  This is likely just the tip of the iceberg and lawyers are backed up just doing title work and dormant notices.     

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