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 Robert Bond on March 15, 2015 at 12:28pm

Probably an electronic petition to the members of the state  house could be handled online and then emailed to each member of the state legislature.  It would need name and address as well as I guess an e-mail address.  Form letters could also be generated this way and emailed to the state reps and senators with the persons name on them.

Permalink Reply by Joseph-Ohio on March 15, 2015 at 1:44pm
I'll send you a friend request with my e-mail address Robert.

Disclose it to any legitimately interested associates on our side.

Thanks for all you do and are doing.

J-O
Permalink Reply by Ronald L. Rohr Jr. on March 14, 2015 at 4:12am

I called a person  who works for the Farm B. and he did not even know about this said he would call his contact in Columbus and check it out he is to call me back when he has any news seem's like a lot of people that should know do'nt know or have not heard so you must talk to every person you know who deals with this

 

Permalink Reply by Mark Allen on March 16, 2015 at 8:43am

get a hold of JRM over in Freeport, they are working hard to get the bill thrown out. They work for the landowner/lessor.

Senate will must likely reject it.

State Rep.  Landis and Thompson will help you, sorry I forgot they have the backs of the lessee.

Permalink Reply by Joseph-Ohio on March 15, 2015 at 12:51pm
Posted a link on the Ohio Landowners pages to this important discussion.

Take this link to it :

http://gomarcellusshale.com/group/ohio/forum/topics/a-must-read-for....

Spread the words.
Permalink Reply by RAY RATELL on March 17, 2015 at 3:01am

GOOD FOR ODNR TIME THE STATE STEPS IN AND CONTROLS THE OIL AND GAS INDUSTRY LIKE TEXAS. PRETTY SIMPLE TEXAS IS THE EXAMPLE, THE LAND OWNER HAS ALL THE RIGHTS, THE LESSOR SHOULD HAVE NONE. I WANT ODNR TO PUT IN PLACE THAT LAND CAN NOT BE LEASED BY OIL AND GAS AT ALL. ONLY THE SALE OF A CERTAIN GAS OR OIL ZONE, EACH WELL DRILLED SHOULD BE ONLY 1 SEAM, NOT ALL OF THEM. 1 HOLE 1 SEAM PER LEASE. IF THEY WANT MORE SEAMS THEN THEY MUST PAY FOR EACH ZONE AND THE STATE SHOULD GET FEES FOR EACH ZONE AND THE LAND OWNER ONLY SELLS ONE SEAM TO LESSEE. OIL AND GAS IS OUT OF CONTROL AND THE OIL PEOPLE TRY TO CONTROL THE LAND. IF OHIO AND OTHER STATES DO NOT PUT IN CONTROLS THEN THE USA PEOPLE ARE AT THE MERCY OF THE OIL AND GAS PEOPLE THAT LEASE. THERE SHOULD BE A LAW ALSO THAT ONCE LEASED THEY HAVE 1 YEAR ONLY TO COMPLE THE WELL OR LOSE THE LEASE. COMPANIES GO OUT AND LEASE UP THOUSANDS OF ACRES AND THEN SET ON IT AND THE LAND OWNERS GET NOTHING. THERE SHOULD BE A LAW OF 1 YEAR MAXIMUM THIS WOULD STOP THE MASS LEASING AND MAKE FOR BETTER GAS PRODUCTION AND BETTER CONTROL. I SEND TO THE ODNR CONSTANTLY ABOUT CHANGES THAT NEED MADE TO PROTECT THE LAND OWNER. OHIO NEEDS MORE MONEY FOR PROJECTS AND OIL AND GAS IS THE WAY TO GET IT, BUT LEAVE THE TAXES ON THE PRODUCERS ONLY DO NOT TAX THE PROPERTY OWNER.

Permalink Reply by Dexter Green on March 17, 2015 at 3:28am

Your solution is more government intervention in the free market?  Interesting, comrade.  

Permalink Reply by Joseph-Ohio on March 17, 2015 at 4:26am
Dex,

Never thought I would ever read the word 'comrade' (referencing another) within any of your replies !

Just joshin' here - I know you mean not a comrade of your bent but just a slam against more Government intervention.

I don't think Ray to be a 'comrade' (in the normally interpreted sense of the word) either actually - I think he's just bolting at what appears to him to be only O & G tresspasses.

Personally, I sense it all as a combined push against rights of private ownership by industry and government.
Permalink Reply by Joseph-Ohio on March 17, 2015 at 4:16am
Don't think we're on the same page entirely Ray.

For one thing the ODNR is the State.

The landowners are the lessors and the O & G Well Developers / E & P entities are the lessees for another.

However, I do have a sense of the O & G Industry seemingly to be in league with State Government myself (which rubs me against the grain).

How about you ?
Permalink Reply by Bill Bergseid on March 17, 2015 at 1:03pm

So many of you are paranoid.  Once you give a lease on your minerals to someone else, your interests are essentially aligned with those of the lessee except for royalty accounting matters.  If I own all mineral under 1275 acres except for your 5 acre donut hole right in the middle and I (or my lessee) want to drill a horizontal well the a two mile horizontal lateral, but your 5 acre are right in the middle of my lateral, should you be able to prevent my extraction or my oil by the most efficient means?  You, as the owner of the 5 acres, or your lessee, can pay for your pro-rata share of the well (5/1280) and get all of your 5/1280 of the production.  On the other hand, if you don't want (or have the money) to pay for the 5/1280 of the well, you can go non-consent (using operating agreement language) and let me pay for all of the cost of the well.  The arrangement proposed for Ohio's law, isn't that different from most states.  If I want to take the risk, I, or my lessee, can take ALL of the risk and pay ALL of the well costs.  How does that change your lease terms?  You end up getting your share of the oil and gas without having to payout of pocket for ANY of the well cost or taking ANY of the risk?  So the state can tack on a penalty because you couldn't or wouldn't pay your share.  What is wrong with that?

Permalink Reply by Joseph-Ohio on March 17, 2015 at 4:00pm
To me, a 5 acre out of 1280 acre example is a ridiculous extreme.

How many times has that (or something similar to it) actually ever happened I'd like to know ?

And of course a 5 acre holdout should not prevail.

To me it's not paranoid to disagree with writing a law to address such a preposterous circumstance that probably would very rarely occur in the first place.

It's easier for me to understand the purpose of the legislation as being an assault on landowner rights of ownership, Bill.
Permalink Reply by Bill Bergseid on March 18, 2015 at 6:40am

Joseph-

I can provide you with a few example from more than 30 years doing mineral title work in a handful of states.  In states with a well defined procedure and lots of drilling activity it happens all the time.  Many times, it may be an unlocatable heir or mineral owner who has a small interest.  I have also seen some cases where the unlocatable party is a working interest (leasehold) owner.  For example, if a lease is held by a well in a spacing unit and over the years, assignments are made of the lease but the assignments only cover the lands in the spacing unit, but neglect to assign the lands outside the producing spacing unit.  So the original lease owner is still the owner of record for those lands outside the unit, but the owner is a defunct corporation or entity,m or otherwise not locatable.  Sometimes it is a small leasehold owner who doesn't have the funds to pay its drilling costs and can't/won't come to an acceptable farmout agreement.  These forced pooling/unitization laws provide the terms similar to a farmout agreement.  In a typical farmout agreement, one party owns a lease (farmor) and the farmee wants to drill on the lease.  The farmor doesn't want to sell the lease (many reasons, but maybe because the farmor is interested in deeper formations that that to gbe drilled by the farmee).  So they enter in to a typical farmout, which allows the farmee to "earn" all of the farmor's interest in the lease.  Just like in the proposed legislation, the farmee (person paying to drill the well) gets all of the farmor's share of production (sometimes less a small overriding royalty) until the costs have been paid back.  Then the farmor ends up with anywhere from 20-50% of his original interest.  With the forced pooling/unitization laws, the non-paying/leasing owner (like the farmor) ends up with all of its original interest, but is subject to a penalty 200-300% of the well cost.  In a typical farmout, the farmor ends up with some percentage (20-50% of his original interest.  The point is, these mechanisms (farmouts and forced pooling) allow the oil and gas to get developed without unnecessary wells and all parties get their respective share of production.

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