Bill protecting oil and gas producers from new tax policy passes Ohio legislature

An Ohio Department of Taxation audit led the state agency to conclude that oil and gas producers are no longer exempt from sales taxes on several necessary capital expenditures, according to Columbus Business First.  House Bill 430, which was crafted to protect producers from these taxes passed the Ohio House and Senate, and recently received Gov. John Kasich’s signature for approval. State Rep. Tim Schaffer, R-Lancaster, said he introduced the bill to protect mom-and-pop production companies and hundreds of jobs. For more, read the full story

Ohio, Oil & Gas Litigation

PA Supreme Court: Oil and gas wells may not be an acceptable use in certain residential/agricultural zoned areas

In a 4-3 decision, the Pennsylvania Supreme Court, in Gorsline v. Board of Supervisors of Fairfield Township, J-13-2017, 2018 Pa. LEXIS 2781 (June 1, 2018), announced a ruling that may impact shale gas development in non-industrially zoned areas throughout Pennsylvania. In the case, Fairfield Township approved an application to permit Inflection Energy, LLC to drill multiple gas wells in a residential-agricultural zoned area. The issuance of the permit was based upon the township board of supervisors’ determination that the drilling and operation of the wells was “similar to and compatible with the other uses permitted in the zone” where the property is located and that the wells constituted a “public service facility” under the local zoning code. Two local families appealed the township’s decision.

The trial court overturned the decision to permit the oil and gas wells, finding that the board’s classification of the wells as “similar to” a “public service facility” was not supported by substantial evidence. The intermediate appellate court reversed the trial court, finding that the oil and gas company’s proposed use was similar to and compatible with a “public service facility” and/or an “essential service.” The Pennsylvania Supreme Court found that the board’s determination to permit the wells as “similar to and compatible with” a “public service facility” or “essential service” was an error as a matter of law. The Court reasoned that the proposed drilling did not demonstrate any benefit to the local community such that it could be considered a public service facility but indicated its decision did not decide that all oil and gas development in residential or agricultural zones is unacceptable as a matter of Pennsylvania law. In fact, the Court noted that the Pennsylvania Municipalities Planning Code specifically “permits the governing body of a municipality to amend its zoning ordinances to permit oil and gas development in any or all of its zoning districts.” For more, read the full Pittsburgh Post-Gazette story.

Oil & Gas Litigation, Pennsylvania

Ohio Supreme Court to review Youngstown ballot issue on hydraulic fracturing

For the third time since 2015, the Ohio Supreme Court is being asked to decide whether a Youngstown initiative to ban hydraulic fracturing used in oil and natural gas operations will be in front of city voters, reports the Youngstown Vindicator. The newspaper says attorneys representing four city residents, who back the charter amendment effort, filed a writ of mandamus with the Court against the Mahoning County Board of Elections and its four members. The filing seeks to overturn the board’s March 13, 2018 decision to keep the proposal off the city’s May 8th primary election ballot, according to the Vindicator. For more, read the full story.

Ohio, Oil & Gas Litigation

Ascent Resources Marcellus files for bankruptcy

Ascent Resources Marcellus Holdings LLC said it has filed for Chapter 11 bankruptcy as part of a negotiated plan with lenders to reduce about $1 billion of debt and boost liquidity, according to Reuters. The news service says the filing in the U.S. Bankruptcy Court in Wilmington, Delaware is for Ascent’s Marcellus assets, which include development rights on 43,000 acres in West Virginia, and has no impact on Ascent's Utica shale play holdings in Ohio. The company said the Marcellus and Utica assets are owned by entities with separate capital structures. For more, read the full story.

Ohio, Oil & Gas Litigation, West Virginia

Ohio Supreme Court denies writ of mandamus in dispute involving ODNR

The Supreme Court of Ohio on January 30, 2018 issued an opinion in State ex rel. Kerns v. Simmers, Slip Opinion No. 2018-Ohio-256, denying a writ of mandamus seeking to compel the Chief of the Ohio Department of Natural Resources (ODNR) to commence appropriation proceedings. In this case, a group of landowners objected to ODNR’s issuance of a unitization order under R.C. 1509.28.  Following the issuance of the order, the landowners appealed to the Oil and Gas Commission, and following an adverse ruling before the Commission, filed a writ of mandamus in the Ohio Supreme Court to order the Chief to commence appropriation proceedings to compensate them for an alleged unconstitutional taking of their mineral interests.

In order to be entitled to the writ of mandamus, the petitioners needed to show (1) they had a clear legal right to appropriation proceedings, (2) that respondents had a clear legal duty to commence the proceedings, and (3) the landowners had no plain and adequate legal remedy. The Court denied the writ and dismissed the landowners’ case, reasoning they should have appealed the Oil and Gas Commission’s decision to the Franklin County Court of Common Pleas. Such appeal to the common pleas court would have constituted an adequate legal remedy. The Court’s decision was unanimous, with Justice Kennedy concurring in judgment only.

Ohio, Oil & Gas Litigation

Ohio Supreme Court affirms dismissal of landowners’ complaint in oil and gas dispute

The Supreme Court of Ohio issued an opinion on January 3, 2018 in Alford v. Collins-McGregor Operating Co., Slip Opinion No. 2018–Ohio–8, affirming the dismissal of the landowners’ complaint for failure to state a claim upon which relief can be granted. The landowners had sought to have the common pleas court forfeit the mineral interests of the operator under a breach of implied covenant theory.

In the case, the landowners argued that because the oil and natural gas lease at issue did not disclaim implied covenants, the operator was subject to the implied covenant of reasonable development and the “implied covenant to explore further.” The landowners said that because the operator breached these covenants, it had forfeited its rights to the minerals underlying the land. The implied covenant to "explore further" requires a lessee to conduct further exploration for minerals in different geologic formations than has been already explored to the extent a reasonably prudent operator would do so.

The Ohio Supreme Court refused to recognize that there exists an implied covenant to explore further under Ohio law. The Court partially relied on decisions from the Oklahoma and Texas supreme courts, which also refused to recognize such a covenant. The Court, instead, held that the implied covenant of reasonable development adequately protected a landowner’s interests in an oil and gas lease, and affirmed the dismissal of the landowners’ complaint.  Click here for the Supreme Court’s decision.

Ohio, Oil & Gas Litigation

Chesapeake willing to settle natural gas royalty lawsuits in Pennsylvania

Chesapeake Energy Corp. has agreed to pay Pennsylvania landowners $30 million to settle federal lawsuits over the company's disputed natural gas royalty payments, but the deal hinges on Pennsylvania Attorney General Josh Shapiro resolving a 2015 lawsuit filed by the state against the shale-gas producer over deductions from royalties, according to the Philadelphia Inquirer. The newspaper reports that Chesapeake's lawyers have told a federal judge in Scranton, Pennsylvania that they had reached an agreement to settle several longstanding class-action suits involving royalties. The Inquirer says the deal calls for payments to 14,000 Chesapeake natural gas leaseholders, and it allows them to "reset" their leases to clarify the terms under which they are paid royalties. For more, read the full story.

Oil & Gas Litigation, Pennsylvania

Sixth Circuit Court of Appeals rules for Eclipse Resources in oil and gas lease dispute

On November 30, 2017, the Sixth Circuit Court of Appeals issued an opinion in Eclipse Resources - Ohio, LLC v. Madzia, 6th Cir. No. 17-3145, 2017 U.S. App. LEXIS 24230 (Nov. 30, 2017) affirming the lower court’s grant of summary judgment to Eclipse Resources in all respects. In this case, property owner Scott Madzia had filed suit alleging breaches of an oil and natural gas lease, a subsurface easement agreement, and bad faith on the part of Eclipse for failing to perform hydraulic fracturing operations on a well on his property.

In affirming the lower court’s summary judgment, the Sixth Circuit Court held that the language of the “lease unambiguously granted Eclipse the rights to drill for and to transport oil and gas through Madzia's property;” that the subsurface easement did not modify the rights granted in the lease because the “subject matter of the lease differ[ed] from that of the easement agreement;” that Eclipse’s use of a re-used affidavit did not violate the Ohio Revised Code and this argument was waived by Madzia’s refusal to sign the affidavit -- a breach of the further assurances clause of an amendment to the lease; and that Eclipse did not act in bad faith by failing to hydraulically fracture the initial well drilled on Madzia’s property because it was Eclipse’s option to decide whether to do so under the lease.

This case is likely to affect the language that landowners and production companies negotiate when entering into oil and gas leases in the future. Click here for a Bricker & Eckler summary of the decision.

Ohio, Oil & Gas Litigation

DeWine sues Rover Pipeline for discharges into waterways

Ohio Attorney General Mike DeWine has filed suit against Rover Pipeline LLC for alleged illegal discharges into waterways during construction of a natural-gas pipeline across the state, reports the Columbus Dispatch. The newspaper says DeWine's office filed the complaint, State of Ohio v. Rover Pipeline, LLC, in Stark County Common Pleas County in Canton on behalf of the Ohio Environmental Protection Agency. The lawsuit alleges that Rover violated environmental and clean-water laws by discharging drilling fluids and sediment-laden storm water while building the pipeline, according to the Dispatch. For more, read the full story.

Ohio, Oil & Gas Litigation

Federal court upholds approvals for LNG projects

The Associated Press reports that a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit has upheld U.S. Department of Energy decisions approving three projects to export liquefied natural gas (LNG), including Dominion Energy's export terminal in Cove Point, Maryland that will use natural gas from the Marcellus and Utica shale plays. The news service says the Sierra Club was seeking to overturn approvals for Dominion’s terminal as well as ones in Louisiana and Texas, claiming they would increase air and water pollution and contribute to global warming. But the three-judge panel ruled in a unanimous opinion that the Energy Department fulfilled its legal obligations in approving the projects under the National Environmental Policy Act and other laws. For more, read the full story.
 

National, Ohio, Oil & Gas Litigation, Pennsylvania, West Virginia
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