Posts Authored by Zachary D. Eddy

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

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

Federal court grants Chesapeake’s motion in royalty dispute

On October 25, 2017, the federal district court for the Northern District of Ohio issued an opinion in Lutz v. Chesapeake Appalachia, LLC, 4:09-cv-2256 (N.D. Ohio 2017) granting Chesapeake’s renewed partial motion for summary judgment concerning Lutz’s allegation of underpayment of royalties on a producing well. The leases at issue contained the following language: “The royalties to be paid by Lessee are: … on gas … produced from said land and sold or used off the premises … the market value at the well of one-eighth of the gas so sold or used, provided that on gas sold at the wells the royalty shall be one-eighth of the amount realized from such sale.” After a lengthy procedural history, the district court certified the question to the Ohio Supreme Court of whether Ohio follows the “at the well” rule or the “marketable product” rule in relation to royalty payments. The “at the well” rule states post-production costs of gas are to be shared proportionately by the working interest and royalty owners, while the “marketable product” rule states all post-production costs must be borne solely by the operator.

The Supreme Court of Ohio – in Lutz v. Chesapeake Appalachia, LLC, 148 Ohio. St.3d 524 (2016) – had declined to answer the at-the-well question, holding: “Under Ohio law, an oil and gas lease is a contract that is subject to the traditional rules of contract construction. Because the rights and remedies of the parties are controlled by the specific language of their lease agreement, we decline to answer the certified question.” After that decision, the district court held that the Ohio Supreme Court – under traditional contract construction principles – would apply the “at the well” rule to the leases at issue, and reject application of the “marketable product” rule. This case will likely affect how working interests and royalty interest holders structure oil and gas leases in the future.

Ohio, Oil & Gas Litigation

Federal judge: Home rule charter banning hydraulic fracturing is preempted by federal, Pennsylvania laws

A federal judge in the Western District of Pennsylvania on September 29, 2017 issued an opinion in Seneca Resources Corporation v. Highland Township, W.D.Pa. No. 16-cv-289 Erie, 2017 U.S. Dist. LEXIS 162629 (Sep. 29, 2017), granting a motion for judgment on the pleadings from Seneca Resources. The Court reviewed a Highland Township Home Rule Charter – approved by voters in a referendum in November 2017 –  that banned certain hydraulic fracturing operations within the township. The Court ultimately determined that the charter was preempted by both federal law and Pennsylvania state law. Further, it held that the charter was an impermissible use of legislative powers, a violation of the company’s First Amendment rights, and a de facto violation of the company’s Fourteenth Amendment substantive due process rights.

Oil & Gas Litigation, Pennsylvania

Appellate Court certifies conflict to Ohio Supreme Court on Ohio Marketable Title Act issue

On September 18, 2017, the Seventh District Court of Appeals issued an entry in Blackstone v. Moore, 7th Dist. Monroe No. 14 MO 0001, granting a motion to certify a conflict to the Ohio Supreme Court involving an important issue under the Ohio Marketable Title Act.  More specifically, the Seventh District determined that its June 2017 decision was in conflict with Duvall v. Hibbs, 5th Dist. No. CA-709, 1983 Ohio App. LEXIS 13042 (June 8, 1983) regarding whether a reference to a mineral reservation in a deed was specific or general pursuant to R.C. 5301.49(A). The Duvall court created a strict, bright-line rule that looked to whether the deed containing the reservation could be located without checking the indices in the county recorder’s office. The Seventh District, however, chose to analyze the issue using a four-factor test that has been followed in other appellate districts (1. the type of mineral right created; 2. the nature of the encumbrance; 3. the original owner of the interest; and 4. whether it referenced the instrument creating the interest).  Check back with ShaleOhio for updates on this case.
 

Ohio, Oil & Gas Litigation

Experts: More pipelines needed in Marcellus/Utica shale region

One of the biggest takeaways from the Shale Insight 2017 Conference in Pittsburgh: the oil and natural industry needs pipelines and it needs them fast, reports Marcellus Drilling News. The site site says the good news is that more than $23 billion in pipeline projects are either under construction or in the planning/permitting stage throughout the Marcellus/Utica region. That $23 billion in investments will equate to more than 3,200 miles of pipelines for the region and have the capacity to carry more than 17 billion cubic feet of natural gas and 345,000 barrels of natural gas liquids per day from the region to markets. Click here to read more.

Ohio, Pennsylvania, West Virginia