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Buell and Croskey: The Ohio Dormant Mineral Act Litigation Avalanche Continues

What happens when those worthless mineral rights that grandma and grandpa carved off all of those years ago suddenly and dramatically increase in value? People fight over them. In Ohio, this ownership fight often centers on application of the Ohio Dormant Mineral Act (ODMA), which, under certain circumstances, can vest severed mineral interests in the surface owner.

On Aug. 20, 2014, the Ohio Supreme Court heard oral arguments for two cases regarding interpretation of the ODMA: Dodd v. Croskey and Chesapeake v. Buell. Specifically, these cases seek a decision from the state high court about what constitutes a “savings event” (an event that prevents a severed mineral interest from vesting in the surface owner) under the ODMA.   

In Dodd, the primary question before the court is whether the appellee-mineral holder did enough to retain the severed mineral interest after receiving notice that the appellant-surface owner intended to declare the mineral interest abandoned. The ODMA provides that after a notice to abandon is served or published, the holder must record “one of the following” to preserve:  1) a claim to preserve; 2) an affidavit that identifies a savings event.

In Dodd, after the abandonment notice was published, the holder only recorded the former. The lower courts, in essence, held that complying with either preservation technique is enough to preserve a severed mineral interest. The surface owner, however, contended that a claim to preserve only avails if it is recorded prior to the abandonment notice, and – once notice has been served or published – in order to preserve, the holder must record an affidavit that identifies a savings event. In support of this interpretation, the surface owner argued that the use-it-or-lose-it policy behind the ODMA would be rendered moot if a holder could simply record a claim to preserve.

At Dodd’s oral argument, the court’s questions focused on the consequences of the surface owner’s more restrictive interpretation of the ODMA, versus the mineral holder’s broader interpretation. Unfortunately, the court did not reveal its tendency to find one way or the other.

In Buell, the court was asked to determine whether the execution (and recording) of an oil and gas lease by a mineral holder and/or the expiration of a mineral holder’s oil and gas lease constitutes a “title transaction” (and, therefore, a savings event) under the ODMA.

The surface owner took a technical position, arguing that neither of these events constitute a title transaction because the ODMA does not specifically say they do. Moreover, because the state legislature included “the actual production or withdrawal of minerals by the holders” as a savings event, it did not intend for either the granting or expiration of a lease to constitute a savings event.

The mineral holder, unsurprisingly, argued that an oil and gas lease very much “affects” title, and, therefore, must constitute a title transaction. Furthermore, with regard to the second question, the holder argued that because the expiration of a lease is a reversion back to the mineral holder, it affects title similar to the granting of a lease, only in reverse, and therefore is also a title transaction.

At oral argument, the court’s questions seemed to be critical of the position that a recorded oil and gas lease is not a title transaction, with the justices asking why it would not be if it acts as an encumbrance on title for every other purpose. On the other hand, the court appeared more ambivalent with regard to the second question, expressing dismay at the proposition that the expiration of a lease, without a separate recording (e.g., a release of lease), could constitute a title transaction. 

The oral arguments underscore the confusion caused by the ODMA, and, more broadly, showcase the problems an inartfully drafted statute can cause – often more than it intends to solve. Hopefully, the court takes this opportunity to establish a clear framework for interpreting and applying the ODMA, providing Ohio landowners and the oil and gas industry with what has been lacking thus far:



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An Unlikely Partnership for Environmental Action

As frequent readers of this blog probably know, I don’t have a whole lot of good things to say about environmental activists. It’s not that I doubt their commitment. But I just believe that their line-in-the-sand, us vs. them approach to energy policy – compounded by hyperbolic rhetoric and fear-mongering attacks on oil and gas companies – is counterproductive.

That’s why a bit of news last week caught my eye.

The Environmental Defense Fund (EDF) announced that it had selected five technologies to “test and validate next-generation methane monitoring devices that can be commercially deployed to help the oil and gas industry quickly find and fix methane leaks.”

On its face, that’s not especially surprising.

Environmental organizations have been waving the red flag of methane ever since the shale boom arrived. Whether you believe the problem is manageable or catastrophic is largely a function of whether you are pro or con on domestic development, and research has come down firmly on both sides of the equation.

But here’s what is striking about this initiative:

EDF is undertaking it with the cooperation of seven oil and gas companies: Anadarko, Apache, BG Group, Hess, Noble Energy, Shell, and Southwestern Energy.

The five chosen detection systems will now undergo a first round of tests at San Antonio’s Southwest Research Institute, followed by field testing in 2015. From there, the most promising devices will be part of pilot projects at the seven participating companies. (To read more about the systems, click here)

This is a classic example of the good that can come when the environmental movement shifts from political action to public policy pragmatism.

EDF has traditionally shown itself to be a reasonable voice in the energy debate, often to the dismay of – and withering attacks from – the more extreme activist groups. However, that criticism has not prevented it from trying to find common-sense, real-world solutions to environmental concerns, regardless of the partnerships that might have to be forged.

For that, the organization deserves our respect.

At the same time, this collaborative effort demonstrates clearly that oil and gas companies do not constitute the monolithic, drill-at-any-cost industry the green extremes would have the world believe. On the contrary, they have recognized a public concern, and have dedicated themselves to facing and overcoming the challenge – also irrespective of the partnerships that had to be forged.

And for that, the industry deserves the respect of its critics as well.

A study earlier this year from Stanford, MIT, and the U.S. Department of Energy concluded, in part, that methane leaks can be reduced provided that oil and gas companies make an investment in prevention technologies. The industry’s involvement in the EDF project is an essential step along that path. It shows concern, understanding, focus, determination, and a willingness to keep doing the right thing when it comes to the environment.


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How the shale boom saved a U.S. economy that was on the brink

A report came out last week from Charles Schwab that provides some solid evidence the shale boom arrived at the moment the United States needed it most.

The report, a market perspective from the brokerage and banking company, was not about the oil and gas industry per se – though it did say “the energy outlook in the United States is quite encouraging for future growth and U.S. manufacturing competitiveness globally.”

But it also included a chart whose time frame shows, without question, that the surge in unconventional energy production kept the U.S. economy from going over the ledge.

Between February 2008 and February 2010, the United States lost about 8.7 million jobs. Gross Domestic Product contracted by 5.1 percent. Unemployment would rise from 4.7 percent in November 2007 to 10 percent in October 2009.

It’s not an understatement to say that in the 2008-2009 period, the economy was approaching free-fall. Then came the shale revolution, which really took hold – not incidentally – in late 2008 and early 2009.

As the Schwab chart shows, crude oil production at that time was also pretty much at a low point. But that’s where the nation’s energy path diverged from its economic path.

While the economy continued to sputter, shale oil production began to soar. It rose relatively consistently through 2013 and then really took off, hitting 8.5 million barrels per day this past July, the highest level since 1987. Meanwhile, imports – with an exception in 2010-11 – began to plummet, dropping to 7.17 million bpd in May, the lowest point in almost two decades.

And that’s just on the shale oil side.

According to a report from IHS Global Insight in December 2011, shale gas production accounted for 600,000 jobs in 2010, barely one year after the “official” end of the recession. And the increase in natural gas production in turn led to lower electricity prices, fostering a renaissance in the chemical, steel, and manufacturing sectors; creating thousands of jobs while bringing thousands more back home from abroad; and, along with the surging oil output, generating millions in revenues for state and local governments.

I don’t want to be hyperbolic here, but if you look at those numbers and overlay them on the time frame of the recession – which Business Insider did in an Aug. 15 story – the conclusion is inevitable: The shale boom, driven by hydraulic fracturing, saved the economy or at a minimum kept it afloat. Without it, we’d be nowhere close to where we are today.

So rather than being the object of environmentalists’ wrath or politically motivated rhetoric, shale oil and gas – and those who produce it – seem deserving of our gratitude.  They came at the right time for a nation in need.


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Mexican President Pena Nieto pushing Energy Reform

President Pena Nieto is pushing the Energy Reform at full throttle. On Wednesday, one month ahead of schedule, Mexico’s Ministry of Energy announced the results of the Round Zero. The Round Zero allowed PEMEX to designate the areas it’s interested in keeping, leaving the remaining areas for future exploration and exploitation by private entities. Pemex was granted the right to keep the fields already in commercial production, representing 83 percent of Mexico’s proved and probable hydrocarbons reserves.  With respect to exploration, Pemex requested 31 percent of all prospective resources; however, only 21 percent were awarded, releasing the remaining 79 percent for private exploration and exploitation under E&P contracts.

The Round Zero award regarding fields already in production may be perceived as overreaching; however, the remaining 17 percent represents significant areas of opportunity for production by private entities. The producing fields kept by PEMEX may now be migrated into E&P contracts so that PEMEX may partner (JV) with international or domestic private entities.  Any such migration and election of partners will be done through public bids administered by the National Hydrocarbons Commission.

And, so as not to lose the pace set by the president, Mexico’s Ministry of Energy announced the initiation of Round One, which will be twofold, contemplating: (a) bids for the award of JVs with PEMEX to develop the fields and areas awarded to PEMEX in Round Zero and (b) bids to award large baskets of blocks to private entities (deep water, non-conventional, onshore, and mature).  The preliminary bidding process and consultation will start in November; however, formal bid packages are expected until the first quarter of 2015.

It seems that all efforts are concentrated in E&P activities; however, we shall not forget that the rest of Mexico’s energy sector, including power generation and mid and down-stream activities, are now open to private investment.


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Will victory in Colorado ballot initiative compromise be short-lived?

After Colorado Gov. John Hickenlooper and U.S. Rep. Jared Polis announced a compromise that would keep two anti-drilling initiatives off the November ballot, a Denver Post editorial writer raised a question that suggests this fight may not be over.


In the deal announced last Monday, Hickenlooper said he would create an 18-member task force to study oil and gas development in Colorado and make recommendations to the state legislature in 2015. In return, Polis agreed to withdraw the two ballot measures he was politically and financially backing. Two industry-backed initiatives were also dropped, and the state would pull its lawsuit against Longmont over that city’s oil and gas regulations.


Polis hailed the compromise as a “victory for the people of Colorado,” sounding pretty much like he was all in. But, apparently, he’s not.


In the Post editorial, the writer said he asked Polis if the congressman would support the recommendations of the newly created task force. According to the article, “he indicated it was too early to say.”


So it seems like the “victory for the people of Colorado” may not be a victory after all. Instead, as two of our Denver partners, Ken Witt and Krista Tushar, wrote last week, it may be more of a cease-fire. While agreeing that the agreement was a positive step, they added that the challenges facing the task force are significant:


“Over the next six months, the governor’s new commission will have to grapple with the competing interests of local communities, surface rights owners, mineral rights owners, and the oil and gas industry.  The resulting proposals must respect property rights and offer predictability to an industry that is investing billions in Colorado each year, while giving a greater voice to local governments in oil and gas regulation.  The new commission’s task is both extraordinarily difficult and critical to the future of the industry in Colorado.”


Reflecting what Polis hinted to the Post editorial writer, Ken and Krista also point out that if Polis isn’t satsfied with what Hickenlooper’s panel comes up with, “we may find ourselves right back where we started: anti-industry ballot initiatives backed with determination and plenty of funding.” (Their blog, which also takes a look at some of the federal constitutional arguments related to limiting or banning oil and gas development, can be read here. I’d highly recommend it.)


Don't get me wrong. There are a lot of positives coming out of the Colorado deal. It spares the state from an ugly, expensive fight over drilling. It provides some much-needed time for the debate to cool down (though activists were still howling over what some called a “betrayal”). And it does represent the possibility that, if new drilling rules do emerge, they’ll be shaped by reason and not rhetoric.


But there’s still one big wild card: Polis, who has the money and the determination to pick the fight back up if he doesn’t get what he wants out of the commission. His wait-and-see attitude suggests that the “victory” for the people of Colorado could well be short-lived.

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