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Sizing Up Shale States A Comparison of Mineral Law in Ohio, Pennsylvania, and North Dakota.

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Presentation on theme: "Sizing Up Shale States A Comparison of Mineral Law in Ohio, Pennsylvania, and North Dakota."— Presentation transcript:

1 Sizing Up Shale States A Comparison of Mineral Law in Ohio, Pennsylvania, and North Dakota

2 Shale Plays in the United States

3 State Activity Ohio 365 wells drilled in 2011 Added employment predicted up to 200,000 jobs Pennsylvania 2,931 wells drilled in 2011 Added employment predicted at 180,000 jobs North Dakota 2,017 wells drilled in 2011 Lowest unemployment rate in nation at 3.3%

4 Defining Minerals Ohio Oil and Gas statutorily defined Other minerals subject to interpretation Case law looks to intent–easement language Detlor v. Holland

5 Defining Minerals Ohio – Detlor v. Holland Do hereby grant, bargain, sell, and convey... all the coal of every variety, and all the iron ore, fire clay, and other valuable minerals...; together with the right... of mining and removing such coal, ore, or other minerals; and... shall also have the right to the use of so much of the surface of the land as may be necessary for pits, shafts, platforms, drains, railroads, switches, side tracks, etc., to facilitate the mining and removal of such coal, ore, or other minerals, and no more.

6 Defining Minerals Ohio Wiseman v. Cambria Products Co., finding the words other minerals and other valuable minerals would include petroleum oil. Jividen v. New Pittsburgh Coal Co., finding that a surface only deed reserving coal and all other minerals, but reciting rights specific to mining, such as sinking air shafts and extending switches, reserved oil and gas as well.

7 Defining Minerals Pennsylvania Dunham Rule Generally does not include oil & gas Pending case– Butler v. Powers Estate Marcellus shale gas Using similar case pertaining to coalbed methane

8 Defining Minerals North Dakota Defined by statute – Oil and Gas Always Minerals Different for Conveyance/ Reservation and for Lease Question of which statute applies based on date of instrument

9 Defining Minerals North Dakota 1983 – Present Conveyances/reservation – included all minerals except those expressly excluded Leases – only minerals listed by name – regardless of use of the term other minerals

10 Prior Law varies based on date, instrument, and substance Prior to 1955 a conveyance/reservation included coal 1955-1983 a conveyance excluded coal 1955-1975 a reservation included coal See NDMTS 2.04

11 Regulatory Bodies Ohio Highly-centralized regulatory scheme Division of Oil and Gas Resources Management Pennsylvania Department of Environmental Protection Possible pre-emption on many levels; multiple rules to check North Dakota Industrial Commission Detailed regulatory scheme

12 Hydraulic Fracturing Regulations Ohio SB 315– expanded regulation of fracking Chemical disclosure, water testing Pennsylvania Oil and Gas Act reformed by Act 13 Stricter requirements on fracked wells than on others North Dakota Section of Administrative Code Disclosure, minimum strength & testing standards

13 Records and Recording Ohio Notice for Deeds and land contracts Race for Leases and Mortgages But some practitioners interpret statute as Race- Notice Pennsylvania Race-Notice Uniform Parcel Identifier North Dakota Race-Notice Grantor/ Grantee and Tract Indices are required by statute But see Hanson v. Zoller Title:

14 Dormant Mineral Act – Ohio Enacted 1989; Amended 2006 Does not apply to coal or government-owned minerals Minerals reunite with surface after 20 years, absent a Savings Event Title:

15 Dormant Mineral Act – Ohio Savings Events defined as… Subject of recorded Title Transaction Actual production by owner or lessee Use in underground gas storage Permit issued to the interest holder Interest holder has filed claim to preserve Creation of a separate tax number for the minerals Title:

16 Dormant Mineral Act – Ohio 1989 Act Self-executing Ambiguity in 20-year period Likely rolling basis Preserved indefinitely by filing successive claims But one court has interpreted 20-year period as fixed 1969-1989 Example: A conveys to B in 1965; B does not record until 1974 Title:

17 Dormant Mineral Act – Ohio 2006 Amendment Procedural change Notice and time to claim New ambiguity If no Savings Event occurred 20 years prior to notice, may the mineral owner still file a Claim to Preserve? Title:

18 Dormant Mineral Act - Pennsylvania Not a true dormant mineral act 2006 Dormant Oil and Gas Act Statutory provision for leasing unlocatable mineral owner through trust It is not the purpose of this act to vest the surface owner with title to oil and gas interests that have been severed from the surface estate. Title:

19 Dormant Mineral Act - Pennsylvania Not a true dormant mineral act–yet. Recent HB 1707 would expand Allow surface owner to begin petition Adds possibility of selling the minerals Would result in a modified dormant mineral act Not self-executing Sale of interestnot necessarily merger with surface estate Title:

20 Dormant Mineral Act – North Dakota ND also has a Marketable Record Title Act Termination of Mineral Interest Act Effective 1985; amended 2009 Applies to coal Does not apply to governmental body or agency Creates a mechanism to reunite the minerals with surface after 20-year with no use Title:

21 Dormant Mineral Act – North Dakota Reunification of minerals: 1.20 year period of non-use Production, storage, subject to recorded instrument, pooled, or a statement of claim is filed 2.Surface Owner gives notice By three weeks of publication and notice to the address of record owner – if no address use reasonable inquiry to determine address 3.Copy of notice and service recorded with county Clerk Title:

22 Dormant Mineral Act – North Dakota Reunification of minerals: 4. Perfection of title – NDCC 38-18.1-06.1 A) Follow steps 1-3 above, then institute action in district court for quiet title B) Court is required to issue findings of fact, conclusions of law, and enter judgment in favor of surface owner C) Judgment is conclusive and lessee may rely on the judgment – lease remains in effect and lessee is not liable even if judgment is later vacated Title:

23 Dormant Mineral Act – North Dakota Preservation of mineral interest: 1)During 20 year period use minerals 2)Second Chance - Within 60 days after first publication of notice: File instrument demonstrating use File a statement of Claim

24 From Governmental Bodies Ohio Availability based on land classification New Oil & Gas Leasing Division for state land Pennsylvania Difficult; multiple governmental levels with differing requirements and procedures North Dakota Important because of state mineral reservations If advertising and bidding scheme not followed, may void lease Leasing:

25 From Governmental Bodies North Dakota Reservation to state by year Prior to 1939: no mineral reservations 1939 – 1941: reservation of 5% minerals 1941 – 1960: reservation of 50% minerals of all lands Even if deed did not expressly reserve minerals 1960 - 1973: reservation of 100% of minerals in grant lands and 50% of minerals in non-grant lands 1973 – present: all minerals reserved in all state land conveyances Leasing:

26 Roads Ohio Municipal streets: presumption of fee in city Fee may be qualified County roads and highways: presumed fee in abutting landowner to center of road Pennsylvania Generally strip-and-gore North Dakota Generally strip-and-gore Can be altered by statute allowing particular eminent domain act Leasing:

27 Waters & Riparian Rights Ohio Abutting owners own to center regardless of navigability Pennsylvania Varies based on navigability Changes in watercourse specifically addressed North Dakota Varies based on navigability Changes in watercourse specifically addressed Current Litigation Leasing:

28 Concurrent Owners Ohio Whether all cotenants are needed is unsettled Pennsylvania Leasing from less than all may be trespass Remedy is partition North Dakota Do not have to lease from all co-tenants Account for share of net profits Leasing:

29 Joint Tenancy Ohio Not Recognized–statutory Survivorship Tenancy after 1985 No common law Four Unities Pennsylvania Recognized– Survivorship requires clear intent Common law Four Unities recognized Tenancy by the Entireties North Dakota Recognized– Defined by Statute No common law Four Unities; straw man not needed Leasing:

30 Successive Owners Each require both Life Tenant & Remainderman Ohio Method of payment undetermined Recognizes Open Mine Doctrine Pennsylvania Payment method clear Recognizes Open Mine Doctrine North Dakota Payment method clear Open Mine Doctrine not yet adopted Leasing:

31 Pooling & Compulsory Pooling Ohio: Forced pooling available Mandatory Unitization also available Pennsylvania Only for formations below Onondaga–includes Utica shale But no Marcellus forced pooling North Dakota Forced pooling available Statutory risk-penalties

32 Effects of Foreclosure Pennsylvania & North Dakota are Lien-Theory Foreclosure wipes out Lessees interest If Mortgage/ lien was filed prior to Lease filing Get Lease subordinated Ohio 2010 Statute Oil & Gas Lease will not be extinguished by foreclosure and has priority over all prior recorded encumbrances Basically a massive subordination Maintaining the Lease:

33 Effects of Foreclosure - Ohio Ohio Maintaining the Lease:

34 Competing Development Ohio Well subject to approval if in coal bearing township Spacing provisions Pennsylvania Coal Operator right to object Future wind conflict possible North Dakota Policy to develop, but statutory guidance scarce Possible Kerbaugh application Issues during Production:

35 Pending Litigation Ohio Anschutz Lease Litigation

36 Pending Litigation Pennsylvania Butler v. Charles Powers Estate Ownership of natural gas found in coal North Dakota Landowner suit ownership of minerals between high and low water mark

37 Lease Termination & Filing Requirements Ohio Recording required Either in margin of lease or separate document Pennsylvania Abandonment, if lessee intended such No statute requiring recording North Dakota Recording required Statutory provisions for lessor voiding abandoned lease Post-Lease Issues:

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