Shale Energy Law Blog

On Friday, March 27, Ohio Governor Mike DeWine signed Amended Substitute House Bill Number 197 (“House Bill 197”), passed by the 133rd General Assembly of the State of Ohio. The purpose of House Bill Number 197 is to provide emergency relief to Ohioans during the COVID-19 pandemic, in part by confirming that “essential operations of state government” will continue during the declared state of emergency, which began in Ohio on March 9, 2020. Section 21 of House Bill 197 is of particular import to the oil and gas industry. Section 21 requires the title offices of all courts of common pleas, as well as the county map office of each county, to remain open and operational, and to allow land professionals physical access to the offices as necessary to search the records. It is intended to maintain title searchers’ access to documents that either have not been digitized or are otherwise unavailable for viewing online. Section 21 provides that each county office may impose limitations on this access, such as operating during limited hours or permitting only visits of a limited duration, and further stipulates that title searchers may be subject to “requirements and restrictions in the interest of public health.” In addition, the Bill requires all “essential services to effectuate a property transfer” (i.e., deed recording and similar services) to remain open and available across all county offices. Section 22 extends tolling periods for various statutes of limitation, including the period of limitation for an administrative action or proceeding. It provides that any statutes of limitation set to expire between March 9, 2020 and July 30, 2020, shall be tolled for the duration of the state of emergency. This section is retroactive and relates back to March 9, 2020, the date the emergency was declared, and expires on the date the period of emergency ends or July 30, 2020, whichever is sooner. For additional information, please contact Meredith Calfe or Scott McKernan.

A bill establishing the West Virginia Critical Infrastructure Protection Act is now awaiting Governor Jim Justice’s signature after completing legislative action. If signed by West Virginia’s Governor, the bill will be effective June 5, 2020. The bill creates a criminal offense of trespass upon property containing a critical infrastructure facility, trespass upon property containing a critical infrastructure facility with intent to damage equipment or impede the operations of the critical infrastructure facility, and for willfully causing damage to a critical infrastructure facility.

“Critical infrastructure facility” is defined to include, but is not limited to, the following facilities if completely enclosed by a fence or other physical barrier that is obviously designed to exclude intruders, or if clearly marked with a sign or signs that are posted on the property that are reasonably likely to come to the attention of intruders and indicate that entry is forbidden without site authorization: (1) A natural gas compressor station; (2) A liquid natural gas terminal or storage facility; (3) A gas processing plant, including a plant used in the processing, treatment or fractionation of natural gas or natural gas liquids; (4) A natural gas distribution utility facility including, but not limited to, pipeline interconnections, a city gate or town border station, metering station, below- or above-ground pipeline or piping and truck loading or offloading facility, a natural gas storage facility, a natural gas transmission facility, or a natural gas utility distribution facility; (5) A crude oil or refined products storage and distribution facility including, but not limited to, valve sites, pipeline interconnections, pump station, metering station, below- or above-ground pipeline or piping and truck loading or offloading facility; (6) Any above-ground portion of an oil, gas, hazardous liquid or chemical pipeline, tank, or other storage facility that is enclosed by a fence, other physical barrier or is clearly marked with signs prohibiting trespassing, that are obviously designed to exclude intruders; (7) A petroleum or alumina refinery; (8) A chemical, polymer or rubber manufacturing facility; and (9) A water intake structure, water treatment facility, wastewater treatment plant or pump station.

Additionally, the bill establishes a criminal offense of conspiracy to commit trespass against a critical infrastructure. Finally, the bill establishes criminal penalties and civil liability for violations of the West Virginia Critical Infrastructure Protection Act and preserves the right to lawfully assemble and petition for redress of grievances.

The West Virginia Legislature has passed a bill requiring that a lessee deliver to the lessor, at no cost to the lessor, a properly executed and notarized release of a terminated, expired, or cancelled lease in recordable form within 60 days after the termination, expiration, or cancellation unless a different time is required by the lease. The bill is awaiting signature by West Virginia’s Governor and, if signed, will be effective May 31, 2020.

If the lessee fails to provide a timely release, the lessor may in good faith serve notice of the lessee’s failure to do so. The information that the lessor is required to include in the notice includes, but is not limited to, a statement that if the release of the lease or a written dispute of the purported termination, expiration, or cancellation of the lease is not received by the lessor from the lessee within 60 days from receipt of the notice, the lessor shall have the right to file an affidavit of termination, expiration, or cancellation of the lease. The notice must be sent to lessee, lessee’s assignee, all other lessors, and all other persons who have an interest in the leasehold estate or the oil and natural gas leased based upon the lessor’s reasonable examination of the public records. The lessor’s inability to afford notice to everyone to whom notice is to be given does not relieve a lessee of its obligation to respond to the notice. If a lessee disputes in good faith that the lease is terminated, expired, or canceled, the lessee must deliver a written dispute of the notice to the lessor detailing the good-faith basis for its disagreement not more than 60 days after receipt of the notice.

A lessor who has served a notice under this section and fails to receive a timely dispute from a lessee may record a notarized affidavit of termination, expiration, or cancellation of the lease in the office of the county clerk in the county or counties where the lands covered by the lease are situated. The county clerk of each county shall accept all such affidavits and shall enter and record them in the official records of that county and shall index each in the indices under the names, as they appear in the affidavit, of the original lessor, the original lessee, the lessor seeking the release, and the lessee identified in the affidavit. A lessor who files an affidavit must serve a copy of the affidavit upon the lessee, lessee’s assignee, all other lessors, and all other persons who have an interest in the leasehold estate or the oil and natural gas leased based upon the lessor’s reasonable examination of the public records.

The filing of an affidavit under this section does not constitute a modification of a lease and does not limit, waive, or prejudice any claim or defense of any party to the lease in law or in equity. A lessor’s decision not to use the provisions of this section is not evidence that a lease is still in effect.

On February 17, 2020, West Virginia Governor Jim Justice signed into law House Bill 4091, allowing for expedited oil and gas well permitting for horizontal wells. Under the bill, which amends W. Va. Code § 22-6A-7, operators may pay an additional fee to enter into an expedited permit application process for drilling certain horizontal wells.  The additional expedited permit fee is $20,000 for the initial horizontal well and $10,000 for each additional well drilled on a single well pad at the same location.  Within 45 days of the applicant’s submission of the permit application, the Secretary of Environmental Protection must issue or deny the permit. If there is no decision within 45 days, the Secretary is required to refund the applicant a pro-rated amount of the expedited application fee for each day with no decision, up to the 60th day, at which point the expedited fee would be fully refunded. The bill also provides for an expedited permit modification process, allowing the operator to pay an expedited application fee of $5,000 for a modification to an existing permit. The Secretary must issue a decision on the modification within 20 days or refund the applicant a daily, pro-rated amount. Half of the funds collected from the expedited applications will be used by the Department of Environmental Protection to cover the administrative costs of processing the applications. The remaining balance will be used for reclamation and plugging of orphaned oil and gas wells throughout the State. The expedited permitting processes under the law do not apply to deep wells, so operators could only utilize these expedited processes for horizontal wells with target formations of the Marcellus Shale or shallower formations. The bill is effective ninety days from passage, on May 5, 2020.

On February 12, 2020, the Pipeline and Hazardous Materials Safety Administration (PHMSA or Agency) released a final rule establishing new safety standards and reporting requirements for underground natural gas storage (UNGS) facilities (the Final Rule).  The Final Rule modifies regulations that PHMSA previously established in an interim final rule (IFR) to address a congressional mandate in the Protecting Our Infrastructure of Pipelines and Enhancing Safety Act of 2016 (PIPES Act). The Final Rule follows the approach taken in the IFR by incorporating the provisions in two industry safety standards for UNGS facilities by reference but eliminates the requirement to treat the permissive elements of those standards as mandatory.  The Final Rule also makes other changes to the IFR, many of which respond to issues raised in public comments, a petition for reconsideration filed by several industry trade organizations, and a petition for judicial review filed by the State of Texas in the U.S. Court of Appeals for the 5^th Circuit.  Additional information about the Final Rule, which takes effect on March 13, 2020, is provided below. Please read more about this Final Rule in this Alert.

On January 27, 2020, the Court of Common Pleas of Washington County granted an oil and gas operator’s motion for summary judgment, dismissing the plaintiffs’ nuisance claims due to the bar of the statute of limitations.  Keller-Smith, et. al v. Rice Drilling B, L.L.C., No. 2016-297 (Washington Cnty. Ct. Comm. Pl. 2020).  Plaintiffs claimed (among other things) that dust, noise, and light from a nearby natural gas well and compressor station interfered with the use and enjoyment of their properties.

The issue before the Court was whether Plaintiffs’ claims constituted a permanent or continuing nuisance.  The two-year statute of limitations for a permanent nuisance begins to run from the first date of injury.  In contrast, for a continuing nuisance, the two-year statute of limitations begins to run with each separate occurrence.  In deciding whether Plaintiffs’ nuisance claims were permanent or continuing, the Court considered three factors: (i) the character of the structure or thing which produced the injury; (ii) whether the consequences of the nuisance will continue indefinitely; and (iii) whether the past and future damages may be predictably ascertained.

The Court found that each of the three factors indicated that Plaintiffs’ nuisance claims were permanent in nature.  The Court held that “under the first and second factors, both the character of the well pad and the indefinite nature of its operations, spells permanence.”  The plaintiffs’ repeated and continual allegations of harm demonstrated that the alleged “nuisance occurred with such regularity that the third factor also weigh[ed] in favor of a permanence finding.”  The Court held that to find the claimed injuries to be continual in nature would lead to the untenable result of the statute of limitations recommencing “each time an unpleasant smell wafted onto the Plaintiffs’ property or bright lights at the Pad kept the Plaintiffs awake at night.”  The Court noted that it was the plaintiffs themselves who “decided to postpone filing a distinct lawsuit on any of the tortious incidents separately and opted instead to assert a plethora of disparate allegations under a unified theory of nuisance.  In reaching this conclusion, the Court found the opinion of the United States District Court for the Middle District of Pennsylvania in Russell v. Chesapeake Appalachia, L.L.C. to be persuasive.

The Ohio Supreme Court accepted the appeal of the owners of a severed royalty interest in West v. Bode, Case No. No. 18 MO 0017, 2019-Ohio-4092. The sole issue before the Court is whether the Ohio Dormant Mineral Act supersedes and controls over the Ohio Marketable Title Act for disputes involving severed oil and gas interests.  The Seventh District had ruled that both the Ohio Marketable Title Act (MTA) and the Ohio Dormant Mineral Act (DMA) are available to surface owners seeking to reclaim previously severed oil and gas interests; rejecting the royalty owners’ argument that the DMA is the sole remedy for these disputes. The Ohio Supreme Court’s decision should bring clarity to ownership of oil and gas rights in Ohio.

The West Virginia Supreme Court of Appeals recently signaled that it would treat arbitration issues under the West Virginia Revised Uniform Arbitration Act, W. Va. Code § 55-10-8, et. al. (the “Act”), exactly the same as arbitration issues that arise under the Federal Arbitration Act (FAA).

In Golden Eagle Resources II, L.L.C. v. Willow Run Energy, L.L.C., No. 19-0384 (Nov. 19, 2019), the Court addressed a written contract by which Willow Run conveyed mineral interests in property to Golden Eagle. The written contract contained an arbitration provision by which the parties agreed that any “disagreement between the Parties concerning this Agreement or performance thereunder” would be submitted to arbitration. A dispute arose about whether a cloud on title existed on the mineral interests conveyed, which led Golden Eagle to withhold payment for those interests, after which Willow Run filed a breach of contract civil action in the Circuit Court of Pleasants County.

To read more about this case, click here.

Ohio recently passed HB 166, effective October 17, 2019, amending Section §1509.28 of Ohio’s statutory unitization statute.  The prior version of Section §1509.28 did not specify whether all mineral owners in a tract must be leased to be included in the accounting for the minimum 65% operator ownership interest, which is the threshold required in order to apply for statutory unitization.  The Section also did not address whether an operator could count partial net-acreage interests in a tract.  For example, under the prior version of Section §1509.28, if a 10 acre tract was owned jointly by five owners, two of which had leased their oil and gas interests, it was unclear whether the operator was required to represent the leased interest as only four net acres or whether the operator was required to represent the tract as wholly unleased until all owners in the tract had entered into oil and gas leases.  The new amendment added the following clarification to the Code: “In calculating the sixty-five per cent, an owner's entire interest in each tract in the proposed unit area, including any divided, undivided, partial, fee, or other interest in the tract, shall be included to the fullest extent of that interest.”  The amendment makes clear that for tracts with multiple owners, any type of interest held by the applicant-operator in a unitized tract counts towards the minimum 65% threshold required to apply for an order permitting forced unitization from the chief of the division of oil and gas resources management.