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Drilling Down: A Comprehensive Introduction to the Law of Oil and Gas

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Drilling Down: A Comprehensive Introduction to the Law of Oil and Gas

For the uninitiated, oil and gas law concepts can be daunting and confusing at first.In many ways, learning the law of oil and gas requires learning a whole new language. This course will go over lexicon of the oil and gas industry, along with the basics of oil and gas law. We will also dig into common litigation topics, including royalty, leasing, and mineral trespass disputes.

Transcript

Hello, and welcome to Drilling Down: A Comprehensive Introduction to the Law of Oil and Gas. For the uninitiated, oil and gas law concepts can be daunting and confusing at first, it's often like learning a whole new language. This course will go over the basic lexicon of the oil and gas industry, along with the basics of oil and gas law. We also dig into common litigation topics including royalty, title, leasing, and mineral trespass disputes. A little bit about me, I'm an attorney with Roetzel & Andress, which is headquartered in Akron, Ohio. I'm licensed in both Ohio and Pennsylvania, and I'm a member of the firm's appellate, business litigation, and oil and gas groups. In my role here at the firm, I have experience handling a wide range of oil and gas related issues, including litigation involving leasing, royalty, and mineral title disputes at both the trial court and appellate court levels. Interesting fact about me, prior to entering private practice, I served as a staff attorney at Ohio's Seventh District Court of Appeals. And it just happens that that court of appeals jurisdiction covers most of the major oil producing counties in Ohio. So, I got a lot of experience with up-and-coming oil and gas issues as Ohio went through its shale boom about a decade ago. In addition, I did a clerkship with the Ohio Supreme Court, where I also got to be at the forefront of a lot of the decision making with regard to new oil and gas law and decisions. A little bit about our firm, Roetzel's a full service law firm. We have 160 plus attorneys in offices located throughout Ohio, Florida, and in Chicago. We provide comprehensive legal services to national and international corporations, closely held and family-run businesses, institutions, organizations, and individuals. My oil and gas practice focuses on landowner side and mineral owner side representation. As far as objectives for this course. At the end of this course, through the course, we're going to learn about key oil and gas industry players and the mechanics of oil and gas production. You'll understand oil and gas ownership interests and learn the basics of searching mineral title. We will uncover methods to reunite severed oil and gas interests with the surface estate. We'll decipher the basic components of a typical oil and gas lease, differentiate between the many different types of royalty interests that come into play with oil and gas leases. Learn how unitization statutes in multiple different states aid in the development and impact landowners. And we'll also dive into hot topics in oil and gas litigation. Beginning with mechanics of oil and gas exploration and production. There are three major different types of products that are extracted with oil and gas production. So, you have gas, obviously, crude oil, and NGLs. NGLs stands for non-gas liquids. An NGL's a hydrocarbon, and it's processed and removed from the natural gas that's extracted. NGLs, there's been an increased production in NGLs with the US shale boom and fracking that's been occurring within the past couple of decades, and it provides a nice additional income stream for producers. There are many applications for NGLs, including plastics production and fuel. Some of the cons of producing them are the fact that they're somewhat expensive to store and transport. They're definitely an important product to consider when analyzing overall types of oil and gas production. Now, there are a number of different kind of wells that you should know about. First, there are shallow wells, and that's probably what you might typically think of when you think of an oil and gas well. It's the little pump jacks that you'll see oftentimes in rural areas. Those are typically shallow wells and they're regulated differently from the big horizontal fracking wells, which I'll discuss a little bit more in a moment. What constitutes a shallow well can vary from jurisdiction to jurisdiction. It's usually dependent on a certain depth of the well or whether it reaches a certain formation in the ground. Now, horizontal well is a deep well, this is drilled vertically very deep into the ground. How it's formed is then casing is added and there's a directional bit, drill bit, that is in the ground and it shifts and begins to drill horizontally at a specified formation. So, at that point, a lateral is created in the ground and that's why it's called a horizontal well. Once that is accomplished, there is an injection of water, sand, and other chemicals. They're injected into the ground at very high pressure. And what happens is there are fractures in the shale formation where the lateral is drilled, and that allows the gas to be released from the shale formation and then it travels to the surface through production tubing. And horizontal wells, that technology has obviously allowed this shale boom to occur in the United States, and really helped with domestic oil and gas production. They're very expensive to drill, they're very highly regulated depending on the state that you're in. And so, that's a bulk of the oil and gas industry at this time, although there's obviously shallow wells that still exist and are still an important part of the industry as well. Finally, there are injection wells. Injection wells are for the purpose of injecting byproduct from drilling typically. So, with these horizontal fracking wells, there are millions of gallons of waste water, also called brine, that is produced as a byproduct of the drilling and production. And so, there needs to be a place for producers to store that byproduct, and that's what injection well is for. And those are subject to different regulations depending on your state. As far as key oil and gas industry players, there are three main segments to the industry. There's what's called upstream, and those are the exploration and production, often called E&P companies. These companies locate reservoirs, they drill the oil and gas wells. Before that, they have to assess the petroleum deposits, do seismic testing, extensive title work, leasing, permitting, drilling. And all of that just just to get the area and the the site ready for drilling and production. There is midstream companies. And midstream companies, they're the bridge between the E&P companies and the actual final product. And so, they do field processing, which typically separating oil and gas products, transportation, gathering, other types of processing, and storage. Now, what's called downstream is where the refinement and sale of the finished product occurs. So, these are oil refineries, natural gas companies, retail outlets. And conversion of crude oil and gas into a variety of different petroleum products including plastics, gasoline, and propane. Of course, other important participants in the oil and gas industry are the individuals and companies who own the land and the oil and gas mineral rights. And as I mentioned, those are the clients that I mostly service as part of my practice. Now, most states, surface estate and the mineral estate, and I'll use the term mineral here to mean oil and gas, although in some states such as Pennsylvania, for example, mineral doesn't necessarily mean oil and gas. But for purposes of this presentation today, when I say mineral, I'll use that interchangeably with oil and gas. But in most states, the surface estate and the mineral estate can be separately owned. The one exception is Louisiana, so we won't go too much into that, but in most states probably that you will deal with, they're able to be separately owned. So, if you might remember from property law, there's a fee simple absolute interest, and that was the whole land interest, the whole bundle of sticks for the property. A mineral interest is a component of the fee simple absolute interest. And so, it itself is a fee interest and all are part of the minerals. It can be conveyed separately by an express grant or reservation in a deed. Often fractional interests are conveyed, for example, half the gas or a quarter of the oil and gas, et cetera. In the oil and gas world, when mineral rights or oil and gas rights are conveyed or retained separately, they are severed from the surface estate. So, the term severed interest is often something that you'll come across. Now, we mentioned that the mineral interest itself is one bundle of sticks. In the entire fee simple absolute interest, there are several components of a mineral interest that we can break that down. So, generally there are five attributes of a mineral estate. We have the right to develop with ingress and egress, the right to receive bonus payments, the right to receive delay rentals, the right to receive royalty payments, and also the right to actually enter into leases, that's often called the executive right. And it's possible for these different components or these sticks in the bundle to be conveyed separately or for certain leases or deeds to convey some of these interests and not all of them or maybe half of one of the interests. So, you can get into those distinctions when you're trying to determine what your client owns. Now, within that, there are some other subcategories of oil and gas interests. First of all, there's surface rates, necessarily, even though the minerals are under the ground, the severed mineral interest owner will retain some rates to the surface. There's also what's called a lease hold interest or a working interest. So, if you own the minerals and you lease it to an oil and gas company, that oil and gas company is the lessee and they own what's called a working interest in the lease. The working interest owner is the owner of the lease hold and it bears all the costs of exploration and production. And then, of course, we have royalty interests. So, if you own the minerals, you enter into a lease, you in consideration for that lease, you will retain a royalty interest in the oil and gas that is produced. There are also other kinds of royalty interests. So, what I just mentioned is the lessor or the landowner royalty. So, that's an interest in oil and gas production that's retained by the lessor of an oil and gas lease. So, along with a bonus payment, which is typically received upfront in consideration for the lease, this is the lessor or the mineral owner's main compensation for entering into the lease. And importantly, the lessor/landowner does not share in the cost of production, so this royalty is free of the cost of production. Historically, oil and gas leases, the standard royalty was 1/8th. It can vary. At this time, sometimes it'll be 20%, sometimes it will still be 1/8th, but historically it was the 1/8th and then the lessee would retain 7/8s as their working interest. There are also what's called overriding royalties. And this is where it can get confusing for some folks because they're all of these different kind of royalties and how do they interplay? And it can be confusing and difficult to make sense of it at first. What an overriding royalty is, and sometimes you'll see it called an ORRI, or an ORI, or an override. What this is, it's a royalty carved out of the lessee, that's the oil and gas companies working interest in the oil and gas lease. So, if the lessor leases the property and the minerals and receives a 1/8th royalty, the lessee will retain the 7/8ths. So, any overriding royalty interest is carved out of that 7/8ths interest, royalty interest that the oil and gas company retains. And again, this does not, also does not share in the cost of production. Typically, an override is used for investors in a specific oil and gas project or for landmen it's tied to a specific lease, so if the lease expires, then that override goes away. There are also what are called NPRIs, and this is distinct from ROIs and it stands for non-participating royalty interest. And what that is, is a cost-free royalty that does not enjoy any of the other rights of mineral ownership. So, with a non-participating royalty interest, you don't have the right to lease, you don't have the right to bonus payments or delay rentals, you just have the right to a royalty. And this is different in that it's not not necessarily tied to a specific lease. In most states this generally runs with the land. So, it really is an interest in the land, it's a subcategory of the overall mineral interest. You know, so you contrast this with the lessor's royalty or the overriding royalty interest that we just talked about, and those are tied to a specific lease. So, as I mentioned, when the lease terminates, those interests terminate. But an NPRI is something that can be passed on from generation to generation from it can be assigned and it runs with the land so that if there are subsequent leases, that royalty interest is maintained. And there are a few different types of NPRI. There are fractional or fixed NPRIs. So, that would be, for example, 1/6th of all of the oil and gas produced. In other words, or I'm sorry, 1/16th of all of the oil and gas produced. In other words, 1/16th of the proceeds. And this fractional or fixed NPRI, this remains constant no matter the terms of any given lease. You can also have a fraction of, or what's also called a floating NPRI. This is a fraction or percentage of the lessor's royalty under a given lease. So, contrasted with the fractional or fixed NPRI, this fraction of or floating NPRI, it's value can change depending on the lease in effect at any given time. So, there's always this royalty, but how much you're going to get will depend on the actual lease. So, for example, if you have a 1/16th floating NPRI, you will get 1/16th of the 1/8th, assuming the lease provides for a 1/8th royalty. In other words, 1/24th interest. So, that's obviously different, and these seem just very detailed and you know, but it's often important to look at the specific language in a lease and a specific language in conveyances to determine the type of NPRI that you have because obviously that's a big difference, 1/16th versus 1/24th. So, moving on to talk a little bit about the rule of capture. This is an important concept within oil and gas. So, oil and gas is different from other hard minerals, for example, coal, in that it's fugacious. Fugacious means it can seep or flow across property lines beneath the surface of the land. So, what developed was a doctrine called the rule of capture, meaning that there's no liability for capturing oil and gas that drains from another's land into a well on your land, even though part of that oil and gas might have migrated from your neighbor's land. So, the rule recognized that underground reservoir of oil naturally migrates, and that this is just a property of the oil and gas itself. Now, recently in Pennsylvania there was a kind of a big shakeup with the law there in that an intermediate appellate court had concluded actually that the rule of capture did not bar liability for trespass claims arising from fracking. And so, it made this distinction with regard to fracking. One reason the court gave was that the fracking releases natural gas only through artificial means rather than naturally occurring pressure changes. So, the court found this is not a natural migration of the gas, this is something that you are deliberately doing, and so the rule of capture should not apply. So, basically, on appeal the Pennsylvania Supreme Court reversed and remanded, they reversed this idea that because it was an artificial means rather than natural that the rule of capture should not apply. They ended up remanding the case back to the Superior Court for its consideration as to whether the landowners may proceed on a traditional physical invasion trespass cause of action. And then what happened on that case on remand was that the court reinstated summary judgment in favor of the operator. And I believe that case is in your materials that are provided with this course, if you'd like to take a deeper look at it. Moving on to a discussion about title. Now, understanding title issues and how to search title is incredibly important to the industry and to oil and gas practitioners, particularly now that we have these fracking wells, there are often a lot of acreage that's included and it's important for producers to search title and make sure that they have accurate title before they develop these units and these large scale oil and gas drilling projects. So, the EMP companies, they have title opinions and drilling opinions done before even commencing operations. There are lots of different lawsuits and litigation surrounding title issues, and we'll get into some of those in a little bit. But lawyers can contract with a title abstractor who will go out to typically the county recorder's office. Sometimes that's at the county courthouse, sometimes it's other places depending on your state. And they will go and collect the title documents and then they'll assemble what's called a run sheet of the chain of title. And that just shows all of the different conveyances in the chain of title, including any mineral severances along the way. And it will reconcile any issues that it sees with title and note those for the attorney. So, while you can farm this out, of course, it's really important if you're going to be doing pretty much any kind of oil and gas law, but specifically mineral title that you understand the basics of how to do this yourself. So, as far as how to search, this is the process that I typically use in order to conduct just a typical title search back to patent. And when I say patent, I mean the conveyance from the US government typically, so we're going back pretty far in time. So, you begin with the current deed to the land, and then in Ohio you would go to the county recorder's office and you can search the grantor-grantee index, and that way you can trace the chain, surface chain back in time. In many counties this process can be completed all online. I think that there's a push in Ohio to get a lot of counties online, but then there are some counties where it's not online or parts of it are online, so it does actually require a trip to the recorder's office. Often in searching title historical tax records and plat maps can be helpful to review as well, and those are typically kept with the county recorder's office. And so, what you have to do is create a flow chart of each deed, noting the date recorded, the grantor, grantee, and whether there are any mineral severances along the way. And then, if there is a mineral severance, then what you have to do is run that separate mineral title search forward from each severance deed and then in so doing, this requires what's called an airship search. So, you need to look at the probate records in your county and sometimes other counties to determine okay, who are the current holders of that interest? In some cases, you also need to search a lease hold chain of title, especially with these, when you have a big unit that there is a horizontal well or multiple wells, you need to see where was the original lease, who is that assigned to, and all of that as well 'cause sometimes that can be relevant to your particular situation, legal situation, or lawsuit that you're dealing with. So, we have a diagram here that shows what I do to chart the chain of title. And I think it's just really helpful to make a diagram every time that you're doing this. You can do it on the computer. I tend to write it out by hand, but my handwriting's pretty messy so we have a little typed up version here of a basic chain of title. So, you would start with, in our example for Blackacre here, we have Jack and Emily Thompson. And if you know that those are the current surface owners, maybe those are your clients, maybe you represent, you know, potential severed mineral interest owners, but you need to start with the current surface owner of the property. So, you go to the recorder and you find what's called their vesting deed, and that's the deed that conveyed Blackacre to Jack and Emily Thompson. And so, you go and you search in the grantor-grantee index at the recorder's office and you find that Blackacre was conveyed to Jack and Emily Thompson in a deed recorded on January 20th, 2012 and it was in book 190, volume 188. And that the grantor to the Thompsons was person named Brandon Green. And so, you see in the chart there, you would just make a note of the grantor, the prior grantor, who's Brandon Green, and then a little note of the volume and page number where you found that deed and also the date that it was recorded. So, then you go back in time and you continue to search the grantor-grantee index and you find that Brandon Green was conveyed Blackacre by Lisa and Mark Smith in a deed recorded on January 1st, 1955, and recorded and book 100 volume 129. So, again, you make a note of that. Going back in time a little bit further, you see a conveyance from John and Jane Doe, and you see that's how Lisa and Mark Smith came into owning Blackacre. But also you go in that deed and again you put the date was recorded and the citation to the deed book and volume and page number on the side. But you note in that deed that there was language to the effect of accepting and reserving one half of the oil and gas. And so, at that point you have to stop and say, "Okay, that's actually what's called a reservation or an exception, but typically it's just known generally as a reservation." So, that means that although John and Jane Doe conveyed Blackacre to Lisa and Mark Smith, they retained or they reserved half of the oil and gas estate in Blackacre. So, that tells you that you need to put that to the side there, which is listed in red, and make a note to yourself that you need to run that interest forward to figure out who currently owns that 1/2 oil and gas interest. So, then you continue to go back in time with the surface. So, we're back at the surface with John and Jane Doe, you see that Brian and Louise Johnson conveyed that to them in 1900. And then you go back to a grant from the US government to Brian and Louise Johnson in 1855 and you mark that as your patent deed. It's important in oil and gas cases to go back that far. In other types of real estate, there's often like a 40-year search, but in order to be thorough and really understand and make sure that you've captured any potential mineral reservations or severances, you need to really search all the way back to patent in most occasions. So, now that you have the surface charted out, you go back to that reservation of the 1/2th oil and gas to John and Jane Doe and you need to then run that forward. What does that mean? Well, you need to figure out who their heirs are and how and are there anything in the probate records or otherwise to indicate who now owns that? Because that was in 1926. So, you start typically by looking at the probate records of that county. And so, here we see that John Doe had died testate, meaning left of will in 1980 and he left all of his real property to his wife, Jane. And that the will is filed in 1980 or May 6th, 1980, so you make a note of that. There will be a reference in the probate court typically to the will, so you would wanna put that reference there. Then you don't find any additional wills filed with respect to Jane, but you do find what's called a certificate of transfer that was recorded on December 5th, 1995, and that indicated that Jane Doe died intestate, meaning without a will, but that she has two children who survived her. And as part of that administration of her intestate estate, there is a certificate of transfer to Brenda Doe and Noel Doe, who are her two children. And at that point, you do some more searching and you realize, "Okay, Brenda and Noel, they're still alive," and you find, try to locate them through public records and other types of searches if you're trying to find their location and particular address and things like that, and oftentimes you need that for a mineral title lawsuit. So, that's just an overview of it. This is a pretty simple version of it, obviously there can be a lot of different twists and turns and potential interests that are conflict with one another and you have to resolve those. But this is just a good way to start and really practice doing this with all of your mineral title searches. Now, that we have discussed mineral title, we can talk some more about terminating oil and gas interests. And so, there are a few different legal processes for reuniting a severed oil and gas interest with the surface estate. So, for example, that old interest, that exception reservation in the example we just gave, that happened in 1926. If you own the property and you're Jack and Emily Thompson, you might want to try to terminate or extinguish that interest so that it's clear in the record and for leasing purposes that you own 100% of the oil and gas. And so, what methods are there to try to accomplish that? And so, this comes up a lot now, especially in Ohio where there might have been all of these old reservations that no one necessarily paid a lot of attention to when they were just shallow wells. And now, that we have these really profitable horizontal wells that can make, you know, hundreds of thousands of dollars for and more than that for landowners, this becomes really important. So, in Ohio there are two options that you have if you are Jack and Emily Thompson, those surface owners, and you are trying to get the entire oil and gas estate and get that prior reservation either extinguished or abandoned. So, first there's what's called the Dormant Mineral Act and there's also a Marketable Title Act, and a lot of states have versions of both of these different kinds of acts. Interestingly, so the Dormant Mineral Act is an offset, so it was an amendment to the Marketable Title Act, and for many years commentators felt that Ohio's Dormant Mineral Act was enacted, you know, as the sole means to deal with these older, disused, abandoned mineral interests. And that the market of the more general Marketable Title Act was not appropriate to use for that. However, this case, it ended up, this issue went up to the Ohio Supreme Court in 2020 in a case called West v. Bode, which I believe is in your materials. And in that case, the Ohio Supreme Court had to look at the structure of both of these statutes and whether or not there was an irreconcilable conflict between the two. And it concluded that both of them may be used to terminate mineral interest in Ohio. So, a little bit of background about what each one does is gonna be helpful. So, Dormant Mineral Act, there are a number of states that have them. There's California, Kansas, Ohio, Michigan, Kentucky, Tennessee, Maryland, Indiana, Louisiana, Nebraska, North Dakota, South Dakota, Oregon, and Washington. They all have Dormant Mineral Acts, different versions, not all necessarily operate in the same way, but they have them. And so, again, the purpose is generally to encourage oil and gas development, and it is a mechanism, a statutory mechanism, to reunite disused, older, severed mineral interest with the surface. So, Ohio's Dormant Mineral Act, which we'll use as an example, and it's in revised code 5301.56, which is in your materials. And it provides that a dormant mineral interest shall be deemed abandoned and it vests with the surface owner under certain specified circumstances. Now, there are exceptions to Ohio's DMA, interest in coal and mineral interests held by the United States or any political subdivision are exempt from the Ohio's DMA. And what the DMA does is it deems the mineral interest abandoned after the surface owner serves a notice of abandonment on any mineral holders, and those mineral holders do not respond by filing a preservation of their mineral interest. And there are other ways that it operates as well, but that's the main mechanism. Now, the MTA, which I discussed a little bit, the Marketable Title Act doesn't have as many of these sort of protections for the mineral owner and it doesn't require that you serve this notice of abandonment. And so, it's generally thought in Ohio to be a more favorable solution if you are the surface owner. So, now in Ohio, a lot of the litigation has moved away from this Dormant Mineral Act to the Marketable Title Act because it's a more surface-owner friendly solution. So, it just sort of depends on which side you're on as to what you think about West v. Bode and the DMA and the MTA, and how they operate in Ohio. But now, there's been a pretty significant shift towards more MTA litigation in Ohio. So, as I mentioned with the Dormant neural Act, there's a notice component and so you have to serve, the surface owner has to serve notice by certified mail to each of the holders or the holder successors or assignees at the last known address. And in that notice, it indicates the surface owner's intent to declare that mineral interest abandoned. And so, this sort of default is that this has to be served by certified mail, but what comes up is, well, what if you can't find these folks' addresses and who we're talking about is in that example that I gave in the chart, we're talking about the heirs of John and Jane Doe who had severed and reserved that 1/2 oil and gas interest. And so, in Ohio's DMA, you would need to serve notice to the heirs. And if you're able to find them, in our example, we found Brenda and Noel, we would need to serve them by certified mail with a notice of our intent to abandon the interest. Now ,whether or not they can be served by publication or located at all, there is a requirement to make for the surface owner to undertake a reasonably diligent search for their identity and location. Now, under the DMA, the statute provides that within 60 days of this notice of it being served, that the holder or the holder successors, again we're talking about Brenda and Noel Doe here in our example, can file a claim to preserve or an affidavit identifying some savings event. And then, I won't get into the specifics of all these savings events, but as a component of the statute, certain savings events, regardless of this notice and preservation issue within 20 years prior to the notice will prevent abandonment of the interest. So, that's essentially the statutory scheme with respect to the Dormant Mineral Act in Ohio, a lot of other states are similar with and how their DMAs operate. And so, a lot of the common topics that come up in Ohio's DMA litigation include was there a reasonably diligent search for the holders prior to notice by publication? This can sometimes turn into a battle of the experts as each side will show, okay, well was this, what search did you undertake? Did you just look in the county land records? Did you look at the probate records? And what what is required for there to be a reasonably diligent search? Also, again, I mentioned there are these preserving events in the 20-year period before notice, and those are issues that are commonly litigated as well. Few cases came out recently in Ohio, there's been a number of Ohio Supreme Court cases just even over the past decade, but especially over the past couple of years about the Dormant Mineral Act in a case called Gerrity, that should be in your materials. The Ohio Supreme Court held that the surface owner must use reasonable diligence to identify and locate the severed oil and gas interest owners. In that case, importantly the court declined to create a bright line rule as to what the surface owner has to do to look for those holders. And the court said that reasonable diligence will depend on the facts and circumstances of each case. So, it didn't provide a ton of guidance as to what you need to do, and often these are gonna be litigated on a case by case basis. And subsequent, so Gerrity, subsequent to the Gerrity case, there was a case called Fonzi that was also taken by the Ohio Supreme Court. And again, the take-away from that, they still declined to create any kind of bright line rule, but the court held that what constitutes reasonable diligence in one case may or not be sufficient in another case. And in the Fonzi case, the surface owners only searched Monroe County, which is where the property was located, and then they did like a limited internet search for the heirs, the holders of the interest. But they, in one of the documents that they found in Monroe County, there was an indication that there was an estate or that some of the holders may be located in Pennsylvania. And so, what the surface owners did not do in that case was go outside of Monroe County and search in Washington County, Pennsylvania, even though there was a clear indication of that's where you might find these folks. And so, the court held that because the surface owner did not search for the current holders in Washington County, PA, the surface owners did not use reasonable diligence and they failed to abandon the minerals. So, there's no requirement that you do this full-scale search using internet tools. There's all sorts of resources online from ancestry.com to Find a Grave that you can do these airship research. So, the court went it doesn't require that, but it's important to try to search to the extent that you can and it really is dependent on the facts and circumstances of your case, but really the the initial search will start in the county that you're in. And then, if there are some indications in the county records that you need to search in a different location or you need to expand your search then, the takeaway from the Fonzi case is that you need to pursue those options when you're searching as well. So, Marketable Title Acts, again, this is a broader statute. A number of states have Marketable Title Acts, and these apply to all kinds of property interests and not just mineral interest, so that's what's important to know about that. Under the MTA, it automatically extinguishes property interests that are created prior to a landowner's chain of title to the property if it has an unbroken chain of title for more than 40 years after the property interest was created. Now, obviously there's always exceptions to the rule, but that's generally how the MTA operates. So, a really important thing and distinction in Ohio is that extinguishment under the Ohio's MTA is automatic. So, it happens automatically under by operation of the statute, unlike the Ohio DMA where you have to serve this notice and there's the opportunity to preserve. If the requirements of the statute are met, then this prior mineral reservation can be extinguished. And for that reason is why it is often thought to be a more favorable solution for the surface owner. Now, there are a number of exceptions under the MTA and there has been even more litigation in Ohio all the way up to the Ohio Supreme Court about these exceptions. They include where there the holder of the preexisting interest has recorded a notice claiming it where there's a rights arising from a period of adverse possession where the preexisting interest is specifically identified in the muniments that form the record chain of title and where the preexisting interest arises out of a title transaction that was recorded subsequent to the date of the root of title. So, there are all types of lawsuits and different cases and case law about what constitutes a title transaction under the statute and whether that qualifies to save the interest from extinguishment. There's also, with respect to that first section, whether the preexisting interest is specifically identified in the muniments that form the record chain of title, there's been a lot of litigation about what that means and courts including the Ohio Supreme Court have identified a test to determine what that means and what is a specific identification versus general. So, those are really common litigating, you know, types of topics that are coming up right now in Ohio with respect to the MTA. There are also service issues that come up with the MTA even though you don't have to serve this notice and give the mineral owner an opportunity to preserve their interest under the MTA. Just generally under the Civil Rules, when you file the lawsuit as the surface owner, as the plaintiff, you still have to, there's some obligation to locate these folks before you serve them the lawsuit by publication. So, that's a requirement in Civil Rule 4 in Ohio. And so, there has started to be as there's been this shift to MTA instead of DMA, there are more lawsuits regarding what constitutes a reasonable search under the Civil Rules for the location and identity of all of the heirs and the owners of this mineral interest that's been severed. And again, there's all this case law about title transaction and what that means. One thing that's interesting with the MTA is that these exceptions can occur to prevent extinguishment of the mineral interest in either the surface chain, so that was that middle part of the chain of title where we went from Jack and Emily Thompson all the way to the US government. These, for example, the title transaction exception, that can happen either in that chain going up or in the separate mineral chain. So, if there is a, for example, recorded will within the 40-year period in that separate mineral chain, that can save the interest. So, all of these are what I think are interesting issues to litigate come up very commonly right now in Ohio in oil and gas litigation. Okay, we are going to move on to discuss the anatomy of an oil and gas lease. And I do have an example for you in your materials of what is a standard, fairly standard oil and gas lease. And then what's added at the end is called an addendum. Typically, the producer will have their standard form lease and then the landowner if they're represented by council or even not, but definitely if they're represented by council, we'll negotiate different modifications of the lease that are governed by an addendum. So, those are the more landowner-friendly additions to what is typically the form lease. So, the lease, if you go into the materials and you see that it begins with the memorandum of oil and gas lease, and that's what's actually recorded in the land records of the county. The lease itself is not necessarily recorded, typically modern leases are not, but in your materials you'll see it's called a paid-up oil and gas lease. And if you look at that, you can see there are different components to it. So, you see the effective date of the lease and that's at the very beginning. Sometimes the lease is made a certain date, but it's not effective until a later date. And then it lists the lessor and their address and it lists the lessee. The lessor is the mineral owner, the landowner. The lessee is is the producer. And so, there's what's called a granting clause or a leasing clause. And in your example in your materials, it's called a leasing clause. And what that does is it sets forth the rights that the mineral interest owner, in other words the lessor, grants to the lessee. And so, it includes things like size of the interest, substances covered, lands conveyed, and that's all in that. There's also a description and typically that is by there's a map often that's included that shows that. Sometimes you have older leases where it's a little ambiguous as to what leases, what exactly land is being conveyed. Now, the descriptions are a lot more concrete. In the past, in the early like 1900s, for example, the surveys would just discuss the land in terms of natural phenomenon. So, you know, you would turn, it would be from a certain wood post to a weeping willow tree down by the brook or descriptions like that that may may not even, you know, land forms that may not even exist now versus now obviously with technology, they're more modern, title descriptions are just more accurate. So, you have the description in there. The lease term, that's pretty straightforward and it talks about how long the lease will remain enforced. Also, meant to discuss sometimes there's what's called a Mother Hubbard clause in the description or around the granting clause or leasing clause. And this will protect the lessee against inaccuracies in the legal description. So, that that kind of works to get around if there was some sort of error in how it was described so that the property, the leased property is actually includes what was intended to be included. Now, the lease term, it's often called the Habendum Clause. There are two components to the lease term of an oil and gas lease. There is a primary term, and that is a fixed number of years where the lessee has the right to conduct oil and gas operations on the premises. In our example, it says the lease shall remain enforced for a primary term of five years. And so, that's pretty straightforward. Now, the secondary term, it gives the lessee the right to continue the lease past the primary term if certain conditions are met. Typically, this is if oil and gas are produced in paying quantities. And so, the way that this works is there's a five-year term where the lessee, you know, begins to explore and can drill and produce, and then the lease will terminate if there is not oil and gas being produced in paying quantities or other specified conditions in the lease. Sometimes it says, you know, for example in this one, this form lease that we have talks about op, you know, it's the conditions are pretty broad. So, operations are conducted on the leasehold or pulled, pulled or unitized lands if there's a well deemed by the lessee to be capable of production if the land, the lease hold is being used for storage, gas storage, sometimes gas is injected into the ground, things like that. But if you represent the landowner, of course you wanna try to restrict some of those conditions so that you're not stuck in a lease that's not producing. There is also what's called a delay rental clause. And what that is are where there are payments designed to hold the lease during the primary term prior to production. So, for example, if you have a five-year lease, there's no production happening, it doesn't have to be until the end. And so, your land is subject to this lease, but you're not receiving any royalties because there just hasn't been production. So, most of the time in the past there were what were called delay rental payments, and that's designed to continue the lease during the primary term. In more modern oil and gas leases, such as this one, there it's designated a paid up oil and gas lease. And what that means is instead of having these periodic delay rental payments, there's an upfront payment. And so, typically that is per acre, it really depends on how the oil and gas market is at that time, but it can be pretty significant amount into thousands of dollars per acre as your upfront bonus payment in lieu of this delay rental payment. Then there is the royalty clause, and that is the main provision in the oil and gas lease that provides compensation to the lessor. And there are different types of royalty provisions. There's a gross royalty provision versus a market enhancement clause. And the distinction there is that if you have a gross royalty provision, you are not getting, having to deal with deductions from your royalty for any post-production costs. So, those would be transportation costs for the gas, compression costs, things of that nature that happen after it gets out of the ground. So, if you have a gross royalty, you're not necessarily paying that. In a market enhancement clause, you're paying oftentimes those kinds of costs are being factored in, and so your royalty decreases under those circumstances. Now, there are other types of provisions in oil and gas lease. Shut in clause, that allows the lessee to maintain the lease by making payments, shut in payments, on wells capable of production or where oil and gas cannot be marketed due to some extenuating circumstance. There's a pugh clause. Pugh clauses operate to prevent the lessee from declaring all lands under an oil and gas leases being held by production even if production only occurs on a fraction of the property. So, that can prevent outside lands, say you have 100 acres and there's only production on a small portion of that, the pugh clause can operate to terminate the lease as to some of the acreage outside of the unit that's producing. There are also force majeure clauses that allocates the risk of loss if performance is hindered, delayed, or prevented due to some sort of event the parties could not have anticipated. These came into play at times during COVID, they did in a lot of different types of industries and contracts. So, you'll see in your lease packet exhibit A to the lease packet has an addendum, and those have some more landowner-friendly provisions, cost-free royalties. It's important to have if you don't want those costs deducted to have that spelled out really clearly. You can have horizontal and vertical pugh clauses as well as other types of protections for the landowner, and audit clauses that allow you to have greater access to what's going on the records that impact your land. So, those are things to include if you are representing the landowner or mineral owner. Now, pooling and unitization statutes, many states have these, the purpose is to encourage development of oil and gas. And what it does is it makes it easier for producers to drill horizontal wells. The main thing to remember is that these horizontal wells require a huge surface area, many, many acres, so you have to pool neighbors land together. And if you have someone who's essentially like a holdout neighbor, like what do you do and how can you still get that production accomplished? And so, that's what the pooling and unitization statutes do. If you look at Ohio law, again, this statute here, 1509.24, has minimum spacing and acreage requirements for different types of units and wells. And so, the result is that you need to pool properties together so that any new development complies with these minimum acreage and spacing requirements. So, you can do that voluntarily with your neighbors, that doesn't always happen, obviously, so the statute provides in 1509.27 for force pooling and there's a whole process within the Ohio Department of Natural Resources Oil and Gas Division for a producer to force pool acreage and so that they can create a big enough tract and a big enough unit in order to accomplish and drill these horizontal wells. And so, if you look at the process, it's in 1509.28, which is also in your materials, the operator has to obtain 65% of the proposed unit through consent or ownership. And then there are provisions for how the remaining landowners or mineral owners are compensated, but really it's not a super high threshold in what's needed in order to get these units accomplished. And then there's an administrative process whereby the chief of the oil and gas division of OD&R will issue an order for unit operations. And so, one of those is also included in your materials if you can see what are some of the background and the findings of the chief and the things that the chief considers when deciding whether to issue an order for unit operations. So, certain hot topics in oil and gas litigation, some of it we've gone over already. A lot of the case law in Ohio comes from the Seventh District Court of Appeals. So, there's 12 appellate court districts in Ohio. If you can see that there is a map of the horizontal drilling units and it really corresponds a lot to the Seventh District, that's the court that I worked at for about 10 years. So, the reason why we saw the oil and gas litigation and the appeals is because most of the units are there. There's also some in the Fifth District and the 11th, but most of it is concentrated in the Seventh District. Ohio has a really great tool, it's an oil and gas well viewer, I encourage you to check it out. You can go and you can look at where all of the units are. There are different layers to it. You can see the parcels, whether or not it's in production, and it links to all of the data all in one place. So, certain topics in oil and gas litigation, and these are often brought as declaratory judgment or quiet title suits. And the issue is really whether a well has been producing in paying quantities so as to keep the lease in effect. And this is important because these leases, if they are still valid, can go on for many years and they're often assigned to these producers who want to produce the horizontal wells and develop that. And so, it has to be a valid lease in order for that lease to continue. And so, one thing that landowners will bring are these lawsuits alleging that the lease is no longer producing in paying quantities. This allows them to get out of their current lease and negotiate a better lease once a company's introduced when a company is interested in producing their land for a horizontal well and putting in a unit. So, these come up as folks try to get out of these old leases that might just have one little shallow well that's barely producing and they want to get out of it so that they can negotiate better terms with another producer. So, some issues are whether the lessee is even calculating its net revenue properly, has the least terminated in part by virtue of a pugh clause, which we discussed a little bit previously. So, those cases are going a lot in Ohio. Pennsylvania law, they have what's now called a cross drilling statute that allows for cross drilling under different units. You don't have to just have that lateral stay within a prescribed unit. And there's supposed to be compensation for the landowner if an op, so an op, but it's really up to the operator. So, the operator has to reasonably allocate production from one well to among each unit and they have to determine what's attributable to each unit and it can get complicated. And so, those kind of lawsuits litigation are just beginning to bubble up to the courts. And so, I think we'll be seeing more of that in Pennsylvania now that this law was changed. So, we also have royalty disputes. Again, what costs the lessee may deduct from the landowner royalties. If you don't have a cost-free royalty provision, there's all of these issues, especially when you have these larger units where it takes, the cost can be significant to get it from the well to market. What can be deducted and what can't? There are some states that follow what's called the at the well rule and they permit the deduction of post-production costs. Other states follow what's called the marketable product rule and then that that limits the deduction of post-production costs under certain circumstances. Instead of deciding to adopt one rule or the other, the Ohio Supreme Court declined to adopt a bright line rule in a case called Lutz v. Chesapeake Appalachia in 2016. And instead, Ohio courts look to the particular language in each lease to determine what is appropriate as far as deductions. Other issues that come up recently are co-tenancy issues because severed mineral interests can be owned. For example, one half the oil and gas can be owned by different parties, there are these issues about co-tenancy because even though there may not be co-tenants in the surface, they are co-tenants of the mineral or the oil and gas estate. There's basically two schools of thought about whether one co-tenant can prevent the other from producing the minerals, absent the consent of the other. The minority of oil and gas producing states treat exploitation of oil and gas by one co-tenant without permission of all of them as actionable waste. And so, in those states it's easier for this one sort of holdout co-tenant to prevent the oil and gas development of that estate if they don't want that to happen for whatever reason, but the majority of states in the US do not find that. And in those states, a co-tenant can produce without consent of all of the other co-tenants. Finally, a big issue, especially here in Ohio recently is mineral trespass. Mineral trespass occurs when there's an unauthorized party who encroaches on the land of another mining and removing minerals. So, it's somewhat of a hybrid tort in that it's not just the fact that you are going onto another's land, but you're actually removing valuable component of the land. So, it's in a way it's sort of a hybrid trespass conversion tort, but quar courts are pretty uniformly said that you can't recover for mineral trespass and recover for conversion. An interesting facet of this area of the law is that for damages purposes, for a mineral trespass, the law draws a distinction between good faith and bad faith conduct. And so, damages are enhanced if you can prove that the producer acted in bad faith. And again, there's tons of litigation about, well, what is good faith versus bad faith? Is it a subjective or objective test for the good faith? But that's that, and a lot of it in Ohio is not very well decided, so there's certain cases that are really bubbling up to the appellate courts at this point looking at that, those types of issues. It's also possible to get consequential damages in these cases, but it's an interesting thing that it typically the trespasser has to prove there's a presumption they acted in bad faith and they have to prove that they acted in good faith. It's a little bit different compared to other areas of the law. A typical traditional trespass is very different from the how this sort of burden shifting happens in a mineral trespass. So, that is all I have for you today, and I thank everyone for listening. And please don't hesitate to reach out to my contact information is available. And if anyone has any questions, I'm always happy to answer those.

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