Chesapeake Exploration, LLC v. Buell: A Flawed Decision

• Author: Melissa Stimpert
• Position: Capital University Law School, Juris Doctor candidate 2018; Ohio University, Summa cum laude, B.A. in History, Minor in Political Science, Top Student Award in History, May 2015. This Note would not have been possible without the guidance of Professor Charles E. Cohen of Capital University Law School. Thank you for your help. This Note would...
• Pages: 287-311

CHESAPEAKE EXPLORATION, LLC V. BUELL : A FLAWED DECISION MELISSA STIMPERT * I. I NTRODUCTION In 1814, in Caldwell, Ohio, Silas Thorla and Robert McKee dug a well searching for salt brine. 1 They discovered salt but, by accident, they also discovered oil. 2 At that time, oil’s value was unknown to them, so they separated the oil from the salt water, and bottled up the oil. 3 They called the oil “Seneca Oil,” and started selling it as a medicine that could “cure all.” 4 Nearly 200 years later, the resource that was discovered, and thought to have no value, became a “hot commodity.” 5 If Thorla and McKee were living today, their land would be in the heart of the oil-and-gas boom, and they would have been quite wealthy. 6 Today, because of new technology, Copyright © 2018, Melissa Stimpert. * Capital University Law School, Juris Doctor candidate 2018; Ohio University, Summa cum laude, B.A. in History, Minor in Political Science, Top Student Award in History, May 2015. This Note would not have been possible without the guidance of Professor Charles E. Cohen of Capital University Law School. Thank you for your help. This Note would also not be possible without the invaluable guidance and support of Craig E. Sweeney of Bricker and Eckler and Richard A. Yoss of Yoss Law Office. I would not have the passion for oil and gas law nor be the student I am today without your unwavering support and guidance. Thank you. Also, a special thank you for the support from my parents, my sister, and Johnny who took the time to encourage me, read rough drafts, and remind me to take breaks. 1 First Oil Well in North America, ROADSIDE AMERICA, https://www.roadsideamerica. com/story/11665 [https://perma.cc/LL3A-T2U4]. 2 Id. 3 Id. 4 Id. ; Thorla-McKee Well , OHIO EXPLORATION SOC’Y, https://www.ohioexploration. com/miscellaneous/thorlamckeewell/ [https://perma.cc/76X8-483M]. 5 First Oil Well in North America , supra note 1; Melinda Peer, Oil Is One Hot Commodity , FORBES (Sept. 30, 2009, 4:50 PM), https://www.forbes.com/2009/09/30/crude-oil-inventories-markets-commodities-energy.html [https://perma.cc/GG39-T5L6]. 6 As of February 3, 2018, 4,921 well permits have been issued and 3,746 wells have been drilled. OHIO DNR DIVISION OF OIL AND GAS, http://oilandgas.ohiodnr.gov/oil-gashome/leasing-information [https://perma.cc/W3AG-JTF6]. Fifty-one of the permits were for Marcellus activity and thirty-five of those have been drilled. Id. In contrast, 2,754 ( continued ) 288 CAPITAL UNIVERSITY LAW REVIEW [46:287 landowners in southeast Ohio have earned millions of dollars simply because of the resources below their land. 7 While the oil-and-gas boom in Ohio has been relatively good for landowners who own their mineral rights, the ambiguous language in the Ohio Dormant Mineral Act (DMA) has caused a headache for attorneys, judges, and landowners whose mineral rights were severed from the land. 8 The DMA was enacted as a way for the current surface owner to eliminate the threat of outdated claims and to ultimately reunite the mineral rights with the surface rights. 9 This reuniting of the mineral interest with the landowner can only happen if none of the six “savings events” listed in the statute took place within the preceding twenty years. 10 The savings event Utica permits were issued while 2,254 wells were drilled. Id. The remainder of the permits and drilled wells were for Conventional wells. Id. According to ODNR, “During the third quarter of 2016, Ohio's horizontal shale wells produced 3,954,095 barrels of oil and 360,681,356 Mcf (360 billion cubic feet) of natural gas . . . .” Ohio’s Utica Shale Third Quarter Production Totals Released , OHIO DEP’T OF NAT. RESOURCES (Dec. 9, 2016), http://ohiodnr.gov/news/post/ohio-s-utica-shale-third-quarter-production-totals-released [https://perma.cc/B5JX-Q579]. Despite this phenomenal production in southeastern Ohio, “[n]atural gas prices are expected to rise over the next two years due to weather-driven demand for the fuel and withdrawals from storage facilities being at their highest level in years . . . .” Matt Warnock, Prices for Natural Gas Expected to Rise over Next Two Years , SHALEOHIO (Jan. 31, 2017), http://www.shaleohio.com/post/detail/prices-for-natural-gas-expected-to-rise-over-next-two-years-233448 [https://perma.cc/8XTQ-D8KL]. 7 John Funk, Rural Ohio Is the Wild West as Gas and Oil Companies Compete for Drilling Rights , CLEVELAND PLAIN DEALER (Nov. 18, 2011, 11:48 AM), http://www.cleveland.com/business/index.ssf/2011/10/gas_companies_swarm_in_frackin.ht ml [https://perma.cc/6TQE-Y37N]. 8 Fenner L. Stewart, When the Shale Gale Hit Ohio: The Failures of the Dormant Mineral Act, Its Heroic Interpretations, and Grave Choices Facing the Supreme Court, 43 CAP. U. L. REV. 435, 454–55 (2015) (discussing problems that started when lawyers and clients started to file affidavits instead of quiet title actions because they were cheaper). 9 See infra Section I.B; Alexander McElroy, Ohio’s Dormant Mineral Act: Current and Unresolved Issues , 44 CAP.U.L.REV. 325, 326–27 (2016). 10 OHIO REV.CODE ANN. § 5301.56(B)(3) (West 2017). The six possible savings events are as follows: (1) a “title transaction” involving the mineral interest (this is the savings event that is at the forefront of most litigation and is the savings event that is at issue in this case); (2) actual production or withdrawal of minerals from the land, a unitized pool, or a mine “a portion of which is located beneath the lands”; (3) use of the mineral interest for underground gas storage; (4) issuance of a drilling or mining permit to the holder; (5) filing ( continued ) 2018] C HESAPEAKE E XPLORATION , LLC V . B UELL 289 that causes the most litigation is when the mineral interest is the subject of a “title transaction.” 11 This Note analyzes an effort by the Ohio Supreme Court to provide some clarity to the statute by resolving the issue of whether a lease constitutes a title transaction under the DMA. In Chesapeake Exploration, L.L.C. v. Buell, the Ohio Supreme Court, in a 5–2 decision, held that a recorded oil and gas lease is a title transaction. 12 It went on to unanimously hold that a mere unrecorded expiration of a recorded oil-and-gas lease does not restart the twenty-year forfeiture clock. 13 While the court attempted to provide some clarity to the DMA by interpreting the statute, the decision is flawed in that a deeper analysis is needed to truly understand the legislative intent of the statute. The majority’s analysis is correct in that the statute does not contain an exclusive list of title transactions, but it failed to recognize that when adopting the statute, the Ohio legislature did not include the word “lease” as one of the listed title transactions despite it being included in the model statute. 14 First, this Note examines the history of the oil and gas boom and why oil and gas has become such a “hot” market in the last fifteen years. Second, this Note examines the DMA, which is the current statute that is applied to resolve disputes between landowners and mineral interest holders. The DMA has been at the forefront of much recent litigation in Ohio. 15 Next, this Note provides an in-depth analysis of Chesapeake Exploration, L.L.C. v. Buell . Part II looks closely at the court’s holding that a recorded oil-and-gas lease constitutes a savings event under the DMA and the supporting reasons for its decisions. Part II will also examine why the court held that the expiration of a recorded oil-and-gas lease does not restart the twenty-year forfeiture clock. Part III examines of a claim to preserve the mineral interest; and (6) creation of a separately listed tax parcel number for the mineral interest. Id. 11 § 5301.56(B)(3)(a). See also Timothy M. Mckeen & Matthew Vafa Barissi, Ohio , 2 TEX.A&M L.REV. 265, 277–80 (2015). 12 45 N.E.3d 185, 187 (Ohio 2015). 13 Id. at 198; id. at 202 (Pfeifer, J., concurring in part and dissenting in part) (agreeing with the majority that the expiration of a recorded lease does not restart the twenty-year forfeiture clock); id. at 205 (Kennedy, J., concurring in part) (agreeing with the majority that the expiration of an unrecorded lease is not a title transaction). 14 See infra Part III. 15 See Mckeen & Barissi, supra note 11. 290 CAPITAL UNIVERSITY LAW REVIEW [46:287 why the court’s decision is flawed. Finally, Part IV discusses the likely impact that Buell will have on future DMA cases. A. History of the Oil-and-Gas Boom Oil and gas exploration in Ohio is not a new sensation. 16 Oil was first discovered in Caldwell, Ohio in 1814. 17 This became known as the first North American oil well. 18 The first commercial oil well in America dates back to 1859 when Colonel Edwin Drake pioneered a new method of producing oil from the ground in Titusville, Pennsylvania. 19 One year later, the first commercial oil well was drilled in Macksburg, Ohio. 20 Within a few years, several hundred wells were dug in the area. 21 Commercial natural gas drilling and production began in Ohio around 16 Dodd v. Croskey, 37 N.E.3d 147, 148 (Ohio 2015). 17 See First Oil Well in North America , supra note 1. 18 Id. 19 First American Oil Well, AM. OIL & GAS HIST. SOC’Y, http://aoghs.org/petroleum-pioneers/american-oil-history/ [https://perma.cc/Q8AD-RA8E]. Before Colonel Drake, other investors had tried profiting from the area without much success. These investors used “the then-known methods of drilling for oil, which only caused setbacks and never led to marketable quantities of oil.” Urja Dav, Edwin Drake and the Oil Well Drill Pipe, PA. CTR. FOR THE BOOK (2008), http://pabook2.libraries.psu.edu/palitmap/DrakeOilWell.html [https://perma.cc/KP6J-8YRW]. In the 1850s, excitement regarding oil in Titusville, PA began to start again, and a group of chemists and lawyers formed the first oil company in the United States, which would later be renamed Seneca Oil Company of Connecticut. Id. Drake got the job simply because he was...