When the Shale Gale Hit Ohio: The Failures of the Dormant Mineral Act, its Heroic Interpretations, and Grave Choices Facing the Supreme Court

• Author: Fenner L. Stewart
• Position: Fenner Stewart is an Assistant Professor of Law at the University of Calgary, Faculty of Law. He is a member of the University of Calgary's Energy Research Strategy, entitled 'Energy Innovation for Today and Tomorrow.' This confederation of scholars is a new interfaculty cluster from the Faculty of Arts, the Schulich School of Engineering, the ...
• Pages: 435-479

WHEN THE SHALE GALE HIT OHIO: THE FAILURES OF THE DORMANT MINERAL ACT, ITS HEROIC INTERPRETATIONS, AND GRAVE CHOICES FACING THE SUPREME COURT FENNER L. STEWART * I. A BSTRACT As stories of signing bonuses and the promise of rich gas royalties spread through the local communities in Eastern Ohio, owning land was like owning a lottery ticket. For some, fortunes were made over night. For others, their land was not over the sweet spots of the shale plays. And for others still, what appeared to be their easy path to prosperity was blocked, much to their surprise and chagrin, by title ambiguities. It was at this point that Ohio’s dormant mineral rights became litigious, and the Ohio Dormant Mineral Act (ODMA) was scrutinized for the first time. In fact, to say that the ODMA was scrutinized may be an understatement, as local lawyers have commented: “The amount of litigation that has been generated involving Ohio’s DMA during the past three years [2011-2014] has rarely been seen with regard to a single statute.” 1 Ohio’s Seventh District Court of Appeals recently attempted to remedy the ODMA’s ambiguities. The appellate court, however, may not have the final word on the matter. The Ohio Supreme Court will review a number of issues in the coming year, and there are still others which may ultimately need to be reviewed. In light of this, this article will evaluate the appellate court’s judgments. This study is confined to research the following issues: (1) whether all three appellant panels correctly determined that the 1989 version provides for automatic vesting; (2) whether the court in Eisenbarth Copyright © 2015, Fenner L. Stewart. * Fenner Stewart is an Assistant Professor of Law at the University of Calgary, Faculty of Law. He is a member of the University of Calgary’s Energy Research Strategy, entitled “Energy Innovation for Today and Tomorrow.” This confederation of scholars is a new inter-faculty cluster from the Faculty of Arts, the Schulich School of Engineering, the Haskayne School of Business, and the Faculty of Law. The scholastic assembly’s goal is to help the University become a world leader in energy research. Professor Stewart is also a Director of the Midwest Center for Energy Law and Policy. 1 Clay K. Keller, Michael T. Altvater & J. Alex Quay, Ohio’s Dormant Mineral Act: Addressing a Potential Title Problem Created By Severed Mineral Estates , ENERGY & MINERAL LAW FOUND. THIRTY-FIFTH ANNUAL INST. 25 (2014), available at http://www.emlf. org/clientuploads/speakers/Keller.outline.pdf. 436 CAPITAL UNIVERSITY LAW REVIEW [43:435 correctly determined that the look-back period under the 1989 version is for a fixed twenty-year period; and (3) what is the proper interpretation and application of the title transaction savings event. This Article will argue for automatic vesting, argue against a fixed look-back period, and finally, offer some guidance as to the application of the title transaction savings event. II. I NTRODUCTION Commercial hydraulic fracturing started almost seventy years ago. 2 However, if not for George Mitchell’s investment in the technology from 1998 to 2003 when few others believed in it, coupled with his dogged persistence in unlocking the treasure of the Barnett Shale, 3 modern hydraulic fracturing may never have developed. 4 Likewise, the first commercial horizontal wells were drilled in the early 1980s by Elf Aquitaine. 5 But if not for Larry Nichols pushing Devon Energy 6 and Harold Hamm pushing Continental 7 to combine horizontal drilling with Mitchell’s hydraulic fracturing techniques, the power of horizontal drilling may not have been fully appreciated. 8 Without the combination of these two technologies, the “American energy revolution” may never have occurred. 9 2 Alastair R. Lucas, Theresa Watson & Eric Kimmil, Regulating Multistage Hydraulic Fracturing: Challenges in a Mature Oil and Gas Jurisdiction , in THE LAW OF ENERGY UNDERGROUND: UNDERSTANDING NEW DEVELOPMENTS IN SUBSURFACE PRODUCTION, TRANSMISSION, AND STORAGE 127, 128 (Donald N. Zillman et al. eds., 2014). 3 See GREGORY ZUCKERMAN, THE FRACKERS: THE OUTRAGEOUS INSIDE STORY OF THE NEW BILLIONAIRES WILDCATTERS 33–39, 44–46, 77–81, 93–95, 103–11 (2013). 4 See id. at 34–39. 5 ENERGY INFO. ADMIN., DRILLING SIDEWAYS—A REVIEW OF HORIZONTAL WELL TECHNOLOGY AND ITS DOMESTIC APPLICATIONS 7 (1993), available at http://www.eia.gov/ pub/oil_gas/natural_gas/analysis_publications/drilling_sideways_well_technology/pdf/tr05 65.pdf. 6 See RUSSELL GOLD, THE BOOM: HOW FRACKING IGNITED THE AMERICAN ENERGY REVOLUTION AND CHANGED THE WORLD 134–47 (2014). 7 See ZUCKERMAN, supra note 3, at 164–75, 203–08, 229–36, 251–57, 309–12. 8 See id. (discussing the pressure of Hamm and Mitchell’s teams competing to reach better results in drilling). 9 Robert D. Blackwill & Meghan L. O’Sullivan, The Geopolitical Consequences of the Shale Revolution , 93 FOREIGN AFF. 102, 102 (2014); James Coleman, Importing Energy, Exporting Regulation , 83 FORD. L. REV. 1357, 1364–66 (2014). 2015] WHEN THE SHALE GALE HIT OHIO 437 But the star of the show is another wildcatter, former landman Aubrey McClendon. 10 His company, Chesapeake, co-founded by Tom Ward, 11 may not have pioneered the technologies of modern hydraulic fracturing, 12 but its aggressive acquisition of shale plays across the United States set it apart from its competitors. 13 McClendon, with the help of investment banker and close friend Ralph Eads, 14 is largely accredited for the “Shale Gale,” 15 which really picked up steam in 2007 and blew across America. 16 Even by 2006, McClendon—“the chief apostle of [the] energy revolution,” 17 —was “declaring victory” in what he characterized as the “land run of 2000 to 2006.” 18 This was a reference to the land runs which started in 1889 when unassigned lands where opened to settlers. 19 But in 2006, McClendon was far from finished with his aggressive acquisition of shale plays. 20 It was not until 2007 that this land grab moved to Ohio. 21 By 2008, Chesapeake and others “raced to lease land” in the Marcellus and Utica shale plays. 22 The pace of leasing activity “grew heated.” 23 Competing landmen armed with company checkbooks scoured the Ohio countryside hunting for leasing opportunities. 24 By 2011, McClendon declared the Utica was “the 10 Chris Nelder, The New Oil Era , 508 NATURE 185, 185 (2014). 11 ZUCKERMAN, supra note 3, at 126–28. 12 GOLD, supra note 6, at 190. 13 See id. at 175–76, 190–200. See also ZUCKERMAN, supra note 3, at 188–95, 197–203, 217–29, 241–48. 14 Nelder, supra note 10, at 185; GOLD, supra note 6, at 165–66. 15 Greg Gaston, The “Shale Gale”: What It Is and How It Will Reduce the U.S. Trade Deficit and Make Some American Companies More Competitive In World Markets , 4 INT’L J. BUS. & SOC. SCI. 59, 61 (2014). See also DANIEL YERGIN, THE QUEST: ENERGY, SECURITY, AND THE REMAKING OF THE MODERN WORLD 331 (2012). 16 Blackwill & O’Sullivan, supra note 9, at 102. 17 GOLD, supra note 6, at 158. 18 Id . at 192. 19 See, e.g ., William Willard Howard, The Rush to Oklahoma , 33 HARPER’S WEEKLY 391 (May 18, 1889), available at http://urbanplanning.library.cornell.edu/DOCS/landrush.htm. 20 Ryan Dezember, Energy Investor Bets on Aubrey MrClendon’s Second Act , WALL ST. J., Nov. 24, 2014, http://www.wsj.com/articles/energy-investor-bets-on-aubrey-mcclendons-second-act-1416870833. 21 GOLD, supra note 6, at 206. 22 ZUCKERMAN, supra note 3, at 277. 23 Id . at 276. 24 See NORMAN J. HYNE, NONTECHNICAL GUIDE TO PETROLEUM GEOLOGY, EXPLORATION, DRILLING & PRODUCTION 235–37 (2012) (defining the role of the landman). 438 CAPITAL UNIVERSITY LAW REVIEW [43:435 biggest thing to hit Ohio since the plow,” 25 and it was “one of our biggest discoveries in US history.” 26 As stories of signing bonuses and the promise of rich gas royalties spread through the local communities in Eastern Ohio, owning land was like owning a lottery ticket. 27 For some, fortunes were made over night. 28 For others, their land was not over the sweet spots of the shale plays. 29 And for others still, what appeared to be their easy path to prosperity was blocked, much to their surprise and chagrin, by title ambiguities. 30 It was at this point that Ohio’s dormant mineral rights became litigious and the Ohio Dormant Mineral Act (the ODMA) was scrutinized for the first time. 31 In fact, to say that the ODMA was scrutinized may be an understatement, as local lawyers have commented: “The amount of litigation that has been generated involving Ohio’s DMA during the past three years [2011-2014] has rarely been seen with regard to a single statute.” 32 Such problems with ownership are not new to American law. 33 In America, unlike most countries, 34 the surface owner owns subsurface rights. 35 In some cases, especially in resource rich areas, surface owners will 25 Robert L. Smith, Some Think a Gas Boom Can Reignite Ohio’s Manufacturing Economy , PLAIN DEALER, Nov. 22, 2011, http://www.cleveland.com/business/index.ssf /2011/11/some_think_a_gas_boom_can_reig.html. 26 GOLD, supra note 6, at 206. 27 Spencer Hunt, Eastern Ohio Swept by Drillers’ Land Rush , COLUMBUS DISPATCH, Nov. 20, 2010. 28 Steve Hargreaves, Gas Boom Mints Instant Millionaires , CNN MONEY, Nov. 2, 2010, http://money.cnn.com/2010/10/06/news/economy/penn_community/. 29 Ian Urbina, New Report by Agency Lowers Estimates of Natural Gas in U.S. , N.Y. TIMES, Jan. 29, 2012, at A16. 30 See John K. Keller & Gregory D. Russell, Ohio’s Dormant Mineral Act , OHIO ST. BAR ASS’N. (June 29, 2010), available at https://www.ohiobar.org/NewsAndPublications/ News/OSBANews/ Pages/OSBANews-1808.aspx. 31 See OHIO REV. CODE ANN. § 5301.56 (West Supp. 2014). 32 Keller et al., supra note 1, at 21. 33 See, e.g. , Ernest E. Smith, Methods for Facilitating the Development of Oil and Gas Lands Burdened with Outstanding Mineral Interest , 43 TEX. L. REV. 129 (1964). 34 Jacqueline Lang Weaver & David F. Asmus, Unitizing Oil and Gas Fields Around The World: A...