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. ABSTRACT

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. Fo r oth ers,

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 sc hola rs is a new inte r-

faculty cluster from the Faculty of Arts, the Schulich School of Engineering, th e 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 a lso 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 dete rmined 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. INTRODUCTION

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 n ever have devel oped.4 Likewise, the first commercial

horizontal wells were drilled in the early 1980s by Elf Aquitaine.5 But if no t

for Larry Nichols pushing Devon Energy6 and Harold Hamm pushing

Continental7 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 T

HE LAW OF ENERGY

UNDERGROUND: UNDERSTANDING NEW DEVELOPMENTS IN SUBSURFACE PRODUCTION,

TRANSMISSION, AND STOR AGE 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 O F 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 WEEK LY 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 n ote 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).