A Comparison of Mineral Law in Ohio, Pennsylvania, and North Dakota Sizing Up Shale States A Comparison of Mineral Law in Ohio, Pennsylvania, and North Dakota Zach Eccleston George Shires Christopher Houston

Shale Plays in the United States

State Activity Ohio Pennsylvania North Dakota 365 wells drilled in 2011 Added employment predicted up to 200,000 jobs Pennsylvania 2,931 wells drilled in 2011 Added employment predicted at 180,000 jobs North Dakota 2,017 wells drilled in 2011 Lowest unemployment rate in nation at 3.3%

Defining “Minerals” Ohio Oil and Gas statutorily defined “Other minerals” subject to interpretation Case law looks to intent–easement language Detlor v. Holland Double check w/ Kit on what he wants this to say

Defining “Minerals” Ohio – Detlor v. Holland “Do hereby grant, bargain, sell, and convey . . . all the coal of every variety, and all the iron ore, fire clay, and other valuable minerals . . .; together with the right . . . of mining and removing such coal, ore, or other minerals; and . . . shall also have the right to the use of so much of the surface of the land as may be necessary for pits, shafts, platforms, drains, railroads, switches, side tracks, etc., to facilitate the mining and removal of such coal, ore, or other minerals, and no more.”

Defining “Minerals” Ohio Wiseman v. Cambria Products Co., finding “the words ‘other minerals’ and ‘other valuable minerals’ would include petroleum oil.” Jividen v. New Pittsburgh Coal Co., finding that a “surface only” deed reserving coal and “all other minerals,” but reciting rights specific to mining, such as sinking air shafts and extending switches, reserved oil and gas as well.

Defining “Minerals” Pennsylvania Dunham Rule Generally does not include oil & gas Pending case– Butler v. Powers Estate Marcellus shale gas Using similar case pertaining to coalbed methane Double check changes with George

Defining “Minerals” North Dakota Defined by statute – Oil and Gas Always Minerals Different for Conveyance/ Reservation and for Lease Question of which statute applies based on date of instrument

Defining Minerals North Dakota 1983 – Present Conveyances/reservation – included all minerals except those expressly excluded Leases – only minerals listed by name – regardless of use of the term “other minerals”

Prior Law varies based on date, instrument, and substance Prior to 1955 a conveyance/reservation included coal 1955-1983 a conveyance excluded coal 1955-1975 a reservation included coal See NDMTS 2.04

Regulatory Bodies Ohio Pennsylvania North Dakota Highly-centralized regulatory scheme Division of Oil and Gas Resources Management Pennsylvania Department of Environmental Protection Possible pre-emption on many levels; multiple rules to check North Dakota Industrial Commission Detailed regulatory scheme

Hydraulic Fracturing Regulations Ohio SB 315– expanded regulation of fracking Chemical disclosure, water testing Pennsylvania Oil and Gas Act reformed by Act 13 Stricter requirements on fracked wells than on others North Dakota Section of Administrative Code Disclosure, minimum strength & testing standards

Records and Recording Ohio Pennsylvania North Dakota Title: “Notice” for Deeds and land contracts “Race” for Leases and Mortgages But some practitioners interpret statute as “Race- Notice” Pennsylvania “Race-Notice” Uniform Parcel Identifier North Dakota Grantor/ Grantee and Tract Indices are required by statute But see Hanson v. Zoller (Hanson v Zoller, NDSC 1971) Since the tract index maintained by the register of deeds is the only practical index through which instruments on record can be located, instrument recorded but not indexed under the correct tract description in the tract index does not constitute substantial compliance with the recording statutes. Prospective purchaser or encumbrancer can only be charged with notice of instruments that are indexed in the tract index, and so far as constructive notice is concerned, is not obliged to consult the grantor-grantee indexes or the reception book beyond the extent of determining whether there are any unrecorded instruments in the hands of the register of deeds that may not yet have been recorded and indexed.

Dormant Mineral Act – Ohio Title: Dormant Mineral Act – Ohio Enacted 1989; Amended 2006 Does not apply to coal or government-owned minerals Minerals reunite with surface after 20 years, absent a “Savings Event”

Dormant Mineral Act – Ohio Title: Dormant Mineral Act – Ohio “Savings Events” defined as… “Subject” of recorded “Title Transaction” Actual production by owner or lessee Use in underground gas storage Permit issued to the interest holder Interest holder has filed claim to preserve Creation of a separate tax number for the minerals

Dormant Mineral Act – Ohio Title: Dormant Mineral Act – Ohio 1989 Act Self-executing Ambiguity in 20-year period Likely rolling basis Preserved “indefinitely” by filing “successive” claims But one court has interpreted 20-year period as fixed 1969-1989 Example: A conveys to B in 1965; B does not record until 1974

Dormant Mineral Act – Ohio Title: Dormant Mineral Act – Ohio 2006 Amendment Procedural change Notice and time to claim New ambiguity If no Savings Event occurred 20 years prior to notice, may the mineral owner still file a Claim to Preserve?

Dormant Mineral Act - Pennsylvania Title: Dormant Mineral Act - Pennsylvania Not a true dormant mineral act 2006 Dormant Oil and Gas Act Statutory provision for leasing unlocatable mineral owner through trust “It is not the purpose of this act to vest the surface owner with title to oil and gas interests that have been severed from the surface estate.”

Dormant Mineral Act - Pennsylvania Title: Dormant Mineral Act - Pennsylvania Not a true dormant mineral act–yet. Recent HB 1707 would expand Allow surface owner to begin petition Adds possibility of selling the minerals Would result in a modified dormant mineral act Not self-executing Sale of interest—not necessarily merger with surface estate Talk to George about this slide

Dormant Mineral Act – North Dakota Title: Dormant Mineral Act – North Dakota ND also has a Marketable Record Title Act Termination of Mineral Interest Act Effective 1985; amended 2009 Applies to coal Does not apply to governmental body or agency Creates a mechanism to reunite the minerals with surface after 20-year with no “use”

Dormant Mineral Act – North Dakota Title: Dormant Mineral Act – North Dakota Reunification of minerals: 20 year period of non-use Production, storage, subject to recorded instrument, pooled, or a statement of claim is filed Surface Owner gives notice By three weeks of publication and notice to the address of record owner – if no address use reasonable inquiry to determine address Copy of notice and service recorded with county Clerk

Dormant Mineral Act – North Dakota Title: Dormant Mineral Act – North Dakota Reunification of minerals: 4. Perfection of title – NDCC 38-18.1-06.1 A) Follow steps 1-3 above, then institute action in district court for quiet title B) Court is required to issue findings of fact, conclusions of law, and enter judgment in favor of surface owner C) Judgment is conclusive and lessee may rely on the judgment – lease remains in effect and lessee is not liable even if judgment is later vacated

Dormant Mineral Act – North Dakota Preservation of mineral interest: During 20 year period “use” minerals “Second Chance” - Within 60 days after first publication of notice: File instrument demonstrating “use” File a statement of Claim

From Governmental Bodies Leasing: From Governmental Bodies Ohio Availability based on land classification New Oil & Gas Leasing Division for state land Pennsylvania Difficult; multiple governmental levels with differing requirements and procedures North Dakota Important because of state mineral reservations If advertising and bidding scheme not followed, may void lease Different reservations based on years--??

From Governmental Bodies Leasing: From Governmental Bodies North Dakota Reservation to state by year Prior to 1939: no mineral reservations 1939 – 1941: reservation of 5% minerals 1941 – 1960: reservation of 50% minerals of all lands Even if deed did not expressly reserve minerals 1960 - 1973: reservation of 100% of minerals in grant lands and 50% of minerals in non-grant lands 1973 – present: all minerals reserved in all state land conveyances Different reservations based on years--??

Roads Ohio Pennsylvania North Dakota Leasing: Municipal streets: presumption of fee in city Fee may be “qualified” County roads and highways: presumed fee in abutting landowner to center of road Pennsylvania Generally strip-and-gore North Dakota Can be altered by statute allowing particular eminent domain act

Waters & Riparian Rights Leasing: Waters & Riparian Rights Ohio Abutting owners own to center regardless of navigability Pennsylvania Varies based on navigability Changes in watercourse specifically addressed North Dakota Current Litigation

Concurrent Owners Ohio Pennsylvania North Dakota Leasing: Concurrent Owners Ohio Whether all cotenants are needed is unsettled Pennsylvania Leasing from less than all may be trespass Remedy is partition North Dakota Do not have to lease from all co-tenants Account for share of net profits Let Zach know WV is by case law and not by statute (developed from statute though)

Joint Tenancy Ohio Pennsylvania North Dakota Leasing: Joint Tenancy Ohio Not Recognized–statutory Survivorship Tenancy after 1985 No common law Four Unities Pennsylvania Recognized– Survivorship requires clear intent Common law Four Unities recognized Tenancy by the Entireties North Dakota Recognized– Defined by Statute No common law Four Unities; straw man not needed

Successive Owners Each require both Life Tenant & Remainderman Ohio Leasing: Successive Owners Each require both Life Tenant & Remainderman Ohio Method of payment undetermined Recognizes Open Mine Doctrine Pennsylvania Payment method clear North Dakota Open Mine Doctrine not yet adopted

Pooling & Compulsory Pooling Ohio: Forced pooling available Mandatory Unitization also available Pennsylvania Only for formations below Onondaga–includes Utica shale But no Marcellus forced pooling North Dakota Statutory risk-penalties How to pronounce Onondaga

Effects of Foreclosure Maintaining the Lease: Effects of Foreclosure Pennsylvania & North Dakota are Lien-Theory Foreclosure wipes out Lessee’s interest If Mortgage/ lien was filed prior to Lease filing Get Lease subordinated Ohio 2010 Statute Oil & Gas Lease will not be extinguished by foreclosure and has priority over all prior recorded encumbrances Basically a massive subordination

Effects of Foreclosure - Ohio Maintaining the Lease: Effects of Foreclosure - Ohio Ohio

Competing Development Issues during Production: Competing Development Ohio Well subject to approval if in “coal bearing township” Spacing provisions Pennsylvania Coal Operator right to object Future wind conflict possible North Dakota Policy to develop, but statutory guidance scarce Possible Kerbaugh application

Pending Litigation Ohio Anschutz Lease Litigation

Pending Litigation Pennsylvania North Dakota Butler v. Charles Powers Estate Ownership of natural gas found in coal North Dakota Landowner suit ownership of minerals between high and low water mark

Lease Termination & Filing Requirements Post-Lease Issues: Lease Termination & Filing Requirements Ohio Recording required Either in margin of lease or separate document Pennsylvania Abandonment, if lessee intended such No statute requiring recording North Dakota Statutory provisions for lessor voiding abandoned lease