Court of Appeals of Ohio, Seventh District, Monroe
Appeal from the Court of Common Pleas of Monroe County, Ohio
Case No. 2018-151
Craig Wilson, C.J. Wilson Law LLC, for Plaintiffs-Appellants
Gregory Russel, Atty. Peter Lusenhop, and Atty Ilya Batikov,
Vorys, Sater, Seymour and Pease, Atty. Ryan Regel, Atty.
Gerald Daily, and Atty. Scott Myers, Asst. Attorney Generals,
Environmental Enforcement Section, for Defendants- Appellees.
BEFORE: David A. D'Apolito, Gene Donofrio, Carol Ann
OPINION AND JUDGMENT ENTRY
Appellants Jeffrey and Chanda Paczewski appeal the judgment
entry of the Monroe County Court of Common Pleas granting the
motions to dismiss filed by Appellees, Antero Resources
Corporation ("Antero"), G-R Contracting, Inc.
("G-R"), and Richard Simmers, Chief of the Division
of Oil and Gas Resources ("Division") in this
action for termination of an oil and gas lease and damages.
Appellants also appeal the trial court's denial of their
subsequent Civ.R. 60(B) motion.
Appellants concede that the unitization order issued by the
Division pursuant to R.C. 1509.28 ("Order) is valid, but
argue nonetheless that the Order constitutes a breach of the
oil and gas lease at issue in this case, as well as an
unconstitutional taking of the property and minerals subject
to the lease without just compensation. For the following
reasons, the judgment of the trial court is affirmed.
AND R.C. 1509.28
Under the common-law rule of capture, a landowner always has
an incentive to quickly drill his own well, regardless of the
waste, because if he fails to capture the resources, his
neighbor will drill his own well and licitly take the
minerals for himself. With each new drill site the reservoir
loses pressure, leaving much of the oil unobtainable.
Conflicting hydraulic fracturing operations can likewise
result in unnecessary drilling with less overall output.
Kerns v. Chesapeake Expl., LLC, ____ Fed.Appx. ____,
2019 WL 423140 (2019 6thCir.).
"Unitization" refers to the consolidation of
minerals or working interests covering all or part of a
common source of supply. Kramer and Martin, THE LAW OF
POOLING AND UNITIZATION, § 1.02 (LexisNexis Mathew
Bender 2016). Unitization avoids disorderly and wasteful
production practices by allowing the reservoir's
characteristics, rather than man-made property lines, to
govern development. Unitization minimizes surface disturbance
and related environmental concerns. It also increases the
ultimate recovery of oil and gas for all of the unit's
owners, who share in the resulting production on a just and
equitable basis. Champion, Forming the Unit Why Unitize?
The Industry Perspective, Rocky Mtn. Min. L. Inst. 5A-1
"Pooling" is the joining together of small tracts
or portions of tracts for the purpose of having sufficient
acreage to receive a well drilling permit under the relevant
state or local spacing laws and regulations, and for the
purpose of sharing production by interest owners in the
pooled unit. Kramer and Martin at § 1.02. Under
Ohio's statutory scheme, R.C. 1509.26 authorizes
voluntary pooling agreements to form drilling units which
conform to the minimum acreage and distance requirements.
In the event that an owner is unable to secure a voluntary
pooling agreement, R.C. § 1509.27 authorizes the
Division to issue mandatory pooling orders where an owner is
unable to secure a voluntary pooling agreement. Similarly,
R.C. 1509.28 authorizes the Division to make orders providing
for unit operations when reasonably necessary to increase the
recovery of oil and gas.
In enacting R.C. 1509.28, the General Assembly recognized
that reaching voluntary agreement on a large-scale project
often presents significant challenges, including self-serving
opposition by minority interest owners. In a 1964 report to
the General Assembly on the proposed conservation package,
the Legislative Service Commission reasoned:
Seldom will one owner control all of the land area which
overlies a pool, and selfish interests may keep multiple
owners from joining with each other for their mutual benefit
and for conservation. In order to meet this situation a
number of oil producing states have adopted unitization
procedures similar to these which we recommend so that a
minority cannot keep the majority from proper development and
Legislative Service Commission, Report of Committee to Study
Oil and Gas Laws in Ohio (Dec. 28, 1964).
FACTS AND PROCEDURAL HISTORY
In 1975, Appellants' predecessors signed an oil and gas
lease ("Lease"), which covers over 700 acres in
Monroe County, Ohio. The original contracting parties struck
a single clause from the form lease. The stricken clause,
reads, in pertinent part:
The Lessor hereby grants to the Lessee the right to
consolidate the leased premises, or any part thereof, with
other lands to form an oil and gas development unit of not
more than six hundred forty (640) acres for the purpose of
drilling a well thereon, but the Lessee shall in no event be
required to drill more than one well on such unit.
Appellants purchased 77 acres of the leased property in 2010.
G-R owns the working interest in the Lease, except for
certain deep formations, which are owned by Antero. Sixteen
wells are producing from the Lease at present, including the
well on the Appellants' property.
Antero unsuccessfully attempted to negotiate a lease
amendment with Appellants, which would have provided to
Antero the right to include the Lease in a unit. As a
consequence, on March 14, 2017, Antero applied to the
Division for a statutory unitization order. Antero sought to
develop a 743-acre development unit contemplating three
horizontal wells and including 61 acres of the
Appellants' property ("Peters Unit").
According to Antero's application, the Lease contains
non-conforming provisions, which limit the amount of acreage
that may be voluntarily consolidated by Antero into the
Peters Unit. Unless the Division formed the unit pursuant to
its statutory authority, Antero explained that it would be
required to reduce the lateral length of two of the three
wells proposed for ...