New unitization rules should help protect landowners
By Jamison Cocklin
Frustrated by the increasing volume of requests from oil and gas companies and a lack of guidance on how to deal with them, the Ohio Department of Natural Resources recently released new rules for operators applying for unitization.
A part of the Ohio Revised Code, section 1509.28, “unitization” allows oil and gas companies to pool landowners across vast stretches of land that either can’t be contacted or who have no interest in selling the mineral rights below their property.
Horizontal shale wells require lateral runs that extend thousands of feet deep underground. Typically, when a company applies for unitization, it indicates that it has plans to drill multiple wells from one pad, which requires more acreage.
Multiple wells at one pad not only reduce surface disruption, but they also maximize the return of oil and gas.
The law was adopted in 1965 in response to a boom in vertical drilling in urban areas. It helped establish spacing rules and reduce over-drilling. Until 2011, the law was utilized only twice.
Since then, about a dozen applications have been filed with ODNR, raising concerns that oil and gas companies were failing to give affected landowners enough notice to appeal, bypassing their obligations to negotiate fair leases and forcing non-consenting property owners into drilling units against their will.
“[ODNR] did it because there were no rules,” said Alan Wenger, chair of the oil and gas law practice group a t Harrington, Hoppe & Mitchell in Youngstown. “Companies like Chesapeake and BP were starting to file for these regularly and they were looking more and more greedy and trying to get away with more stuff.”
Wenger has worked closely on the issue, representing landowners living near the Kibler 1H well in Lordstown that have existing oil and gas leases from other companies. Halcon applied for unit operations on March 28 for a 630-acre patch of land near the Kibler, where it said those landowners were “nonconforming” parties that should be unitized.
Requests for unitization are often a hundred pages or more, and the applications are followed by hearings before the Ohio Department of Natural Resources Division of Oil and Gas Resources Management. Landowners are invited to attend so they can argue against oil and gas companies, but that was rarely the case, Wenger said.
The oil and gas companies, Wenger added, “asked for the moon” and regulators were fed up with a lack of guidelines in dealing with the growing requests.
“My understanding is we wanted to make things clearer by saying, ‘This is what you need,’” said ODNR spokesman Mark Bruce. “There were hearings when the division chief was saying, ‘I need more information if you want to move forward with this process.’ It was dragging things out and these new rules will make the process easier for everyone involved.”
Posted on ODNR’s website last month, the guidelines do not change the law, but the 15 new stipulations, requiring operators to supply affidavits showing they made a good faith effort to negotiate better leases, provide more specifics and all the necessary documentation to support those details, should provide landowners with better protection and speed up the process.
“This should help everyone by clarifying the rules of play and how the process should unfold,” Wenger said. “Nothing is required by law, so the companies could ignore it, but their requests would probably be thrown out.”