These rules, which just were published, should offer more protection for both landowners who have leases and those who do not.

New drilling methods, old laws

Ohio has had laws that allow forced pooling and forced unitization since 1965. Forced pooling has been used sparingly, and forced unitization had almost never been used, until just last year.

Since then a dozen or so applications have been suddenly filed by companies involved in horizontal shale drilling in the Utica in an apparent effort to exploit the lack of precedent and standards. Unitization suddenly seemed to be a way for companies holding most of the drilling rights to a potential unit to avoid having to negotiate with remaining owners and lessors.

Forced pooling (covered under Ohio Revised Code Section 1509.27) has been applied basically to “force” reluctant unleased landowners into a drilling unit for a single well. The Ohio Department of Natural Resources for some time has had published standards for forced pooling, including application requirements and limitations and protections for unleased landowners. Those rules can be found at http://oilandgas.ohiodnr.gov/industry/mandatory-pooling.

Forced unitization (ORC Section 1509.28) theoretically was intended to allow a larger unit to foster more efficient development of an underlying distinct “pool” of oil and gas, which could involve multiple wells. It is doubtful that the drafters of the statute in 1965 intended that the “pool” or “part” thereof could include some 15 adjacent counties under which varying depths of the Utica shale layer exists. Those rules can be found at http://oilandgas.ohiodnr.gov/industry/unitization.

With virtually no precedent and no rules and standards for unitization, the recent onslaught of applications by the big companies raised many serious issues. It was unclear, for example, the degree to which the drillers had to negotiate in good faith with unleased property owners and uncommitted working interest owners prior to seeking forced unitization.

And very recently, at least one company sought to “force amend” existing valid leases (as to unit size limitations) in lieu of negotiating amendments with the lessors.

New rules require many specifics

ODNR has now published new rules regulating unitization applications and standards. They can be found at http://oilandgas.ohiodnr.gov/industry/unitization. Among many new, specific requirements are the following.

• Detail as to efforts to accommodate other working interest owners and operators having rights in the area being unitized.
• An affidavit detailing “detailed account of the attempts to lease the unleased properties.” This would include dates, persons contacted and terms of offers made.

Unitization is extremely complicated. Unitized unleased landowners can potentially receive a conventional royalty, as well as a working interest. (However, that interest might not be realized until the developer has reovered its development costs, or even multiples of it).

Thus, under some circumstances, unitization could potentially benefit unleased landowners in ways not available to leased landowners.

The ODNR Division of Oil & Gas Resources Management has been attempting to fairly consider and rule on the applications, as they are required to by statute. These guidelines should help that process.

Any party who receives notice of a unitization, or any lessor who believes that it may have land included within a unit (they will not necessarily be given notice), must consult knowledgeable legal counsel.

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Alan D. Wenger is an attorney in Youngstown, Ohio. His practice areas include oil and gas law, public utilities law, labor and employment law, land use law, environmental law, construction law and school law.