American Oil and Gas Reporter - June 2014 - 174

power in violation of the home rule guarantee. The Ohio Supreme Court heard
oral arguments early this year and is expected to rule later this year.
Virginia also may be poised to join
the zoning fray. The state attorney general
issued an opinion in March 2013, questioning the legality of local drilling bans
when accomplished through zoning ordinances.
Meanwhile, companies operating in
Colorado have filed a number of lawsuits
challenging the voter-approved fracturing
bans on similar grounds, essentially arguing the local bans are inconsistent with
the state legislature's intent to grant regulatory authority to the statewide oil and
gas commission.
New York's high court also is considering whether state law can pre-empt
local zoning ordinances in the regulation
of hydraulic fracturing. And Norse Energy,
the appellant in that case, also filed a
lawsuit challenging the statewide moratorium on the grounds that delays in completing the environmental review process
violated New York law.
That case may be joined by another
challenge to the New York moratorium.
In November, several New York landowners threatened to sue the state and Governor
Andrew Cuomo to lift the moratorium,
alleging it amounted to an illegal taking
under the U.S. Constitution.
Other Legal Issues
Ohio was a hotbed for oil and gas litigation in 2013, with several important
decisions issued at both the trial and appellate levels. For example, a federal district court decided in February that oil
and gas leases were not "real estate"
under Ohio's real estate broker laws, and
therefore the sale of such interests did
not entitle the brokers to a commission.
In another case, Chesapeake Exploration LLC v. Oil and Gas Commission,
the Ohio Supreme Court divested the
OGC of appellate jurisdiction over the
permitting process, holding that a drilling
permit issued by the chief of the Ohio
Division of Oil and Gas Resources Management did not constitute an "order,"
and thus could not be appealed to the
OGC under Ohio Revised Code 1509.36.
In Pennsylvania, the state Supreme
Court issued a second landmark decision
in May 2013, dealing with the right to
convey oil and gas rights in property.
The case questioned whether the term
"mineral" was sufficiently broad to include
shale gas in a property deed reserving all
mineral rights in the land. The court declined to rewrite the state's long-standing
rule that oil was by definition not a
mineral, holding by an 8-0 vote that the

deed did not contemplate natural gas
rights (see "Longstanding Rule Upheld
In Ruling By Pennsylvania Top Court,"
AOGR, June 2013, pg. 18).
In Texas, the state's Supreme Court
accepted a case that could determine
whether landowners can bring a cause of
action for trespass when water from underground injection wells migrates onto
their property. A decision allowing such
claims could expose operators to significant liability from neighboring property
owners.
Looking Ahead
After another year of inaction in Congress, sweeping federal legislation on
shale gas drilling appears to be off the
table for 2014, particularly as politicians
shift their focus to the midterm elections.
A decisive victory in November may provide some momentum for new federal
legislation, but other issues such as healthcare, immigration and the economy likely
will continue to dominate the political
landscape.
The same cannot be said for federal
regulators, however, who continue to
push for comprehensive rules for hydraulic
fracturing. For example, the BLM is considering more than 1 million comments
to its proposed rules governing hydraulic
fracturing, and may issue a final rule yet
this year.
The EPA is poised to issue a draft
report of its study analyzing the effects
of hydraulic fracturing on drinking water
sometime this year. Congress commissioned the report in 2010, and EPA last
issued a progress report in 2012. The results of the report potentially could spur
further regulatory activity at both the federal and state levels.
States, likewise, will continue developing regulations for the oil and gas industry, especially as shale development
continues to spread to new geographic
areas. For example, Michigan's Department of Environmental Quality has announced new rules for hydraulic fracturing
that add protections for water resources
and require additional chemical data submissions from drilling companies (see
story page 16).
Shale-related issues will continue to
percolate in the courts as well. In Ohio,
the Supreme Court is expected to issue
its long-awaited decision on home rule
protection for local zoning regulations.
And a federal district court has certified
two questions of law to the Ohio Supreme
Court regarding Ohio's Dormant Minerals
Act:
* Whether the recorded lease of severed subsurface mineral rights constitutes
a "title transaction;" and

174 THE AMERICAN OIL & GAS REPORTER

* Whether the expiration of such a
lease and the reversion of rights granted
under the lease restarts the 20-year forfeiture clock.
Finally, an Ohio appellate court likely
will decide the fate of the trial court's
decision in Hupp v. Beck Energy Corp.,
which held that the oil and gas leases
were perpetual, which violated Ohio's
public policy, and thus were void. A
similar case, Oxford Oil Co. v. West, et
al., is pending in another appellate district.
Water is likely to be another hotbutton issue this year, particularly in
Western states where water can be scarce.
For example, Texas is in the midst of
a near-record draught cycle, potentially
limiting the supply of water as drilling
expands in the Eagle Ford and Permian
Basin shale formations. Chesapeake Energy has estimated a hydraulic fracturing
well can require as much as 5 million
gallons of water, and a 2013 report by
Ceres showed that of the 25,450 wells
surveyed, almost half were in areas facing
high or extremely high water stress.
Water scarcity already has forced many
companies to pay high premiums to guarantee water use, outbidding commercial
users in other industries such as agriculture.
❒

MARTY T. BOOHER serves as coleader of BakerHostetler's national
Shale team. He practices within the
oil and gas, renewable and clean energy, utilities, power, and pipeline industries. Booher has significant experience representing and advising
clients on complex compliance, transactions, financing, remediation, and
project development matters throughout
the United States and Latin America.
W. RAY WHITMAN is the other coleader of BakerHostetler's national
shale team. He is an experienced trial
lawyer and counselor who draws on
his background as a geophysicist experienced in oil and gas exploration,
seismic acquisition, and drilling and
production practices. Whitman provides
strategic business advice for some of
the largest energy and oil field service
companies in the world.
DANIEL M. KAVOURAS is an associate with BakerHostetler. In addition
to a litigation practice, he is an active
contributor to the firm's North American shale blog.

American Oil and Gas Reporter - June 2014

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