Recent Posts

Lisa Loychik
Written by
about Taxes
on September 17, 2014

Tax Treatment of Right-of-Way Payments for Shale Leases

Over the last few years many landowners have begun receiving cash bonus payments for land leases related to the Marcellus and Utica Shale boom. In our work with clients in the Marcellus and Utica Shale regions, we have seen a recent uptick in landowners receiving offers to sign “pipeline right-of-way” agreements, as the need for pipelines has escalated due to the increasing maturity of the industry.

The payment for this right-of-way is considered an easement. The tax treatment of easements may result in income, a reduction in basis of all or part of the land, or both. The amount a landowner receives for granting an easement is generally considered to be a sale of an interest in real property.…

Nils Peter Johnson
Written by
about Drilling and Producing + Leases
on June 11, 2014

Free Gas Issues

Many oil and gas leases provide the lessor with free gas.  This provision was fairly common in older leases, but has disappeared to a large extent for newer leases tailored to shale gas wells.  Here is a list of frequently asked questions and concerns about landowners exercising their right to free gas under an oil and gas lease:

Who is entitled to free gas?

You may be entitled to free gas if the oil and gas lease affecting your land contains a free gas clause, and if no other houses already use it.  Read your lease carefully, and look for free gas language. …

Molly Phillips
Written by
about Ownership and Transfers + Pipelines
on May 27, 2014

Eminent Domain, Condemnation, Appropriation and Takings: A Company Is Cramming a Pipeline that I Don’t Want Down my Throat

The above terms are frequently misused by both landowners and industry insiders. While their specific meanings are often misunderstood, the situation presented is usually as follows: “a pipeline company is trying to force me to have a pipeline that I don’t want.”

This issue is generally covered by the umbrella term of “eminent domain.” Eminent domain is the government’s power to take your property. The government derives their ability to take your property from the Fifth Amendment to the United States Constitution, “nor shall private property be taken for public use, without just compensation.” In lay terms this means that if the government pays you appropriately, they may take your property for public use.

Fracking Bans and Eminent Domain

As shale drilling increases across the country, fracking bans do, too.  In New York, for example, more than 50 municipalities have issued moratoriums or even outright bans on fracking.  Many Ohio municipalities have followed suit.  A lawsuit addressing this issue is currently pending before the Ohio Supreme Court: Munroe Falls vs. Beck Energy.

Are municipal fracking bans legal?

This question is still being settled by Ohio courts.  We all know that municipalities are empowered to issue and enforce zoning laws that restrict the use of one’s property.  But does the power to zone also permit them to ban an industrial process like fracking? …

Eric Johnson
Written by
about Drilling and Producing
on March 17, 2014

Forced Pooling – Trends, Benefits and Detriments

Recently I wrote about Ohio’s mechanisms for forcing unleased mineral owners into a drilling unit.  Oil and gas producers have increasingly started to rely on these mechanisms to drill  horizontal wells to the Utica / Point Pleasant shale formation in eastern Ohio.  These same laws require transparency for these procedures, and as part of a public records request, I obtained several recent orders approving the forced unitization of unleased mineral owners in various parts of Ohio.   I was hoping that I could gain some insight on the issue of whether a landowner is better off signing a proposed lease or being forced into a drilling unit under the applicable statute. …

Eric Johnson
Written by
about Drilling and Producing + Leases + Royalties
on December 13, 2013

Forced Pooling – Overview

Before drilling an oil and gas well in the state of Ohio, a driller must first apply for a permit from the Ohio Department of Natural Resources (ODNR).  Part of the driller’s permit application includes a map indicating the leased lands the driller wants to include in the drilling unit.  Several considerations dictate the size this drilling unit can be.  The underlying oil and gas lease, for example, might specify a maximum unit size.  Ohio law also speaks to minimum well unit sizes. Generally speaking, the deeper the well, the larger the unit size must be.   A vertical well drilled deeper than 4,000 feet requires 40 acres of unitized land. …

Eric Johnson
Written by
about Geology + Leases
on November 26, 2013

Implied Covenant to Reasonably Develop – Geologic Formations

In a previous post I wrote about certain terms that are implied in all mineral leases: the covenant to reasonably develop.  In that article I described how a judge might cancel a certain area of an oil and gas lease if the producer hadn’t reasonably developed all of it.

This same idea can be applied to unused geological formations.  Let’s assume an energy company (the “lessee”) takes a lease for a 200 acre farm.  Let’s also assume that the lessee successfully drills five 40-acre wells on the acreage thirty years ago.  These five wells are all relatively shallow, and seek to produce oil and gas from the Clinton Sandstone geological formation. …

Eric Johnson
Written by
about Leases
on November 25, 2013

Implied Covenant to Reasonably Develop – Acreage

Many of my clients come to me hoping that I can help break their oil and gas lease.  As a general proposition, oil and gas leases are hard to terminate.  Given that they are drafted by oil and gas companies, it should not be surprising that they often favor the oil and gas companies themselves.  Every landowner’s situation will be different, but as long as the lessee to the oil and gas lease (the producer) pays a royalty to the lessor (the landowner), the lease is nearly bullet-proof.

However, there might be other ways to terminate an oil and gas lease even if the lessee is paying a royalty to the landowner. …