Pooling statute cannot retroactively negate consent provision
Blog Post
On Aug. 13, Ohio’s 7th District Court of Appeals rendered a decision that provides some needed clarity to a narrow subset of oil and gas leases. In American Energy – Utica, LLC, et al v. Ronald L. Fuller (2018 WL 3868119), the court addressed whether, in the absence of the lessor’s express consent, Ohio’s forced pooling statute (R.C. 1509.28) may be applied to leased acreage where the lease provides that the lessor’s consent to such pooling is required and the lease predates R.C. 1509.28.
In relevant part, the facts under the court’s consideration were as follows:
Ronald Fuller leased 94.5 acres to D.B. Shaffer & Associates in 1981. The Fuller Lease contains the provision “UNITIZATION BY WRITTEN AGREEMENT ONLY!” and is currently held by production. Ascent Resources – Utica, LLC, or ARU, is the successor in interest to the deep rights under the Fuller Lease and was unable to reach an agreement with Ronald Fuller upon requesting that Fuller execute an amendment to the Fuller Lease allowing ARU to pool Fuller’s lands into a larger drilling unit. ARU pursued forced pooling under R.C. 1509.28, and Fuller objected (the parties were already involved in litigation, and Fuller’s objection was included as a counterclaim.)
The trial court found, in favor of ARU, that R.C. 1509.28 permits the forced pooling of the lease as it would in most other situations. The Seventh District Court of Appeals, however, focused on the “by written agreement only” provision and the Ohio Constitution’s prohibition of “retroactive laws, or laws impairing the obligation of contracts” (Article II, Section 28). The court reasoned that, because R.C. 1509.28 was enacted after the execution of the lease, that statute cannot be used to retroactively circumvent otherwise valid provisions of the contract because doing so would constitute the impairment of the obligation of a contract and thus violate the Ohio Constitution. Therefore, ARU would breach the lease by pooling without the consent of Mr. Fuller.
While provisions requiring the Lessor’s express consent before pooling can take place are not standard, parties to a lease, their landmen and attorneys should be careful to recognize these provisions and exercise caution in their pooling procedures.
In relevant part, the facts under the court’s consideration were as follows:
Ronald Fuller leased 94.5 acres to D.B. Shaffer & Associates in 1981. The Fuller Lease contains the provision “UNITIZATION BY WRITTEN AGREEMENT ONLY!” and is currently held by production. Ascent Resources – Utica, LLC, or ARU, is the successor in interest to the deep rights under the Fuller Lease and was unable to reach an agreement with Ronald Fuller upon requesting that Fuller execute an amendment to the Fuller Lease allowing ARU to pool Fuller’s lands into a larger drilling unit. ARU pursued forced pooling under R.C. 1509.28, and Fuller objected (the parties were already involved in litigation, and Fuller’s objection was included as a counterclaim.)
The trial court found, in favor of ARU, that R.C. 1509.28 permits the forced pooling of the lease as it would in most other situations. The Seventh District Court of Appeals, however, focused on the “by written agreement only” provision and the Ohio Constitution’s prohibition of “retroactive laws, or laws impairing the obligation of contracts” (Article II, Section 28). The court reasoned that, because R.C. 1509.28 was enacted after the execution of the lease, that statute cannot be used to retroactively circumvent otherwise valid provisions of the contract because doing so would constitute the impairment of the obligation of a contract and thus violate the Ohio Constitution. Therefore, ARU would breach the lease by pooling without the consent of Mr. Fuller.
While provisions requiring the Lessor’s express consent before pooling can take place are not standard, parties to a lease, their landmen and attorneys should be careful to recognize these provisions and exercise caution in their pooling procedures.