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Ohio Court of Appeals Addresses Interplay of Oil and Gas Lease and Statutory Unitization Order

By Ilya Batikov

On June 19, 2019, Ohio’s Seventh District Court of Appeals decided a case involving the interplay of a private oil and gas lease and Ohio’s statutory unitization law.  See Paczewski v. Antero Resources Corp., 18 MO 0016.  When signing an oil and gas lease, the original contracting parties struck a voluntary unitization clause.  Unable to secure to an amendment that would have given the producer/successor lessee the contractual authority to form the horizontal drilling unit, the producer applied to Ohio’s Division of Oil and Gas Resources Management for a statutory unitization order.  The successor lessors sued, claiming that the producer breached the lease by applying for the unitization order, and that the resulting order effected an unconstitutional taking of property rights.

The trial court dismissed the complaint and the court of appeals affirmed.  The appellate court held that striking the voluntary unitization clause from the lease rendered the lease silent.  And the “deletion does not prohibit the parties from engaging in the action that is the subject of the voided clause.”  The court also rejected the lessors’ takings claim, noting that consistent with Ohio law and decisions from other producing states, Ohio’s statutory unitization process protects correlative property rights in oil and gas—rather than taking such rights away—and serves as a proper exercise of the state’s police power.

Read the decision here.

[Disclosure: Vorys represented Antero Resources Corp. in this case].

Tags: Unitization, Ohio, Oil and Gas, Energy

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