Stewart Title Guaranty Company 2012 Fall Seminar Ohio Mineral Rights Update Presented on November 12, 2012 Columbus, Ohio 141 E. Town Street Suite 200 Columbus, Ohio 43215 (614) 228-6888 Fax (614)228-6878 Cell (614) 496-3500 jhavens@havenslimited.com www.havenslimited.com
Ohio Oil and Gas Industry Overview • Number of Wells Drilled: 1. Texas. 2. Oklahoma. • First oil well in 1860; Gas discovered in 1880’s • Regulations for permits and drilling: • Ohio Department of Natural Resources. • Ohio Division of Oil and Gas Resources Management. • Updated by SB 315 (signed 6/12).
Natural Gas • Market: – U.S. = 87% from domestic sources. – Ohio = almost all from Ohio. • Characteristics – Mostly methane (65% - 95%). – “Wet Gas” (ethane, propane, butane). • “Natural Gas Liquids” (NGL’s). • More closely track oil prices.
Shale • Geology of Shale rocks. – Dead plants and animals + pressure + time. – Small pores. – Dense/low permeability (sidewalk cement). • Drilling Methods. – Conventional “Play” • Tap into traditional reservoir of sandstone/limestone. – Unconventional “Play” • Tap into deeper source rock, like Shale. • Also “tight sands” and coal bed methane
Shale Drilling • Key: Horizontal Drilling + Fracking • Horizontal Drilling. – Traditional vertical well until kick off point. – Horizontal leg can be 4,000 – 8,000 feet. • = like drilling two wells – More costly = need greater return – Bigger “pay zone” than vertical – Less surface impact (6 replaces 30).
Shale Drilling (Cont…) • “Fracking”/ “fracing” – Slang for hydraulic (water) fracturing. – Use water/sand to break up the shale. • Horizontal + Fracking – 3-10 times more expensive. – 20 times more productive.
Shale “Plays” in Ohio: Marcellus • Area: 95,000 square miles over 9 states. – KY, MD, NJ, NY, OH, PA, TN, VA, WV. • Depth: 4,000 – 9,000 feet. • Most drilling in Pennsylvania.
Shale “Plays” in OH: Marcellus (Cont…) Southeast Counties: • – Belmont – Carroll – Columbiana – Guernsey – Harrison – Jefferson – Mahoning – Monroe – Noble – Washington Shallower in OH (3,000 – 4,000 feet) but thinner than in NY/PA. •
Shale “Plays” in OH: Marcellus (Cont…) • Permits: 2010 (4); 2011 (5); 2012 (3) • Permits: – Monroe = 7 – Belmont =6 • Status of Wells Drilled = 5 – Producing = 5 – *As of 10/22/12 (Source: ODNR)
Shale “Plays” in OH: Utica • Area: 170,000 square miles over 8 States. – NY, KY, MD, OH, PA, TN, WV, VA (no NJ). – Almost double the size of Marcellus. • Depth: 2,000 – 7,000 feet below Marcellus. – Older = deeper
Shale “Plays” in OH: Utica (Cont…) • Why Ohio? • Shallower than other states = less costly – 6,000 – 9,000 feet. • Closer to Marcellus = more efficient – 3,000 vs. 7,000 feet. • More NGL’s than Marcellus and other States – Natural gas prices down (irony). – This is why BP bought 80k acres in Trumbull.
Shale “Plays” in OH: Utica (Cont…) Permits: 2009 (1); 2010 (2); 2011 (147); 2012 (330) • Permits: (Action in the overlap) • – Columbiana = 58 (21 drilled; 1 producing) – Harrison = 51 (6 drilled; 2 producing) – Jefferson = 31 (18 drilled; 1 producing) – Monroe = 18 (1 drilled; 1 producing) – Mahoning = 14 (1 drilled) – Portage = 14 (2 drilled; 1 producing) – Stark = 13 (4 drilled; 2 producing) – Noble = 13 (5 drilled; 2 producing) – Guernsey = 24 (4 drilled; 2 producing) – Belmont = 11 (3 drilled) *As of 10/22/12 (Source: ODNR)
Shale “Plays” in OH: Utica (Cont…) • Who is/was Buying? – Chesapeake Exploration LLC. – Spent 2 billion for 5% of Ohio’s land mass. – Trying to sell off parts of its 1.3 million acres. • Status of Wells: Drilled = 75 – Producing = 33 (22 in Carroll). – – 2011: 9 producing wells (6 in Carroll). – Buell well in Harrison = 2% of Ohio gas production. *As of 10/22/12 (Source: ODNR)
Utica Impact • Economic Taxes (Kasich proposal) • Investment by Energy, Manufacturing (Steel), Chemical • Jobs • Local budgets for fire/police • Income (royalties) • Government too • • Litigation • Environmental – Proposed moratorium until EPA study done – Groundwater – Earthquakes
It’s Political Our experience with shale gas shows us that the payoffs on these public investments don’t always come right away. Some technologies don’t pan out; some companies fail. But I will not walk away from the promise of clean energy. The development of natural gas will create jobs and power trucks and factories that are cleaner and cheaper, proving that we don’t have to choose between our environment and our economy. We have a supply of natural gas that can last American nearly one hundred years, and my Administration will take every possible action to safely develop this energy. Experts believe this will support more than 600,000 jobs by the end of the decade. And I’m requiring all companies that drill for gas on public lands to disclose the chemicals they use. America will develop this resource without putting the health and safety of our citizens at risk.
It’s Political You cannot degrade the environment at the same time you’re producing this industry. It is not acceptable. . . . . But we cannot let our fears outweigh the potential. . . . . Billions of dollars worth of investment in this state— that’s all good, as well. And we have much work to do. -Gov. Kasich: State of the State
Oil and Gas Leases Signing bonus. • – $2,000 - $6,000/acre. Royalties. • – Production: usually 12.5% (1/8) to 20%. – Delay. – Shut-in (royalty or rental). Term • – Primary (2-5 years). – Secondary (“producing” “paying quantities”). Pooling/Minimum Acreage. •
Title Defects • Generally – Conveyance (deed; reserve; lease) • Minerals separate property right (royalty too) • Default rule: move with the surface rights • Current Issues – Reservations = need to read the docs. – Creates separate chain. – Handwriting and personalized language.
Title Defects: Cures Dormant Mineral Act (RC 5301.56) Background: Marketable Title Act (RC 5301.47-.56) Does not apply to: Coal Public bodies Rights “abandoned” and “vest” in surface owner if chain silent for 20 years Chain not “silent” if: Part of a recoded “title transaction” Actual production/withdrawal Used in underground gas storage A drilling or mining permit has been issued A preservation notice has been filed A separate tax number has been created
Title Defects: Cures (Cont…) Dormant Mineral Act (Cont…) The procedure/contents of a preservation notice are laid out in Subsection C. The abandonment procedure has two steps: 1. Service notice by certified mail to the last known address of the holder (or their successors/assignees). If service can’t be made this way, publication is used. The required contents are described in Subsection F. 2. File an affidavit with the recorder between 30 and 60 days after the notice is given. The required contents are described in Subsection G. In response to the notice, if the holder (or their successors/assignees) claims their interest, then it has 60 days to file certain things with the recorder under Subsection H(1). If not, the surface owner can have the recorder memorialize the abandonment in the chain of title under Subsection H(2). It is this filing that creates the abandonment.
Title Defects: Cures (Cont…) Superpriority (R.C. 1509.31(D)) (effective 6/30/10) • – Preserves oil and gas leases (etc) from being extinguished in a foreclosure – Only if recorded after the mortgage Potential new exceptions for Schedule B: • – “Oil and Gas leases, pipeline agreements, or any other instruments related to the production or sale of oil or natural gas which may arise subsequent to the Date of Policy.” – “Coal, oil, natural gas, or other mineral interests and all rights incident thereto now or previously conveyed, transferred, leased, excepted or reserved.”
Title Defects: Cures (Cont…) • Lease “Expiration” (on its own terms) – EX. No production in “paying quantities” • OSBA Standards of Title Examination (section 4.4) – Problem A: Should an oil, gas or coal lease be shown when satisfactory evidence is furnished that rentals are in default and that minerals are not being produced? – Standard A: No, provided further that the primary term of the lease has expired.
Recommend
More recommend
