mineral rights‐real property disputes · a. c.marcellus i. general ii. ohio b. utica i. general...
TRANSCRIPT
MineralRights‐RealPropertyDisputes
PresentedinCincinnati,ColumbusandClevelandforNorthAmericanTitleInsuranceCompany
February7th,8th,and10th
141E.TownStreetSuite200Columbus,Ohio43215(614)228‐6888Fax(614)228‐6878Cell(614)496‐[email protected]
Oil‐GasMineralRightsPropertyDisputes
• Ohio Overview I. History of Mineral Industry II. Current Statistics III. Regulatory Framework
• Natural Gas I. Current Statistics II. Geology of Natural Gas/Shale III. Drilling
A. What is Horizontal Drilling? B. What is Fracking?
IV. Shale “Plays in Ohio A. Marcellus
I. General II. Ohio
B. Utica I. General II. Ohio
• Ohio Investment/Economic Impact/Politics I. Big Business II. Taxes and Jobs III. Environmental Issues
• Oil and Gas Lease Terms I. Key Provisions II. Legal Issues III. Environmental Issues
• Title Defects I. Ohio Law II. Current Issues III. Potential Cures IV. Endorsement Changes
• Valuation I. Coverage
A. Title Policy Terms B. Underwriter Options
II. Who Determines A. Rule 702 B. MAI-OH Licensed Appraiser-Realtor
III. Appraisal Methodology A. Highest-Best Use B. Cost C. Income Capitalization D. Sales Comparison
IV. Geological Considerations A. Close up of Plat Map Showing Location of Tract
in question B. Well Location Map. Tract in Question Located
Here C. Plat Map of Gilead Township,
Morrow County, Ohio D. Cross Section Map showing Erosion al Remnants
along Knox Unconformity in Ohio. E. The Oil Production for the Wells Located in the
Yellow Circle range form 40,000 BO to 70,000 BO. The dry holes that were drilled along the green oval trend contained > 40 feet of Glenwood Shale. Tract in Question is red circle.
F. Old Shot Point Base Map Shows Location of Seismic and Possible Oil Well located on the Tract in Question.
OhioOilandGasIndustryOverview
• History/Statistics
• TotalMarketValue:$718,089,496(roughlyevenlysplit)– Non‐fuel:another1.27billion
• NumberofWellsDrilled:LeadingStates 1. Texas.Nosurprisehere. 2. Oklahoma.Makessense. 3. Pennsylvania.O.K. 4. Ohio.Yep.274,733welldrilled.
• Regulations
NaturalGas
• Characteristics
– “WetGas”(ethane,methane,propane,butane)
• Geology
– “Conventional”Play
Shale
• Geology
• Domestic“Plays”– Haynesville(TX/LA)– Barnett(TX)– Fayetteville(AR)– MarcellusandUtica(OH/PA)
ShaleDrilling
• HorizontalDrilling
• “Fracking”
ShaleDrilling(Cont…)
• EconomicsofShaleDrilling
– GreaterCost/ReturnfromTechnology
• WhyOhio?– Shallowdepthofformations
– NGL’s
Shale“Plays”inOhio:Marcellus
• Area:95,000squaremiles(estimated)– KY,MD,NJ,NY,OH,PA,TN,VA,WV
• Depth:4,000–9,000feet
• MostdrillinginPennsylvania
Shale“Plays”inOH:Marcellus(Cont…)
• SoutheastCounties:
– Belmont– Carroll– Columbiana– Guernsey– Harrison– Jefferson– Mahoning– Monroe– Noble– Washington
• ShallowerinOH(3,000–4,000feet)butthinner
Shale“Plays”inOH:Marcellus(Cont…)
• Permits:2010(5);2011(11)
• Permits:– Monroe=8– Belmont=6
• StatusofWells:– Drilling=1– Drilled=5– Producing=3
Shale“Plays”inOH:Utica
• Area:170,000squaremiles(estimated)– NY,KY,MD,OH,PA,TN,WV,VA(noNJ)
• Depth:2,000–7,000feetbelowMarcellus
• GeographicallymoreexpansiveandthickerthanMarcellus
Shale“Plays”inOH:Utica(Cont…)
• ShallowerinOH(6,000–9,000feet)
• ClosertoMarcellus(3,000vs.7,000feet)
• MoreNGL’sandOilthanMarcellus
Shale“Plays”inOH:Utica(Cont…)
• Permits:2009(1);2010(2);2011(147)
• Permits:(Actionintheoverlap)– Carroll=47– Jefferson=21– Columbiana=17– Mahoning=13– Noble=12– Guernsey=10
Shale“Plays”inOH:Utica(Cont…)
• WhoisBuying?– ChesapeakeExplorationLLC=112
• 2477filingsinCarrollsince11/2010– AnadarkoE&PCo.LP=18
• StatusofWells:– Drilling=26– Drilled=31– Producing=4
UticaImpact
• Economic• Revenue/Taxes/Investment
– ChesapeakeandHessCorpover1bil.each– 34billion(estimated)
• Jobs(whereneededmost)(204,000estimated)• State/Countiesaslessors?
• Environmental/Political– ProposedmoratoriumuntilEPAstudydone– Groundwater/Earthquakes
OilandGasLeases• Signingbonus
– Recent:$2,000‐$4,000/acre
• Royalties– Production:usually12.5%(1/8)– Delay– Shut‐in(royaltyorrental)
• Term– Primary– Secondary(“producing”“payingquantities”)
• Pooling/MinimumAcreage
TitleDefects
• OhioLaw– Conveyance(deed;reserve;lease)
• Mineralsseparatepropertyright(royaltytoo)• Defaultrule:movewiththesurfacerights
– Execution/Recording/Assignments• RC5301.01;5301.09;1509.31
– Whatdoes“minerals”mean?
• CurrentIssues– Reservation(separatechain)=needtoreadthedocs– Mechanics’liens(RC1311.021)– UCCliens(RC1309)
TitleDefects:CuresDormantMineralAct(RC5301.56)
Background:MarketableTitleAct(RC5301.47‐.56)
Doesnotapplyto: Coal Publicbodies
Rights“abandoned”and“vest”insurfaceownerifchainsilentfor20years
Chainnot“silent”if: Partofarecoded“titletransaction” Actualproduction/withdrawal Usedinundergroundgasstorage Adrillingorminingpermithasbeenissued Apreservationnoticehasbeenfiled Aseparatetaxnumberhasbeencreated
TitleDefects:Cures(Cont…)DormantMineralAct(Cont…)
Theprocedure/contentsofapreservationnoticearelaidoutinSubsectionC.
Theabandonmentprocedurehastwosteps:
1. Servicenoticebycertifiedmailtothelastknownaddressoftheholder(ortheirsuccessors/assignees).Ifservicecan’tbemadethisway,publicationisused.TherequiredcontentsaredescribedinSubsectionF.
2. Fileanaffidavitwiththerecorderbetween30and60daysafterthenoticeisgiven.TherequiredcontentsaredescribedinSubsectionG.
Inresponsetothenotice,iftheholder(ortheirsuccessors/assignees)claimstheirinterest,thenithas60daystofilecertainthingswiththerecorderunderSubsectionH(1).Ifnot,thesurfaceownercanhavetherecordermemorializetheabandonmentinthechainoftitleunderSubsectionH(2).Itisthisfilingthatcreatestheabandonment.
TitleDefects:Cures(Cont…)LeaseForfeiture(RC5309.332)(breach)
When: Noproducingordrilling Lesseebreachedcovenantsinleaseorexpired
Servicenoticebycertifiedmailtothelastknownaddressofthelessee(ortheirsuccessors/assignees).Ifservicecan’tbemadethisway,publicationisused.Therequiredcontentsaredescribed.
Fileanaffidavitwiththerecorderbetween30and60daysafterthenoticeisgiven.Therequiredcontentsaredescribed.
Inresponsetothenotice,iftheholder(ortheirsuccessors/assignees)claimstheirinterest,thenithas60daystofilecertainthingswiththerecorder.Ifnot,thesurfaceownercanhavetherecordermemorializetheforfeitureontheleaseitself.Itisthisfilingthatcreatestheforfeiture.
TitleDefects:Cures(Cont…)
• Lease“Expiration”(onitsownterms)– EX.Noproductionin“payingquantities”
• OSBAStandardsofTitleExamination(section4.4)
– ProblemA:Shouldanoil,gasorcoalleasebeshownwhensatisfactoryevidenceisfurnishedthatrentalsareindefaultandthatmineralsarenotbeingproduced?
– StandardA:No,providedfurtherthattheprimarytermoftheleasehasexpired.
TitleDefects:Cures(Cont…)• Superpriority(R.C.1509.31(D))(effective6/30/10)
– Preservesoilandgasleases(etc)frombeingextinguishedinaforeclosure
– Onlyifrecordedafterthemortgage
• NewexceptionforScheduleBinloanpolicies: “OilandGasleases,pipelineagreements,oranyotherinstruments
relatedtotheproductionorsaleofoilornaturalgaswhichmayarisesubsequenttotheDateofPolicy.”
AdditionalResources
• OhioDepartmentofNaturalResources:DivisionofMineralResourcesManagement
• OhioStateUniversity:TheSubsurfaceEnergyResourceCenter
• Geology.com
• TheOhioEnvironmentalProtectionAgency
• TheOhioOilandGasAssociation
• OhioOilandGasEnergyEducationProgram
• U.S.DepartmentofEnergy/EnergyInformationAgency
• U.S.GeologicalSurvey
SUBJECTTOTHEEXCLUSIONSFROMCOVERAGE,THEEXCEPTIONSFROMCOVERAGECONTAINEDINSCHEDULEB,ANDTHECONDITIONS,NORTHAMERICANTITLEINSURANCECOMPANY,aCaliforniacorporation(the"Company"),insures,asaDateofPolicyand,totheextentstatedinCoveredRisks9and10,afterDateofPolicy,againstlossordamage,notexceedingtheAmountofInsurance,sustainedorincurredbytheInsuredbyreasonof:
1.…………..2.AnydefectinorlienorencumbranceontheTitle………..
Underwriter’sfouroptions
5.DEFENSEANDPROSECUTIONOFACTIONS• Litigateorlegalacttoresolve.7. OPTIONSTOPAYOROTHERWISESETTLECLAIMS;TERMINATIONOFLIABILITY
• Paypolicylimittoinsured.
• Payfairmarketvalueoflosstoinsured.• Paymoneydirectto3rdpartytoresolve.
Whoisqualifiedtocalculateorcomputetheamountofloss?
• EvidR702Testimonybyexperts
• Awitnessmaytestifyasanexpertifallofthefollowingapply:• Thewitness'testimonyeitherrelatestomattersbeyondtheknowledgeorexperiencepossessedbylay
personsordispelsamisconceptioncommonamonglaypersons;
• Thewitnessisqualifiedasanexpertbyspecializedknowledge,skill,experience,training,oreducationregardingthesubjectmatterofthetestimony;
• Thewitness'testimonyisbasedonreliablescientific,technical,orotherspecializedinformation.Totheextentthatthetestimonyreportstheresultofaprocedure,test,orexperiment,thetestimonyisreliableonlyifallofthefollowingapply:
• Thetheoryuponwhichtheprocedure,test,orexperimentisbasedisobjectively• verifiableorisvalidlyderivedfromwidelyacceptedknowledge,facts,orprinciples;• Thedesignoftheprocedure,test,orexperimentreliablyimplementsthetheory;
• Theparticularprocedure,test,orexperimentwasconductedinawaythatwillyieldanaccurateresult
HowManyMAIsareinOhioandhowmanyLicensed
AppraisersareinOhio?• TheAppraisalInstituteoffers3differenttypesofdesignations(i.e.MAI,SRPA,andSRA).Youareableto
getalistofprofessionalsinOhiowithanyofthese3designationsfromtheAIwebsite.Iprintedoffall3listswithadescriptionofthedesignation(seeattachedfolder).Tosummarize,inOhio,thereare:
• 137MAIs;
• 16SRPAs;• 157SRAs• Ohiooffers3typesofappraiserlicenses/certifications(i.e.“State‐certifiedgeneralrealestateappraiser,”
“State‐certifiedresidentialrealestateappraiser,”and“State‐licensedresidentialrealestateappraiser”).ThesearedefinedinR.C.4763.1(K,L,M)(Seeattachedfolder).Thereisawebsitecalled“OhioDepartmentofCommerceOnlineLicensingwebsite.”Thiswebsitehasacomprehensivelistingofalllicensedrealestateprofessionalsinthestate,includingappraisers.YoucandownloadanExcelSpreadsheetandsortthroughprofessionalsbydesignation,activestatus,etc(note:Ihaveasavedspreadsheetonmydesktopbutdidn’tprintitbecauseitwastoolong).Doingthis,Imadethefollowingfindings:
• Thereareapproximately738Active“State‐certifiedgeneralrealestateappraisers”inOhio(includesthosewithtemporaryandreciprocallicenses)
• Thereareapproximately1241Active“State‐certifiedresidentialrealestateappraisers”inOhio(includesreciprocallicenses)
• Thereareapproximately790Active“State‐licensedresidentialrealestateappraisers”inOhio(includesreciprocallicenses)
• OrCombingthethreetypes,thereareatotalof2769AppraiserProfessionalsbasedonthisdatabase
AppraisalMethodology
Highestandbestuseisdefinedas:
1.Thelegalpermissibilityoftheintendedimprovements.2.ThePhysicaladaptabilityofthesite.
3.Theeconomicfeasibilityoftheintendedimprovements.4.Theeconomicprofitabilityoftheintendedimprovementsin
termsoftheircapabilitytogeneratethegreatestamountofnetincometothesite.
AppraisalInstitute,TheAppraisalofRealEstate,ThirteenthEdition(AppraisalInstitute,550WestVanBuren,Chicago,Illinois60607,2008)277.
ValuationProcedure
• Threegenerallyacceptedtechniquesavailableforestimatingthevalueofrealestate.
1. CostApproach‐estimatingthereproductionorreplacementcostnew.
2. IncomeCapitalizationApproach‐Measurevaluebyestimatingthepresentworthofanyanticipatedfutureincomestreamtobegeneratedbyaproperty.Oneyear’sincomeexpectancycanbecapitalizedatamarketderivedcapitalizationratethatreflectsaspecifiedincomepattern,returnoninvestment,andchangeinthevalueoftheinvestment.
3. SalesComparisonApproach‐Salesofsimilarpropertiesareresearchedandadjustedbasedupontheircomparabilitytothesubjectproperty.
AssetValuation
Return(Howmuchinterestisexpectedfor
anassetrisk?)
Capitalization
(Howmuchwouldyoupayforastreamofpayments?)
ExhibitA.PlatMapofGileadTownship,MorrowCounty,Ohio
ExhibitB.CloseupofPlatMapShowingLocationofTractinquestion
ExhibitC.WellLocationMap.TractinQuestionLocatedHere
ExhibitD.CrossSectionMapshowingErosionalRemnantsalongKnoxUnconformityinOhio
ExhibitE.TheOilProductionfortheWellsLocatedintheYellowCirclerangeform40,000BOto70,000BO.Thedryholesthatweredrilledalongthegreenovaltrend
contained>40feetofGlenwoodShale.TractinQuestionisredcircle.
ExhibitF.OldShotPointBaseMapShowsLocationofSeismicandPossibleOilWelllocatedontheTractinQuestion
ContactUs
HavensLimited141EastTownStreet,Suite200
Columbus,OH43215
(614)228‐6888
JimHavens
AdamSchwartz