A common misunderstanding of Ohio oil and gas law is that it allows oil and gas operators to spread drilling fluid on Ohio roads.

The Ohio Revised Code authorizes local governments to spread “brine” produced from oil and gas wells on roads.  Ohio law does not allow drilling fluid (aka “frac” or “frack” fluid) to be spread on roads under any circumstances and does not even allow brine to be spread without authorization from a local government.

Brine ≠ Frack Fluid

The distinction between brine and drilling fluid in the oil and gas industry is critical, even if those terms are sometimes used interchangeably by the public.

The Ohio Revised Code defines brine as “all saline geological formation water resulting from, obtained from, or produced in connection with exploration, drilling, well stimulation, or production of oil or gas, or plugging of a well.”  ORC §1509.01(U).

In layman terms, brine is a naturally occurring liquid that flows from deep in the earth when an oil and gas well is drilled.  It is essentially very salty water that may also contain some dissolved minerals and other elements.  Brine is not the carefully engineered drilling fluid that oil and gas companies use to drill and hydraulically fracture oil and gas wells.

Inconsistencies and ambiguities in the Ohio Dormant Minerals Act, Ohio Revised Code § 5301.56 (the “ODMA”), set the stage for legal battles that are just beginning.  Oil and gas operators may get caught in the crossfire.

Operators need to be aware of at least one glaring inconsistency in the current version[1] of the ODMA that sometimes makes it difficult to determine who owns a mineral interest that has been severed from the surface estate.  This inconsistency could render a lease meaningless, and make a lessee a trespasser, if the lease is not signed by the right party. 

In Eastern Ohio, before 2010, a customary signing bonus for an oil and gas lease was usually less than $25 per acre, as it had been for years.  By the fall of 2011, after the shale boom hit, lease bonus prices had risen in leaps and bounds to their peak (so far) of about $6,000 per acre before pulling back significantly in the spring of 2012.

Naturally, everyone who did not have the foresight or nerve to hold out for $6,000 per acre was left feeling more than a little miffed.  After all, a typical bonus check on a 100 acre parcel in 2009 or early 2010 would have been $2,500 but that bonus may have swelled to $600,000 in less than two years!

Courts Do Not Decide What is “Enough”

Fortunately for our economy and legal system, a party to a contract cannot later adjust the contract price when they finally realize the value of a transaction.  In fact, it is the imbalance of information, risk tolerance, and vision among different people that is the driving force of business in the United States.

But even reasonable lessors were overwhelmed by the incredible disparity between lease bonuses paid during the shale boom.  That disparity, combined with the belief that the oil and gas companies have bottomless bank accounts, spawned lawsuits by lessors to try to break leases with the hope of signing for more.

Of course, breaking contracts requires more than just a lot of hard feelings about not getting paid enough.  “It is axiomatic that courts, as a general rule, will not inquire into the adequacy of consideration once consideration is said to exist.” Rogers v. Runfola & Assoc. Inc. (1991), 57 Ohio St.3d 5, 7.  In other words, as long as some valuable consideration was paid for a lease, the amount of that consideration is not relevant to the validity of the lease.

Read on to see how Oil and Gas Leases are Different

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