In the Supreme Court of Ohio

STATE OF OHIO ex rel.KEITH J. KERNS, et al.,

:::

Relators, : Case No. 2016-1011:

v. : Original Action in Mandamus:

RICHARD J. SIMMERS, et al., ::

Respondents. :

BRIEF OF AMICI CURIAE THE OHIO OIL AND GAS ASSOCIATION,ARTEX ENERGY GROUP LLC, ASCENT RESOURCES – UTICA, LLC, CARRIZO

(UTICA) LLC, ENERVEST OPERATING, L.L.C., AND HESS OHIODEVELOPMENTS, LLC

PHILLIP J. CAMPANELLA (0010875) MICHAEL DEWINE (0009181)7059 Gates Road Ohio Attorney GeneralGates Mills, Ohio 44040Tel: (440) 655-1553 BRIAN J. BECKER (0089738)E-mail: p.campanella@att.net Daniel J. Martin (0065249)

Assistant Attorneys GeneralAttorney for Relators Environmental Enforcement Section

2045 Morse Road, Bldg. A-3Columbus, Ohio 43229Tel: (614) 265-7071Fax: (614) 268-8871E-mail: brian.becker@ohioattorneygeneral.gov

daniel.martin@ohioattorneygeneral.gov

Attorneys for Respondents

Supreme Court of Ohio Clerk of Court - Filed December 21, 2016 - Case No. 2016-1011

GREGORY D. RUSSELL (0059718)(Counsel of Record)John J. Kulewicz (0008376)Ilya Batikov (0087968)VORYS, SATER, SEYMOUR AND PEASE LLP52 East Gay Street/P.O. Box 1008Columbus, Ohio 43216-1008Tel: (614) 464-6400Fax: (614) 719-4954E-mail: gdrussell@vorys.com

jjkulewicz@vorys.comibatikov@vorys.com

Counsel for Amici Curiae The Ohio Oil and GasAssociation, Artex Energy Group LLC, AscentResources – Utica, LLC, Carrizo (Utica) LLC,EnerVest Operating, L.L.C., and Hess OhioDevelopments, LLC

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TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ......................................................................................................... iii

I. INTRODUCTION .............................................................................................................. 1

II. INTERESTS OF AMICI CURIAE ...................................................................................... 2

III. STATEMENT OF FACTS ................................................................................................. 3

A. Chesapeake filed a unitization application to address DMA uncertaintiesand lease limitations................................................................................................ 3

B. Unitization is required for full development........................................................... 4

C. Relators had the opportunity to make their record at the Division hearing ............ 4

D. Relators appealed to the Ohio Oil and Gas Commission but decided not topursue a further appeal to the Franklin County Common Pleas Court ................... 5

IV. RELATORS ARE NOT ENTITLED TO A WRIT OF MANDAMUS............................. 5

A. Relators had an adequate remedy at law—an appeal from theCommission’s decision to the Franklin County Common Pleas Court .................. 5

1. The Common Pleas Court could have reviewed the order’sconstitutionality........................................................................................... 6

2. Relators had—and took the advantage of—the opportunity topresent evidence to the Division ................................................................. 7

3. Relators’ appeal would have had statutory priority over all othercivil cases .................................................................................................... 8

4. The Common Pleas Court could have issued an effective remedy............. 8

B. Declaratory relief is not available in a mandamus action ....................................... 9

C. This case is not a proper vehicle to address Relators’ constitutional claim.......... 10

V. ARGUMENT ON PROPOSITIONS OF LAW: Statutory unitization is aconstitutional exercise of the police power....................................................................... 10

A. Statutory unitization in Ohio................................................................................. 10

1. Defining statutory unitization ................................................................... 10

ii

2. Unrestrained drilling leads to waste and other practical challengespreventing proper development ................................................................ 11

3. Legislatures adopted conservation statutes to address thesechallenges.................................................................................................. 12

4. Recognizing the conservation benefits of unitization and theserious challenges in reaching voluntary agreement, states adoptedstatutory unitization .................................................................................. 13

5. Ohio’s unitization statute .......................................................................... 14

B. Relators fail to advise the Court of the special body of law that applies tooil and gas rights ................................................................................................... 16

1. Relators’ ownership is not absolute but correlative with otherowners in the unit...................................................................................... 16

2. The unitization order is a valid exercise of police power, not ataking......................................................................................................... 18

C. The constitutionality of statutory unitization is well-settled................................. 19

1. The U.S. Supreme Court holds state conservation lawsconstitutional............................................................................................. 20

2. Decisions from major producing states all support the rule thatunitization is a valid exercise of police power.......................................... 21

D. The constitutionality of statutory unitization does not depend on theformation being developed ................................................................................... 24

VI. CONCLUSION................................................................................................................. 27

CERTIFICATE OF SERVICE ..................................................................................................... 30

iii

TABLE OF AUTHORITIES

PageCASES

Anderson v. Corp. Comm., 1957 Okla. 39, 327 P.2d 699 (1957) ................................................. 22

Bandini Petroleum Co. v. Superior Court, 284 U.S. 8, 52 S.Ct. 103 (1931)................................ 20

Barnes v. Reserve Energy Exploration, 7th Dist. Belmont No. 14 BE 0013, 2016-Ohio-4805 ........................................................................................................................... 11, 17

Bennion v. ANR Prod. Co., 819 P.2d 343 (Utah 1991)................................................................. 24

Burtner-Morgan Stephens Co. v. Wilson, 63 Ohio St.3d 257, 586 N.E.2d 1062 (1992).......... 2, 19

Chance v. BP Chemicals, Inc., 77 Ohio St.3d 17, 670 N.E.2d 985 (1996) .................................. 16

City of Reading v. Pub. Utils. Comm., 109 Ohio St.3d 193, 2006-Ohio-2181, 846N.E.2d 840 .................................................................................................................................. 8

Continental Resources v. Farrar Oil Co., 1997 ND 31, 559 N.W.2d 841 ............................. 25, 26

Crosby v. Pickaway County General Health District, 4th Dist. Pickaway No.06CA27, 2007-Ohio-6769 .................................................................................................. 6, 8, 9

Everett v. Phillips Petroleum Co., 218 La. 835, 51 So.2d 87 (1950) ........................................... 24

Gawenis v. Ark Oil. & Gas Comm., 2015 Ark. 238, 464 S.W.3d 453 (2015) ........................ 23, 26

Hale v. CNX Gas Co., LLC, W.D.Va. No. 1:10cv00059, 2011 U.S. Dist. LEXIS52935 (Jan. 21, 2011) ............................................................................................................... 24

Hunter v. McHugh, 202 La. 97, 11 So.2d 495 (1942) .................................................................. 23

Hunter v. McHugh, 320 U.S. 222, 64 S.Ct. 19 (1943).................................................................. 23

Hunters v. Justice’s Court of Centinela Twp., 36 Cal.2d 315, 223 P.2d 465 (1950).................... 24

Johnson v. Kell, 89 Ohio App.3d 623, 626 N.E.2d 1002 (10th Dist. 1993) ................................. 17

Karas v. State, 10th Dist. Franklin No. 79AP-37, 1979 Ohio App. LEXIS 11669(Sept. 11, 1979)......................................................................................................................... 19

Kelley v. Ohio Oil Co., 57 Ohio St. 317, 49 N.E. 399 (1897) ................................................ 11, 20

Lindsey v. Natural Carbonic Gas Co., 220 U.S. 61, 31 S.Ct. 337 (1911).................................... 20

O’Brien Oil, L.L.C. v. Norman, 2010 OK Civ. App. 23, 233 P.3d 413........................................ 23

iv

Ohio Edison Co. v. Power Siting Comm., 56 Ohio St.2d 212, 383 N.E.2d 588 (1978) ............... 18

Ohio Oil Co. v. Indiana, 177 U.S. 190, 20 S.Ct. 576 (1900).................................................. 20, 22

Palmer Oil Corp. v. Amerada Petroleum Corp., 343 U.S. 390, 72 S.Ct. 842 (1952) .................. 22

Palmer Oil Corp. v. Phillips Petroleum Co., 204 Okla. 543, 231 P.2d 997 (1951) ..................... 22

Patterson v. Stanolind Oil & Gas Co., 182 Okla. 155, 77 P.2d 83 (1938)................................... 21

Patterson v. Stanolind Oil & Gas Co., 305 U.S. 376, 59 S.Ct. 259 (1939).................................. 22

Pritz v. Messer, 112 Ohio St. 628, 149 N.E.30 (1925) ............................................................. 2, 18

Redman v. Ohio Dep’t of Indus. Rel., 75 Ohio St.3d 399, 662 N.E.2d 352 (1996).......... 12, 17, 19

Schrimsher Oil & Gas Exploration v. Stoll, 19 Ohio App.3d 274, 484 N.E.2d 166(9th Dist. 1984) ......................................................................................................................... 17

Spiers v. Magnolia Petroleum Co., 206 Okla. 503, 244 P.2d 843 (1951) .................................... 22

State ex rel. Columbus S. Power Co. v. Sheward, 63 Ohio St.3d 78, 585 N.E.2d 380(1992).......................................................................................................................................... 7

State ex rel. Grendell v. Davidson, 86 Ohio St.3d 629, 1999-Ohio-130, 716 N.E.2d704 .............................................................................................................................................. 9

State ex rel. Kingsley v. State Emp’t Rels. Bd., 130 Ohio St.3d 333, 2011-Ohio-5519,958 N.E.2d 169 ....................................................................................................................... 7, 8

State ex rel. Leyendecker v. Duro Test Corp., 87 Ohio St.3d 237, 1999-Ohio-42, 719N.E.2d 528 .................................................................................................................................. 6

State ex rel. Ohio Civil Serv. Emps. Ass’n, Local 11 v. State Emp’t Rels. Bd., 104Ohio St.3d 122, 2004-Ohio-6363, 818 N.E.2d 688 .................................................................... 9

State ex rel. R.T.G., Inc. v. State, 98 Ohio St.3d 1, 2002-Ohio-6716, 780 N.E.2d 998................ 17

State ex rel. Taylor v. Whitehead, 70 Ohio St.2d 37, 434 N.E.2d 732 (1982).......................... 2, 18

State ex rel. Williams v. Glander, 148 Ohio St. 188, 74 N.E.2d 82 (1947).................................. 26

State v. Anderson, 57 Ohio St.3d 168, 566 N.E.2d 1224 (1991) .................................................. 18

Superior Oil Co. v. Foote, 214 Miss. 857, 59 So.2d 85 (1952) .................................................... 24

Sylvania Corp. v. Kilborne, 28 N.Y.2d 427, 271 N.E.2d 524 (1971)........................................... 24

Texaco, Inc. v. Indus. Comm., 448 N.W.2d 621 (N.D. 1989)....................................................... 24

v

Texaco, Inc. v. Short, 454 U.S. 516, 102 S.Ct. 781 (1982)........................................................... 16

Trees Oil Co. v. State Corp. Comm., 279 Kan. 209, 105 P.3d 1269 (2005)................................. 24

Walls v. Midland Carbon Co., 254 U.S. 300, 41 S.Ct. 118 (1920) .............................................. 20

Willoughby Hills v. Corrigan, 29 Ohio St.2d 39, 278 N.E.2d 658 (1972) ................................... 18

Zieverink v. Ackerman, 1 Ohio App. 3d 10, 437 N.E.2d 319 (1st Dist.1981) ................................ 7

CONSTITUTIONAL PROVISIONS

Ohio Constitution, Article I, Section 19 ................................................................................... 2, 18

Ohio Constitution, Article II, Section 36 ...................................................................................... 18

STATUTES

R.C. 1509.01(I) ............................................................................................................................. 17

R.C. 1509.01(K)............................................................................................................................ 14

R.C. 1509.27 ................................................................................................................................. 19

R.C. 1509.28 .......................................................................................................................... passim

R.C. 1509.28(A)...................................................................................................................... 14, 15

R.C. 1509.28(A)(1)-(9) ................................................................................................................. 15

R.C. 1509.37 ........................................................................................................................... 6, 8, 9

R.C. Chapter 1509.................................................................................................................. passim

R.C. Chapter 163................................................................................................................... 1, 5, 16

REGULATIONS

Ohio Admin. Code 1501:9-1-01 ................................................................................................... 17

RULES

S.Ct.Prac.R. 3.11(C)(1)................................................................................................................. 30

OTHER AUTHORITIES

Anderson and Smith, The Use of Law to Promote Domestic Exploration andProduction, 50 Oil & Gas Law & Taxation Ch. 2 (1999) ........................................................ 13

Carr, Compulsory Fieldwide Unitization, 49 Rocky Mtn. Min. L. Fdn. Ch. 21 (2003) ............... 25

vi

Champion, Forming the Unit – Why Unitize? The Industry Perspective, Rocky Mtn.Min. L. Inst. 5A-1 (2006) ......................................................................................................... 11

Emens & Lowe, Ohio Oil and Gas Conservation Law—The First Ten Years (1965-1975), 37 Ohio St. L.J. 31 (1976) ............................................................................................. 12

Kramer and Martin, THE LAW OF POOLING AND UNITIZATION, § 1.02 (LexisNexisMathew Bender 2016) ....................................................................................................... passim

Kramer, Unitization: A Partial Solution to the Issues Raised by Horizontal WellDevelopment in Shale Plays, 68 Ark. L. Rev. 295 (2015)........................................................ 11

Lindeman, Ohio’s Mad Oil Boom, Saturday Evening Post (Nov. 1964), 83................................ 12

Myers, The Necessity of Unitization, 33 Miss. L.J. 1 (1961)........................................................ 11

Ohio Legislative Service Commission, Report of Committee to Study Oil and GasLaws in Ohio (Dec. 28, 1964)................................................................................................... 14

Ohio Legislative Service Commission, Staff Research Report No. 63, Oil and GasLaw in Ohio (1965)................................................................................................................... 13

1

I. INTRODUCTION

The chief of the Division of Oil and Gas Resources Management (the “Division”)

properly exercised his authority under R.C. 1509.28 to issue an order for unit operations—often

referred to as a unitization order—that consolidated certain mineral and leasehold interests that

are located in Harrison County, Ohio, and owned by multiple parties, so that those oil and gas

interests can be developed as if they were a single property. Relators claim that this exercise of

police power constitutes a taking that requires the chief to institute appropriations proceedings

under R.C. Chapter 163. The Court should reject that claim.

First, this case is not a proper vehicle to address the unitization issues that Relators

seek to raise. Ohio law provides an adequate administrative remedy, which Relators have failed

to exhaust. Instead, they seek to restructure the process for judicial review of unitization orders,

effectively excluding the common pleas court from the statutory protocol.

Second, Relators’ constitutional claim is based on the incorrect belief that their

interests in the oil and gas underlying their tracts in the unit are absolute, exclusive, and

unqualified. That is not the case. Rather, as in every other producing jurisdiction in the country,

Relators’ oil and gas interests are subject to the correlative rights of every other owner in the

common source of supply underlying their properties. Thus, while Relators have the right to a

reasonable opportunity to share in the benefits of that common source of supply, they cannot

deny that opportunity to the other interest owners in the unit. And here, the undisputed evidence

below establishes that Relators have received precisely what they are entitled to—the

opportunity to recover the oil and gas under their tracts or the equivalent in production from the

rest of the unit.

2

Third, Relators’ claim entirely ignores the fact that the chief issued the unitization

order through a proper exercise of police power. Article I, Section 19 of the Ohio Constitution

states, in pertinent part: “Private property shall ever be held inviolate, but subservient to the

public welfare.” This Court has recognized that “the state’s police powers permit the General

Assembly to enact legislation governing pooling arrangements, spacing, unitization and other oil

and gas drilling regulations.” Burtner-Morgan Stephens Co. v. Wilson, 63 Ohio St.3d 257, 260,

586 N.E.2d 1062 (1992) (emphasis added). Just as importantly, this Court has repeatedly held

that “[l]aws enacted in the proper exercise of the police power … even though they result in the

impairment of the full use of property by the owner thereof, do not constitute a ‘taking of

private property.’” State ex rel. Taylor v. Whitehead, 70 Ohio St.2d 37, 40, 434 N.E.2d 732

(1982) (citing Pritz v. Messer, 112 Ohio St. 628, 149 N.E.30 (1925), paragraph one of the

syllabus (emphasis added)).

If the Court entertains the constitutional claim in spite of its lack of a proper procedural

basis, it should join every other high court in the country that has addressed the issue, as well as

the Supreme Court of the United States, in holding that statutory unitization, or its analog,

mandatory pooling, is a valid exercise of the state’s police power, not an unconstitutional taking

of private property.

II. INTERESTS OF AMICI CURIAE

The Ohio Oil and Gas Association is a trade association with nearly 2,200 members

who engage in all aspects of exploration, production, and development of oil and natural gas

resources in this state. Its members range from small independent producers to major national

and international energy corporations, and also include Ohio contractors, service and supply

companies, manufacturers, utilities, accountants, lawyers, bankers, geologists, insurers,

engineers, royalty owners, landowners, and others who depend upon oil and gas production

3

activities. Ohio’s oil and gas industry provides more than 17,000 jobs with an annual payroll of

three-quarters of a billion dollars.

Artex Energy Group LLC, Ascent Resources – Utica, LLC, Carrizo (Utica) LLC,

EnerVest Operating, L.L.C., and Hess Ohio Developments, LLC, are oil and gas producers in

Ohio. Each has an interest in preserving statutory unitization as a necessary tool to maximize the

development of Ohio’s oil and natural gas resources through the most economically-efficient and

effective drilling techniques available.

III. STATEMENT OF FACTS

A. Chesapeake filed a unitization application to address DMAuncertainties and lease limitations.

On November 10, 2014, Chesapeake Exploration, L.L.C. (“Chesapeake”) filed an

application with the Division seeking an order

authorizing it to drill three horizontal wells to

produce from the Utica / Point Pleasant shale

formation underlying approximately 592 acres

of land located in Harrison County, Ohio, to

be operated as a single unit (named the “Our

Land South Unit”). Resp. Ex. D at 26. The

reasons for the application were two-fold:

First, the ownership of the minerals

underlying two tracts within the proposed unit

area was uncertain because of Ohio’s

Dormant Mineral Act. Id. (see the orange

boundary tracts). Second, multiple leases within the proposed unit area contained provisions that

4

prohibited the unit’s formation absent the consent of the lessors, and efforts at obtaining such

consent were unsuccessful. Id. (see the orange cross-hatch tracts).1

B. Unitization is required for full development.

Without the requested unitization order, Chesapeake would be required to reduce the

lateral length of each of the three horizontal wells proposed for the unit’s development, causing

260 acres of the proposed unit to go undeveloped (i.e., to become “stranded”), and resulting in

the physical waste of over 7 billion cubic feet equivalent of natural gas. Resp. Ex. E at 158

(identifying “stranded” CHK and Non-CHK leasehold); Resp. Ex. G at 220. That presumes,

however, that the unit would be developed in the first place—testimony at the hearing indicated

that, absent a unitization order, it was likely that the two eastern-most horizontal wells could not

be drilled economically. Resp. Ex. G at 223. That, in turn, suggests that the unit might not have

been developed at all.

C. Relators had the opportunity to make their record at the Division hearing.

Pursuant to R.C. 1509.28, the Division held a hearing to consider the need to issue an

order for unit operations of the Our Land South Unit on March 11, 2015. Although they had the

opportunity to present evidence at the hearing, Relators chose not to appear; rather, they

presented their objections and evidence to the issuance of the unitization order through written

filings submitted prior to the hearing. See Resp. Ex. J at 295-297; 307-313.

Following the hearing, the chief issued an order authorizing unit operations for the Our

Land South Unit on terms largely typical of other unitization orders. See Resp. Ex. B. For

1 According to the application, Relators are lessors under one or more of these leases. WhileRelators appear to claim that they are not leased and are the owners of the property in theircomplaint, it makes no difference to the constitutional analysis here. The unitization orderapplies to both leased and unleased properties within the unit (as does statutory unitizationgenerally).

5

example, the unitization order allocates all of the oil and gas produced from unit operations to

each of the separately owned tracts on a surface acreage basis—meaning that every interest

owner in the unit gets to share in unit production regardless of whether that particular

production came from the owner’s tract or not. Resp. Ex. B. at 3. In addition, the order requires

specifically that each of the unleased mineral owners in the unit be paid a 1/8th gross royalty

beginning with the first production from the unit, plus a 7/8th net revenue payment on all

production allocated to their tract after the costs of the related production operations have been

recovered, plus a reasonable interest charge (commonly referred to as “payout”). Id. at 5. Thus,

owners of unleased minerals in the unit, as a consequence of the unitization order, will receive an

equitable share of all of the production (or revenues from the sale of that production) from the

unit, whether or not that production comes from their tract.

D. Relators appealed to the Ohio Oil and Gas Commission but decided not topursue a further appeal to the Franklin County Common Pleas Court.

Relators then appealed to the Ohio Oil and Gas Commission (“Commission”). Resp. Ex.

C at 13. When the Commission dismissed Relators’ appeal for want of jurisdiction, it notified

Relators of their right to appeal to the Franklin County Common Pleas Court. Id. at 22. Relators

instead filed suit here, asking this Court to issue a writ of mandamus to compel the Division to

commence appropriations proceedings under R.C. Chapter 163.

IV. RELATORS ARE NOT ENTITLED TO A WRIT OF MANDAMUS

A. Relators had an adequate remedy at law—an appeal from the Commission’sdecision to the Franklin County Common Pleas Court.

The threshold problem with Relators’ constitutional claim is that they are presenting it to

the wrong court at the wrong time and in the wrong format. In short, Relators have not

exhausted their administrative remedies and, therefore, are not entitled to a writ of mandamus.

6

And while there are serious substantive problems with Relators’ constitutional claim, this Court

need not reach that issue because of the procedural shortcut taken by Relators.

Specifically, Relators could have appealed the order of the Oil and Gas Commission to

the Franklin County Common Pleas Court. R.C. 1509.37 provides that the “party adversely

affected by [the commission’s] order ... may appeal to the court of common pleas of Franklin

county.” Relators failed to initiate such an appeal here, barring their request for a writ of

mandamus. “Mandamus will not issue where the relator has a plain and adequate remedy at

law.” State ex rel. Leyendecker v. Duro Test Corp., 87 Ohio St.3d 237, 237–238, 1999-Ohio-42,

719 N.E.2d 528. “For this reason, the failure to pursue an adequate administrative remedy bars

mandamus relief.” Id.

A party’s failure to pursue an administrative appeal process—by, for example, failing to

appeal an administrative decision to the common pleas court—precludes mandamus relief.

Crosby v. Pickaway County General Health District, 4th Dist. Pickaway No. 06CA27, 2007-

Ohio-6769, ¶ 20. Here, Relators allege that they were adversely affected by the Commission’s

dismissal of their appeal. They had the opportunity to appeal the dismissal under R.C.

1509.37, but failed to do so. Their decision to forego an appeal under R.C. 1509.37 is fatal to

their request for a writ of mandamus. Crosby, 2007-Ohio-6769 at ¶ 20 (it is “the failure to

pursue an adequate administrative remedy [that] bars mandamus relief”).

1. The Common Pleas Court could have reviewed the order’sconstitutionality.

Relators erroneously claim that the common pleas court “can only review the order to

determine whether it is just and reasonable” and not its constitutionality. Rel. Merit Br. at 17.

Rather, under R.C. 1509.37, the common pleas court must determine whether the Commission’s

order was “lawful and reasonable.” In its determination of whether the Order was “lawful,” the

7

common pleas court could have addressed either a facial or an as-applied constitutional

challenge. While it is “‘settled that an administrative agency is without jurisdiction to determine

the constitutional validity of a statute[,]’” this Court has “also recognized that facial and as-

applied constitutional challenges can be raised on further appeal from an administrative agency

to a court.” State ex rel. Kingsley v. State Emp’t Rels. Bd., 130 Ohio St.3d 333, 333, 2011-Ohio-

5519, 958 N.E.2d 169, 170, ¶ 1 (quoting State ex rel. Columbus S. Power Co. v. Sheward, 63

Ohio St.3d 78, 81, 585 N.E.2d 380 (1992)).

2. Relators had—and took the advantage of—the opportunity to presentevidence to the Division.

While Relators are correct that an appeal to the common pleas court is generally “an

appeal on the record,” they ignore the fact that they had – and availed themselves of – the

opportunity to present evidence and make their record before the Division. On February 25,

2015, Relators submitted to the Division a written position statement attaching evidence that

they believed to be relevant. See Resp. Ex. J at 307. Further, the position statement identified

ten items that Relators described as issues that had to be “adjudicated in a court of law,”

including their takings claim. Id. at 309.

Thus, to the extent that Relators challenge the constitutionality of the unitization order as

applied to them, they are mistaken. Relators had an obligation to develop—and did develop—

the record at the administrative level. Zieverink v. Ackerman, 1 Ohio App. 3d 10, 11–12, 437

N.E.2d 319, 320–321 (1st Dist.1981) (“If appellant had presented evidence before the

Department of Health relating to the constitutionality of the statute as applied to her, she would

then have been entitled to have the court determine that question.”).

Moreover, to the extent that Relators raise a facial challenge to the constitutionality of

R.C. 1509.28, they could have done so before the common pleas court irrespective of the

8

administrative record. City of Reading v. Pub. Utils. Comm., 109 Ohio St.3d 193, 196, 2006-

Ohio-2181, 846 N.E.2d 840, 843, ¶ 16 (“a facial constitutional challenge to a statute need not

first be raised before the commission”). Therefore, the fact that an appeal to the common pleas

court is “an appeal on the record” does not render the appeals process “inadequate.”

3. Relators’ appeal would have had statutory priority over all other civilcases.

Relators are also incorrect when they claim that an appeal to the common pleas court is

not an adequate remedy because it is not “speedy.” To the contrary, R.C. 1509.37 provides that

the common pleas court “shall conduct a hearing on the appeal and shall give preference to the

hearing over all other civil cases irrespective of the position of the proceedings on the calendar

of the court.” Further, this Court has held that “the mere fact that pursuing [the relator’s]

administrative appeal may result in more delay and expense does not render it inadequate.”

Kingsley, 130 Ohio St.3d at 336.

4. The Common Pleas Court could have issued an effective remedy.

Finally, Relators argue in vain that an appeal to the common pleas court is not an

adequate remedy because that court itself “cannot order the Respondent Chief to commence

appropriation proceedings,” “determine whether a public use exists for the taking,” or “award

compensation for the taking.” Rel. Br. at 17. This argument was expressly rejected in Crosby v.

Pickaway County General Health District, 4th Dist. Pickaway No. 06CA27, 2007-Ohio-6769,

¶ 20, 2007 Ohio App. LEXIS 5913, *12.

In Crosby, the relators filed an application for a writ of mandamus in the trial court,

asking the court to compel the health district to commence appropriation proceedings. Id. at ¶ 1.

The court determined that they were not entitled to a writ because they could have obtained an

9

adequate remedy in the ordinary course of law by appealing the health district’s decision to the

common pleas court. Id. The court of appeals agreed:

Appellants claim that the administrative appeal procedures wouldnot be adequate to compensate them for the involuntary taking oftheir property. While appellants’ argument appears facially valid,their argument presupposes that an involuntary taking occurred,something that the administrative appeal process would ultimatelyresolve. If their appeal were successful, then the permits wouldissue and they would seemingly lack a takings claim.

Id. at ¶ 24 (emphasis added). Ultimately, the court recognized in Crosby that “if [the relators’]

administrative appeals succeed, then any takings claim would appear to be moot.” Id. at ¶ 23.

The same is true here. Relators contend that the unitization order amounts to an

unconstitutional taking. They had the opportunity, through an appeal to the common pleas court,

to challenge its constitutionality. If the court had found in their favor, it could have vacated

the order. Relators then would have obtained their desired recourse and their takings claim

would be moot. The harm that Relators have alleged thus could have been cured by an appeal

to the common pleas court under R.C. 1509.37.2

B. Declaratory relief is not available in a mandamus action.

To the extent that Relators seek some other relief—such as a declaration of their property

rights or status under the unitization order—a cause of action in mandamus is inappropriate. “It

is well settled that ‘if the allegations of a complaint for a writ of mandamus indicate that the real

objects sought are a declaratory judgment and a prohibitory injunction, the complaint does not

state a cause of action in mandamus.’” State ex rel. Ohio Civil Serv. Emps. Ass’n, Local 11 v.

State Emp’t Rels. Bd., 104 Ohio St.3d 122, 125, 2004-Ohio-6363, 818 N.E.2d 688, 693, ¶ 11

(quoting) State ex rel. Grendell v. Davidson, 86 Ohio St.3d 629, 634, 1999-Ohio-130, 716

2 We do not address whether Relators would be barred from seeking mandamus relief if theyappealed to the common pleas court unsuccessfully.

10

N.E.2d 704. “Because neither the Supreme Court of Ohio nor the Ohio courts of appeals have

original jurisdiction over claims for declaratory judgment, these courts lack jurisdiction over

actions that, although styled in mandamus, actually seek a declaration of rights, status, or other

legal relations.” Id. (internal citations omitted).

C. This case is not a proper vehicle to address Relators’ constitutional claim.

Because of these material procedural deficiencies, the Court should deny Relators’

request for mandamus relief on their constitutional claim.

V. ARGUMENT ON PROPOSITIONS OF LAW:Statutory unitization is a constitutional exercise of the police power.

If the Court were to reach the constitutional claim, then Relators’ propositions of law

should be rejected for the following reasons.

A. Statutory unitization in Ohio.

1. Defining statutory unitization.

Relators’ claim fundamentally misunderstands the nature and purpose of statutory

unitization. Simply stated, “unitization” is “the consolidation of minerals or working interests

covering all or part of a common source of supply.” Kramer and Martin, THE LAW OF POOLING

AND UNITIZATION, § 1.02 (LexisNexis Mathew Bender 2016) (hereinafter “Kramer and Martin”).

It is meant to optimize development while enabling the producer to utilize the most

economically-efficient and effective drilling techniques available. Id.

Unitization allows each owner over the common source of supply to share in the

production from the unit on a just and equitable basis while conserving natural resources,

ensuring that development proceeds in an orderly manner, minimizing surface disturbance and

related environmental concerns, and increasing the ultimate recovery of oil and gas for all of the

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owners in the unit. Champion, Forming the Unit – Why Unitize? The Industry Perspective,

Rocky Mtn. Min. L. Inst. 5A-1 (2006). It may be accomplished by voluntary agreement or

through a procedure that involves the use of the state’s police power—referred to as statutory

unitization.

2. Unrestrained drilling leads to waste and other practicalchallenges preventing proper development.

The origins of statutory unitization, nationally and in Ohio, can be traced to the practical

challenges posed by the “rule of capture”—the common law doctrine stating that the owner of a

parcel of land can acquire title to the oil and gas produced from a well drilled on that land

although the oil and gas may have migrated from adjoining properties. Barnes v. Reserve

Energy Exploration, 7th Dist. Belmont No. 14 BE 0013, 2016-Ohio-4805, ¶ 29. Ohio was one

of the earliest states to adopt the rule of capture. See Kelley v. Ohio Oil Co., 57 Ohio St. 317,

318, 49 N.E. 399 (1897). Courts in the other producing states soon followed. Kramer,

Unitization: A Partial Solution to the Issues Raised by Horizontal Well Development in Shale

Plays, 68 Ark. L. Rev. 295, 304-307 (2015). But the over-drilling and anti-conservation

incentives created by pure application of the rule of capture soon became a matter of serious

public concern:

If the owner of one tract may drill as many wells as he pleases atany point he desires on his tract, his neighbor, of course, has thesame right. … Naturally, the owner uses this right either to gain anadvantage or to protect his lease from drainage by drilling offsetwells. In any event, we find an unrestricted race, the prize beingthe oil and gas under both tracts. The result is great physicalwaste of oil and gas, as well as the economic waste that flowsfrom the drilling of unnecessary wells. [Myers, The Necessity ofUnitization, 33 Miss. L.J. 1 (1961) (hereinafter “Myers”)(emphasis added).]

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3. Legislatures adopted conservation statutes to address thesechallenges.

To respond to the conservation challenges emphasized by the rule of capture, oil and gas

conservation statutes were enacted in every producing state.3 The purposes are twofold. The

first is to avoid the physical and economic waste of oil and gas resources “or, to put it

positively, the maximization of recovery over time at the least possible cost.” Emens & Lowe,

Ohio Oil and Gas Conservation Law—The First Ten Years (1965-1975), 37 Ohio St. L.J. 31

(1976). The second is to protect correlative rights—i.e., “the rights of those who own the fee

interest or the right to drill on land above oil and gas bearing formations in the common source

of supply.” Id. at 31. And Ohio followed a similar path when it found itself in the throes of the

Morrow County oil boom in the early 1960s:

There was drilling in backyards, in alleys, up against the townwater tank in Cardington, along the once inviolate midway on thecounty fairgrounds in Mt. Gilead, through septic tanks (forcingfamilies to build outhouses), and into prize flower beds andvegetable gardens.

* * *Many people seemed to forget about questions of safety. Storagetanks, holding several thousand barrels of combustible crude oil,were located amid homes, trailers and businesses on the edge ofCardington and Mt. Gilead. And directly behind the Edison gradeschool were three wells pumping 1,200 barrels a day, the nearestonly 150 feet from the classrooms. Half of the playground for the300 elementary school children was given up for wells. The sourgas from the open flares by the wells blew in on the school,causing children to become sick. [Lindeman, Ohio’s Mad OilBoom, Saturday Evening Post (Nov. 1964), 83].

To address the wasteful and inefficient drilling practices creating these issues, the

General Assembly adopted a comprehensive conservation package in R.C. Chapter 1509, the

goals of which are “safety ... protection of correlative rights ... and the prevention of physical and

economic waste.” Redman v. Ohio Dep’t of Indus. Rel., 75 Ohio St.3d 399, 409, 662 N.E.2d 352

3 Kramer and Martin at § 2.01.

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(1996). See also Ohio Legislative Service Commission, Staff Research Report No. 63, Oil and

Gas Law in Ohio, at 4 (1965) (“With the Morrow County oil boom that started in 1961, an urgent

need arose for adequate laws providing adequate supervision for safety and conservation of oil

and natural gas.”) (“Staff Report”).

4. Recognizing the conservation benefits of unitization and the seriouschallenges in reaching voluntary agreement, states adopted statutoryunitization.

While the particulars of conservation legislation vary from state to state, the majority of

producing states have enacted statutory unitization provisions as part of their conservation

programs. Kramer and Martin at § 6.02. The reason: although the conservation advantages of

unitization are self-evident, experience has shown that reaching a unanimous voluntary

unitization agreement can be exceedingly difficult. There are typically dozens, if not hundreds,

of separate tracts that need to be incorporated into the unit in some fashion (by lease, pooling

agreement, or operating agreement, for example). In this case, for example, the Our Land South

Unit includes fifty separate tracts. See Resp. Ex. B at 1. Other unitization orders issued under

R.C. 1509.28 have covered hundreds of tracts. See, e.g., Order No. 2015-579 (December 15,

2015) (129 tracts); Order No. 2015-314 (June 18, 2015) (236 tracts). Moreover, tracts within a

unit often have fractionalized mineral interests with multiple owners, sometimes numbering in

the hundreds due to intergenerational conveyances, and often with substantial uncertainties

regarding the state of their title.4 And, to exacerbate the issue still further, there can be

significant operational and other issues that arise with a large-scale development project.

As a consequence, it can be tremendously difficult and costly to identify and locate all

potential owners and obtain unanimous agreement on the multitude of issues involved in

4 See Anderson and Smith, The Use of Law to Promote Domestic Exploration and Production,50 Oil & Gas Law & Taxation Ch. 2 at 2-76 (1999) (hereinafter “Anderson and Smith”).

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negotiating a unit agreement—a dilemma easily exploited by the strategic behavior of minority

interest owners.

This reasoning prompted the majority of producing states, including Ohio, to adopt a

statutory unitization mechanism.5 In a 1964 report to the General Assembly, the Legislative

Service Commission observed that, despite the many benefits of unitization:

Seldom will one owner control all of the land area which overlies apool, and selfish interests may keep multiple owners from joiningwith each other for their mutual benefit and for conservation. Inorder to meet this situation a number of oil producing states haveadopted unitization procedures similar to these which werecommend so that a minority cannot keep the majority fromproper development and producing practices. [Ohio LegislativeService Commission, Report of Committee to Study Oil and GasLaws in Ohio (Dec. 28, 1964) at 5 (emphasis added).]

Statutory unitization, therefore, promotes the conservation goals of R.C. Chapter 1509 by

ensuring that minority interests cannot deny the majority the opportunity to properly develop and

produce the shared resource.

5. Ohio’s unitization statute.

Ohio’s statutory unitization mechanism is codified in R.C. 1509.28. Owners of sixty-five

(65%) or more of the proposed unit area may request—or the chief, upon his or her own motion,

may hold—a hearing to consider the need to operate a pool or a part of a pool as a unit.6 R.C.

1509.28(A). The conservation purposes underlying R.C. 1509.28 are self-evident from the two

elements that must be satisfied in order for the unitization order to issue. By statute, the chief is

required to issue a unitization order if he or she finds (1) that unit operations are reasonably

5 The first generally-applicable unitization law was enacted by Oklahoma in 1945. Kramer andMartin at § 18.01. “Since then, states have adopted or amended compulsory unitization statutesthat range from the short and terse to the lengthy and prolix.” Id. See also id. at § 6.02.6 An “owner,” for purposes of the statute, refers to the person who has the right to drill on a tractor drilling unit, to drill into and produce from a pool, and to appropriate the oil and gas producedtherefrom either for the person or for others. R.C. 1509.01(K).

15

necessary to increase substantially the ultimate recovery of oil and gas from the unit area (i.e.,

addressing the issue of physical waste); and (2) that the value of the estimated additional

recovery from unit operations exceeds the estimated additional costs incident to conducting

those operations (i.e., addressing the issue of economic waste). R.C. 1509.28(A). Notably, these

elements apply to any “pool or part thereof”—they do not depend upon the porosity or the

permeability of the formation to be unitized, consistent with the broader public policy goals of

promoting safety, prevention of physical and economic waste, and protection of correlative

rights.7

If those elements are met, the chief has broad authority to craft a unitization order that

promotes conservation and protects the correlative rights of all owners within the unit. Under

R.C. 1509.28(A)(1)-(9), the terms of the unitization order must be “just and reasonable” and

prescribe a unit plan that includes the following items (among others):

• an allocation of production from the unit area to the separately ownedtracts;

• a provision regarding how unit expenses, including capital costs, shall becharged to the separately owned tracts;

• a provision for carrying or otherwise financing any person unable to meettheir financial obligations with respect to the unit, including a reasonableinterest charge;

• a provision regarding the supervision and conduct of the unit operations;and

• any other provision appropriate for conducting unit operations andprotecting correlative rights.

To become effective, the plan for unit operations prescribed by the order must then be approved

by: (i) those owners who, under the order, will be required to pay at least sixty-five percent

7 And in this case, the undisputed evidence showed that the Our Land South Unit was part of apool. Resp. Ex. D at 100; Resp. Ex.G at 205-207.

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(65%) of the costs of the unit’s operations; and (ii) the royalty and unleased fee owners of at least

sixty-five percent (65%) of the unit’s acreage.

The Relators have not challenged the fact that the application and order at issue here

satisfied these prerequisites. Nor have they challenged the just and reasonable character of the

order’s terms.

B. Relators fail to advise the Court of the special body of law that applies to oiland gas rights.

To support their claim that the unitization order was an unconstitutional taking, Relators

cite to a series of inapplicable takings cases involving conventional real property and R.C.

Chapter 163, which implements the appropriations procedure for an ordinary property rights

takings claim. They ignore the fact that a “special body of law has arisen” with respect to oil and

gas. Chance v. BP Chemicals, Inc., 77 Ohio St.3d 17, 24, 670 N.E.2d 985 (1996). And within

that body of law, it is well settled that Relators’ oil and gas rights are correlative with the rights

of the other owners in the unit—not absolute as Relators claim—and that when the state

exercises its police power authority to protect everyone’s correlative rights and avoid waste

through statutory unitization, it is not a taking of private property.

1. Relators’ ownership is not absolute but correlative with other ownersin the unit.

While Relators may claim that their rights to the oil and gas under their properties are

absolute and unqualified, they are wrong. Relators’ rights derive from state law, and Ohio law

may qualify those rights. See, e.g., Texaco, Inc. v. Short, 454 U.S. 516, 525, 102 S.Ct. 781

(1982) (“Property interests, of course, are not created by the Constitution. Rather, they are

created and their dimensions are defined by existing rules or understandings that stem from an

17

independent source such as state law.”) (internal citation omitted). Accord State ex rel. R.T.G.,

Inc. v. State, 98 Ohio St.3d 1, 2002-Ohio-6716, 780 N.E.2d 998, ¶¶ 47-48.

Both the General Assembly and Ohio courts have long recognized that the ownership of

oil and gas is subject to the doctrine of correlative rights, which Ohio law defines as “the

reasonable opportunity to every person entitled thereto to recover and receive the oil and gas in

and under the person's tract or tracts, or the equivalent thereof, without having to drill

unnecessary wells or incur other unnecessary expense.” R.C. 1509.01(I) (emphasis added).8

Here, the unitization order did just that—it allocated unit production to Relators’ tracts

on a surface acreage basis—a method that the unrebutted evidence established was a fair

means of allocation given the uniform thickness and quality of the unitized shale formation

across the unit. Resp. Ex. D at 121, Resp. Ex. B at 3. See also Schrimsher Oil & Gas

Exploration v. Stoll, 19 Ohio App.3d 274, 484 N.E.2d 166 (9th Dist. 1984) (finding that, where a

well was draining defendant’s lands in violation of well spacing regulations and no voluntary or

statutory pooling was obtained, the appropriate measure of damages was a proportionate share of

production allocated on a surface-acreage basis).

Relators’ oil and gas rights have thus not been “taken” by the unitization order—instead,

Relators will continue to receive precisely what they would otherwise be entitled to receive

8 See also, e.g., Ohio Admin. Code 1501:9-1-01 (defining “[p]rotection of correlative rights” tomean the “administration and enforcement of these rules and regulations by the chief in such amanner as to afford reasonable opportunity to every person entitled thereto to recover andreceive the oil and gas in and under his tract or tracts, or the equivalent thereof, without having todrill unnecessary wells or to incur other unnecessary expense.”); Redman v. Ohio Dep’t of Indus.Rel., 75 Ohio St.3d 399, 662 N.E.2d 352 (1996) (acknowledging that principles underlying R.C.Chapter 1509 include protection of correlative rights); Johnson v. Kell, 89 Ohio App.3d 623, 626N.E.2d 1002 (10th Dist. 1993); Barnes v. Reserve Energy Exploration, 7th Dist. Belmont No.14BE0013, 2016-Ohio-4805, ¶ 29 (“[D]ue to the harsh consequences to neighboring landowners, Ohio law has evolved on this issue and the ‘rule of capture’ has been limited by thedoctrine of correlative rights.”).

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under Ohio law—i.e., the opportunity to recover the oil and gas under their tracts, or the

equivalent thereof in production from the rest of the unit. Crucially, the unitization order also

guarantees that same opportunity to the other owners in the unit—an opportunity that many of

them lose without statutory unitization.

2. The unitization order is a valid exercise of police power, not a taking.

Further, in Ohio, “it is well-established that private property is held subject to the

general police power of a state and may be regulated pursuant to that power.” State v.

Anderson, 57 Ohio St.3d 168, 169, 566 N.E.2d 1224, 1225 (1991). This is reflected in Section

19, Article I of the Ohio Constitution, which states that: “[p]rivate property shall ever be held

inviolate, but subservient to the public welfare.” (Emphasis added).

This Court has repeatedly held that “[l]aws enacted in the proper exercise of the police

power … even though they result in the impairment of the full use of property by the owner

thereof, do not constitute a ‘taking of private property.’” State ex rel. Taylor v. Whitehead, 70

Ohio St.2d 37, 40, 434 N.E.2d 732 (1982) (citing Pritz v. Messer, 112 Ohio St. 628, 149 N.E.30

(1925), paragraph one of the syllabus). See also Ohio Edison Co. v. Power Siting Comm., 56

Ohio St.2d 212, 217-218, 383 N.E.2d 588 (1978) (“The provisions against impairment of

contracts and taking of property without due process of law must bow to valid police power

legislation designed to protect public health, safety and welfare.”); Willoughby Hills v. Corrigan,

29 Ohio St.2d 39, 278 N.E.2d 658 (1972) (holding that airport zoning regulations could be

constitutionally adopted as an exercise of the state’s police power when they are reasonably

necessary to ensure safety of persons and aircraft).

Section 36, Article II of the Ohio Constitution provides that laws may be passed to

“provide for the regulation of methods of mining, weighing, measuring and marketing coal, oil,

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gas and all other minerals.” As the Court has recognized, “[p]ursuant to this authority, and

pursuant to the police power of the state to control and conserve the natural resources of

Ohio…the General Assembly has enacted a number of statutes regulating the production of coal,

oil and gas, including R.C. Chapter 1509.” Redman v. Ohio Dep’t of Indus. Rel., 75 Ohio St.3d

399, 403, 662 N.E.2d 352 (1996). See also Karas v. State, 10th Dist. Franklin No. 79AP-37,

1979 Ohio App. LEXIS 11669 (Sept. 11, 1979) (“The exercise by the State of its power to

control the production of oil and gas for the benefit of its citizens is a legitimate function of the

State.”).

Therefore, statutory unitization, as a part of R.C. Chapter 1509, is a legitimate exercise of

the state’s police power—a point that this Court confirmed in Burtner-Morgan Stephens Co. v.

Wilson, 63 Ohio St.3d 257, 260, 586 N.E.2d 1062 (1992) (“[t]he state’s police powers permit

the General Assembly to enact legislation governing pooling arrangements, spacing,

unitization and other oil and gas drilling regulations.”).9 As a consequence, the issuance of the

unitization order is a valid exercise of police power; it is not a taking.

C. The constitutionality of statutory unitization is well-settled.

Every high court that has addressed the constitutionality of statutory unitization (or its

analog, mandatory pooling) has held that it is a valid exercise of the state’s police power, not an

unconstitutional taking of private property. And while mandatory pooling and statutory

unitization laws serve different purposes—i.e., mandatory pooling is intended to meet spacing

and density requirements for single-well development while unitization is intended to optimize

development of all or part of a common source of supply—they are analogous in that both

9 While under the specific facts of Wilson, this Court found that the royalty allocation formula ofOhio’s statutory pooling law, R.C. 1509.27, could not impair a lease that pre-dated the enactmentof the statute—circumstances that do not, and are not alleged to, exist in this case—Wilsonconfirms that the police powers of the state permit statutory unitization.

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devices rely on the state’s police power to consolidate mineral and working interests. As a

consequence, the analysis of their constitutionality has been essentially identical.

1. The U.S. Supreme Court holds state conservation laws constitutional.

In the seminal case of Ohio Oil Co. v. Indiana, the Supreme Court of the United States

rejected a claim that an Indiana conservation statute that prohibited allowing the escape of

natural gas into the open air for more than two days was void on Fourteenth Amendment

substantive due process grounds. 177 U.S. 190, 20 S.Ct. 576 (1900). The Court based its

rationale on two principles. First, the Court observed that property rights in oil and gas are

defined by the state, and can be tailored to address the special circumstances of co-equal rights

to a common source of supply (what is referred to today as “correlative rights”):

Hence it is that the legislative power, from the peculiar nature ofthe right and the objects upon which it is to be exerted, can bemanifested for the purpose of protecting all the collective owners,by securing a just distribution, to arise from the enjoyment bythem, of their privilege to reduce to possession, and to reach thelike end by preventing waste. [177 U.S. at 210.]

Second, the court found that the police powers of the state can be used to protect correlative

rights and prevent waste, and that the use of such police powers is not an unconstitutional

taking of property. It stated: “[w]e cannot say that the statute amounts to a taking of private

property, when it is but a regulation by the State of Indiana of a subject which especially comes

within its lawful authority.” Id. at 212 (emphasis added).

Indeed, the Supreme Court of the United States continued to reaffirm the states’ police

power authority to enact oil and gas conservation statutes against constitutional challenge on the

basis of Ohio Oil. See, e.g., Lindsey v. Natural Carbonic Gas Co., 220 U.S. 61, 77, 31 S.Ct. 337

(1911); Walls v. Midland Carbon Co., 254 U.S. 300, 41 S.Ct. 118 (1920); Bandini Petroleum Co.

v. Superior Court, 284 U.S. 8, 22, 52 S.Ct. 103 (1931) (“If the statute be viewed as one

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regulating the exercise of the correlative rights of surface owners with respect to a common

source of supply of oil and gas, the conclusion that the statute is valid upon its face, that is,

considered apart from any attempted application of it in administration which might violate

constitutional right, is fully supported by the decisions of this Court.”) (emphasis added). This

rationale has formed the cornerstone upon which courts have upheld the constitutionality of

mandatory pooling and statutory unitization laws.

2. Decisions from major producing states all support the rule thatunitization is a valid exercise of police power.

Oklahoma was an early adopter of mandatory pooling and statutory unitization laws, and

the state supreme court has rejected constitutional challenges to both. In Patterson v. Stanolind

Oil & Gas Co., for example, the Oklahoma Supreme Court rejected a landowner’s claim that his

compulsory participation in a well-drilling unit under the state’s mandatory pooling statute

violated his constitutional due process, equal protection, and contract rights. 182 Okla. 155, 77

P.2d 83, ¶ 13 (1938). The court noted that the landowner’s rights to the oil and gas were coequal

(i.e., correlative) with the rights of other owners in the unit, and subject to the state’s police

power to avoid waste and protect correlative rights:

[T]he right of the owner of land to the oil and gas thereunder is notexclusive but is common to and merely coequal with the rights ofother landowners to take from the common source of supply, andtherefore that his property rights to said oil and gas are subject tothe legislative power to prevent the destruction of the commonsource of supply. [Id. at ¶ 7.]

The court held that (i) the state lawfully acted within its police power to protect correlative

rights to a common source of supply; and (ii) the equitable apportionment of production among

all landowners in the unit is not an unconstitutional taking but rather an appropriate

restriction or qualification for the purpose of protecting correlative rights:

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Thus, in our opinion, the lawful exercise of the state’s power toprotect the correlative rights of owners in a common source ofsupply of oil and gas is not a proper subject for the invocation ofthe provisions of either the State or Federal Constitution whichprohibit the taking of property without just compensation orwithout the due process of law and forbid the impairment ofcontract obligations. As we view it, the property here involved hasnot been taken or confiscated: its use has merely been restrictedand qualified. This does not violate the due process clause ofeither Constitution. [Id. at ¶ 17.]

The Supreme Court of the United States subsequently dismissed Patterson’s appeal from

the Oklahoma decision, concluding that “state court applied well settled principles in denying

plaintiff's contention under the Fourteenth Amendment.” 305 U.S. 376, 379, 59 S.Ct. 259 (1939)

(citing Ohio Oil). Accord Anderson v. Corp. Comm., 1957 Okla. 39, 327 P.2d 699 (1957)

(reaffirming constitutionality of statutory pooling statute on police power grounds).

The Oklahoma Supreme Court likewise upheld the constitutionality of the state’s

statutory unitization law in Palmer Oil Corp. v. Phillips Petroleum Co., holding that: “[t]he

police power of the State extends to defining the correlative rights of owners in a common source

of oil and gas supply, providing for the management, operation and further development of such

common source of supply and distributing the proceeds thereof among those entitled thereto.”

204 Okla. 543, 231 P.2d 997 (1951) at paragraph two of the syllabus. The Supreme Court of the

United States dismissed an appeal, finding that “[i]n the light of our previous decisions,

appellants have failed to raise any substantial federal questions.” 343 U.S. 390, 392, 72 S.Ct.

842 (1952).

The Oklahoma Supreme Court reaffirmed the statute’s constitutionality in Spiers v.

Magnolia Petroleum Co., 206 Okla. 503, 244 P.2d 843 (1951), as did a recent Oklahoma

appellate court decision:

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[T]he regulation of the unitized management and development ofoil and gas properties within this state constitutes a valid exerciseof the state's police powers, and orders of the CorporationCommission dictating the unitized management and developmentof oil and gas properties within this state, commensurate with statelaw, do not violate the Oklahoma constitutional provisionsrelating to due process or the taking of private property.[O’Brien Oil, L.L.C. v. Norman, 2010 OK Civ. App. 23, ¶ 16, 233P.3d 413, 417.]

Similarly, in Hunter v. McHugh, the Louisiana Supreme Court upheld the

constitutionality of the state’s statutory pooling law. 202 La. 97, 124, 11 So.2d 495, 503 (1942).

On appeal, the Supreme Court of the United States agreed, holding that “[a] State has

constitutional power to regulate production of oil and gas so as to prevent waste and to secure

equitable apportionment among landholders of the migratory gas and oil underlying their land,

fairly distributing among them the costs of production and of the apportionment.” 320 U.S. 222,

64 S.Ct. 19 (1943) at paragraph 2 of the syllabus (emphasis added).

Most recently, the Supreme Court of Arkansas also upheld the constitutionality of its

statutory pooling law, rejecting a nearly-identical claim to the one that Relators bring here. In

Gawenis v. Ark Oil. & Gas Comm., an unleased landowner (Gawenis) appealed an order by the

Arkansas Oil and Gas Commission integrating his lands into a horizontal drilling unit under the

Arkansas Conservation Act. 2015 Ark. 238, 464 S.W.3d 453, 454 (2015). He contended that

“the Commission’s forced integration of his mineral interests is an unconstitutional taking of his

property and that the Commission’s order deprived him of his constitutional right to a jury trial

to determine just compensation for his property.” Id. The Arkansas Supreme Court disagreed:

We find persuasive the reasoning [of the Oklahoma SupremeCourt]. *** [T]he forced-integration provisions of the ArkansasConservation Act do not “take” anything away from Gawenis.Rather, the integration order allowed Gawenis to lease his interestin the drilling unit in exchange for compensation or to participatein the drilling of the well and receive monetary benefits.

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* * *[T]his court has recognized that, although article 2, section 22protects individual property rights, the individual’s use andenjoyment of property is always subject to reasonable regulationsin order to preserve the welfare of the public at large. * * * Wehave also recognized that the valid exercise of the police powerthrough land-use regulations does not constitute a compensable“taking” because “the owner of such property is sufficientlycompensated by sharing in the general benefits resulting” from theregulations. *** We hold that the Commission’s integration ofGawenis’s .69 acre mineral interest is not a compensable takingbut a constitutional exercise of the State’s police power. [Id. at458.]

Every other high court that has addressed the constitutionality of mandatory pooling or

statutory unitization has found such provisions to be a valid exercise of the state’s police power.

See, e.g., Hunters v. Justice’s Court of Centinela Twp., 36 Cal.2d 315, 223 P.2d 465 (1950);

Trees Oil Co. v. State Corp. Comm., 279 Kan. 209, 234, 105 P.3d 1269, 1285 (2005) (stating

that “[t]he Commission’s [unitization orders] are not in in any way a ‘taking’ as Trees argues”);

Everett v. Phillips Petroleum Co., 218 La. 835, 846, 51 So.2d 87, 91 (1950); Superior Oil Co. v.

Foote, 214 Miss. 857, 59 So.2d 85 (1952); Sylvania Corp. v. Kilborne, 28 N.Y.2d 427, 271

N.E.2d 524 (1971); Texaco, Inc. v. Indus. Comm., 448 N.W.2d 621, 623 n.1 (N.D. 1989)(“[t]he

constitutionality of oil and gas conservation legislation, including compulsory pooling, is well

established”); Bennion v. ANR Prod. Co., 819 P.2d 343 (Utah 1991); Hale v. CNX Gas Co.,

LLC, W.D.Va. No. 1:10cv00059, 2011 U.S. Dist. LEXIS 52935 (Jan. 21, 2011).

Tellingly, Relators’ brief fails to cite any of these decisions.

D. The constitutionality of statutory unitization does not depend on theformation being developed.

Relators are wrong to imply that statutory unitization is unconstitutional when applied to

horizontal shale development. This regulatory tool is meant to optimize development while

enabling the producer to utilize the most economically-efficient and effective drilling techniques

25

available (Kramer and Martin, § 1.02)—which today is horizontal development.

Fundamentally, statutory unitization is based on the premise that only through reservoir-wide

development can the maximum amount of hydrocarbons be produced using the most cost-

efficient technologies. See, e.g., Carr, Compulsory Fieldwide Unitization, 49 Rocky Mtn. Min.

L. Fdn. at 21-3 (2003) (“The goal of unitization is to avoid disorderly and wasteful production

practices by permitting the characteristics of the reservoir, not individual competitive ownership

concerns, to control development of the resources. * * * The purpose of compulsory unitization

is to prevent one or a few owners from blocking the development of a pool under a unit plan.”)

(emphasis in original).

That premise applies equally to conventional vertical drilling and the use of innovative

horizontal drilling technologies needed to develop the Utica-Point Pleasant shale. With the

latter type of development, statutory unitization allows producers to locate their horizontal

laterals in the optimal position and azimuth without regard to man-made property boundaries

within the unit. Thus, to the extent that Relators claim that statutory unitization is

unconstitutional when applied to horizontal drilling in the Utica-Point Pleasant shale, that claim

too must fail. To hold otherwise would frustrate the purposes of R.C. 1509.28. See Staff Report

at 14 (noting that the approach advocated for R.C. Chapter 1509 was meant to apply “to the

orderly development of the [Morrow County oil boom] and to any future discoveries that might

occur in Ohio.”).

Similarly, other courts have continued to recognize the applicability of the state’s

police power to consolidate mineral and leasehold interests for the purposes of development in

the era of horizontal drilling. For example, in Continental Resources v. Farrar Oil Co., the

Supreme Court of North Dakota rejected Farrar Oil Co.’s trespass claim arising out of a

26

mandatory pooling order obtained by Continental Resources. 1997 ND 31 at ¶ 2, 559 N.W.2d

841. Farrar claimed that the state’s police power did not permit Continental, acting under the

mandatory pooling order, to drill a horizontal well through its leasehold. Rejecting Farrar’s

claim, the North Dakota Supreme Court held that: “[t]he police powers exercised by the

Commission here effectively superseded Farrar’s right to use its oil and gas properties as

Farrar pleases.” Id. at ¶ 16 (emphasis added). “To hold otherwise,” the court found, “would

frustrate the purposes of the North Dakota Resources Act and would make an Industrial

Commission’s forced pooling order ineffectual.” Id. at ¶ 17.

Likewise, in Gawenis v. Ark Oil. & Gas Comm. (also discussed above), the Arkansas

Supreme Court rejected the claim that a statutory pooling order resulted in an unconstitutional

taking of property in the context of horizontal development in the Fayetteville Shale. Gawenis,

464 S.W.3d 453.10 It found: “the forced-integration provisions of the Arkansas Conservation

Act do not ‘take’ anything away from Gawenis. Rather, the integration order allowed Gawenis

to lease his interest in the drilling unit in exchange for compensation or to participate in the

drilling of the well and receive monetary benefits.” Id. at 457.

There is nothing about modern horizontal development that prevents the state’s police

powers from protecting correlative rights and avoiding waste through statutory pooling or

unitization laws. Moreover, to the extent Relators raise concerns regarding the use of horizontal

drilling in Ohio, those concerns are misplaced. And in any event, this Court is the wrong forum

to deliberate such policy issues. See State ex rel. Williams v. Glander, 148 Ohio St. 188, 190, 74

N.E.2d 82 (1947) (“So long as an act of the General Assembly is constitutional, the question of

10 The unitization order in the Gawenis case noted that the “[a]pplicant proposes to drill ahorizontal well from a non-exceptional surface location . . . .”). See Order No. 117-1-2012-05,Arkansas Oil and Gas Comm. (June 4, 2012), retrieved from http://www.aogc2.state.ar.us/May_2012_Hearing_Orders.htm.

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policy is solely for the legislative branch of our state government to determine.”). Rather, the

sole issue before this Court is whether the chief’s unitization order is constitutional—and it

clearly is, according to longstanding principles of law enunciated by this Court, the Supreme

Court of the United States, and all other high courts that have addressed the issue.

VI. CONCLUSION

The constitutionality of statutory unitization is well-settled. Every high court that has

addressed the issue has found it to be a proper exercise of state police power to promote oil and

gas conservation, prevent physical and economic waste, and protect correlative rights—thereby

ensuring that every mineral owner to a common source of supply is afforded an opportunity to

reap the benefits of that resource. In Ohio, statutory unitization has played a key role in the

successful development of the Utica / Point Pleasant shale, with the Division having issued

nearly fifty unitization orders since 2012.11 And that regulatory tool is expected to continue

playing a crucial role in facilitating development in years to come, especially as development

reaches areas having greater challenges due to uncertainty regarding title and other issues.

In fact, for many landowners, the statutory unitization process in R.C. 1509.28 is their

only means of realizing the benefits of shale development. By way of example, at a hearing

before the Ohio House Energy and Natural Resources Committee regarding the importance of

statutory unitization of lands belonging to the Ohio Department of Transportation, a landowner

in the unit testified:

Sadly, the JAMAR south unit is not the only unit that is being heldup … I understand that there are approximately 30 wells that arebeing affected by these same issues. This area of Ohio is one ofthe most economically depressed in the entire state. I personallyknow of two land owners that are in danger of losing their homesdue to financial problems. In addition, I know several of the

11 Information obtained from the Ohio Department of Natural Resources on December 20, 2016.

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families in that area that have children in college that are unable toafford it and will need to drop out if they cannot get some financialrelief. The school systems that [are] covered by these wells arefinancially insolvent and unable to improve let alone maintain theirfacilities. Production of these minerals would significantly helpnot only the citizens but also the school system.

[T]here needs to be clarity that ODOT and other state agencies arenot above the law and cannot hold up development of theminerals when they are minority owners in the unit. It is time tostop letting the tail wag the dog on these issues and let mineralowners develop their minerals and receive the financial benefits.[Testimony of David Schaffner before the Ohio House ofRepresentatives Energy and Natural Resources CommitteeRegarding H.B. 8 (Mar. 3, 2015) (emphasis added).]

Thus, even if the Court agrees to hear the merits of Relators’ suit, despite their failure to

exhaust their administrative remedies, Relators’ claim that the unitization order is an

unconstitutional taking of property should be rejected. That claim is contrary to the settled law

of this state. It is contrary to the decisions of every state high court that has addressed the issue.

And it is contrary to the decisions of the Supreme Court of the United States. To hold otherwise

would have severe consequences for the safe and efficient development of Ohio’s valuable oil

and gas resources.

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Respectfully submitted,

/s Gregory D. RussellGregory D. Russell (0059718)(Counsel of Record)John J. Kulewicz (0008376)Ilya Batikov (0087968)Vorys, Sater, Seymour and Pease LLP52 East Gay Street/P.O. Box 1008Columbus, Ohio 43216-1008Tel: (614) 464-6400Fax: (614) 719-4954E-mail: gdrussell@vorys.com

jjkulewicz@vorys.comibatikov@vorys.com

Counsel for Amici Curiae The Ohio Oil and GasAssociation, Artex Energy Group LLC, AscentResources – Utica, LLC, Carrizo (Utica) LLC,EnerVest Operating, L.L.C., and Hess OhioDevelopments, LLC

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CERTIFICATE OF SERVICE

A copy of the foregoing Brief of Amici Curiae The Ohio Oil and Gas Association, ArtexEnergy Group LLC, Ascent Resources – Utica, LLC, Carrizo (Utica) LLC, EnerVest Operating,L.L.C., and Hess Ohio Developments, LLC, in Support of Respondents was served via e-mailpursuant to S.Ct.Prac.R. 3.11(C)(1) this 21st day of December 2016 to:

PHILLIP J. CAMPANELLA (0010875) MICHAEL DEWINE (0009181)7059 Gates Road Ohio Attorney GeneralGates Mills, Ohio 44040Tel: (440) 655-1553 BRIAN J. BECKER (0089738)E-mail: p.campanella@att.net Daniel J. Martin (0065249)

Assistant Attorneys GeneralAttorney for Relators Environmental Enforcement Section

2045 Morse Road, Bldg. A-3Columbus, Ohio 43229Tel: (614) 265-7071Fax: (614) 268-8871E-mail: brian.becker@ohioattorneygeneral.gov

daniel.martin@ohioattorneygeneral.gov

Attorneys for Respondents

/s Ilya BatikovIlya Batikov (0087968)

12/21/2016 26190390