Background
Eric Petroleum owned an oil and gas lease on Dawson property since 2008. In 2010, it sold the “deep rights” to Ohio Buckeye Energy, LLC (later merged into Chesapeake Explorations, LLC) under an Asset Sale Agreement that gave Eric Petroleum a 10% working interest option on any wells drilled and a reversionary interest if drilling commitments were breached. Chesapeake later assigned those deep rights to EAP Ohio, LLC without Eric Petroleum’s consent. EAP sought unitization of the property into “Dawson Unit South” and approval to drill three wells. Eric Petroleum appealed the unitization order to the Ohio Oil and Gas Commission, claiming standing based on its option to participate and alleged reversionary interest.
The Commission dismissed for lack of standing. The trial court reversed, finding Eric Petroleum had standing. The Division and EAP appealed to the Court of Appeals, which initially affirmed the standing dismissal. Eric Petroleum then sought reconsideration, arguing the court had made a factual error in characterizing its option to participate as a matter in dispute in parallel Columbiana County litigation.
The Court’s Holding
The court granted reconsideration in part, acknowledging it erred factually: Eric Petroleum’s notice of appeal did not claim the option to participate was at issue in the Columbiana County litigation. That litigation concerned only alleged breaches of the Asset Sale Agreement. This meant Eric Petroleum had asserted a present property interest—the option itself.
However, the court held that even with this correction, Eric Petroleum lacked standing to appeal the unitization order. Under the unitization order’s own definition, a “working interest” is an interest held by someone obligated to pay a portion of unit expenses. An option to participate is not a working interest because Eric Petroleum had never exercised the option and therefore had incurred no obligation to pay unit expenses. An unexercised option does not give the holder the status of a working interest owner and thus provides no basis for standing to challenge the order. The court concluded the unitization order did not adversely affect Eric Petroleum’s option, which remained available for future exercise if circumstances changed.
The court also rejected Eric Petroleum’s argument that standing and subject-matter jurisdiction are distinct in this context. It held that standing is jurisdictional in administrative appeals when the General Assembly incorporates a standing requirement into the tribunal’s authority statute, as Ohio law does for oil and gas appeals.
Key Takeaways
- An unexercised option to acquire a working interest does not itself constitute a working interest for purposes of standing to challenge unitization orders.
- Standing is jurisdictional in administrative appeals, not merely a capacity issue, when the General Assembly includes standing requirements in the tribunal’s statutory authority.
- The definition of “working interest” in the unitization order controls—it requires the holder to be obligated to pay unit expenses, which does not apply to those with unexercised options.
- Appellate courts may grant applications for reconsideration when they commit obvious factual errors, but correcting the error does not automatically change the outcome if legal conclusions remain valid.
Why It Matters
This decision clarifies critical distinctions in oil and gas law between option holders and working interest owners. Lessees or assignees with contractual options to participate cannot challenge unitization orders affecting the underlying property merely by holding an unexercised option. They must either exercise the option (becoming obligated to bear unit expenses) or demonstrate other present interests—such as reversionary interests—with sufficient legal certainty to establish standing.
For administrative appeal practitioners, the decision confirms that standing requirements in oil and gas statutes are jurisdictional, not waivable defenses. This has procedural implications: the standing issue can be raised at any time, cannot be waived, and is separate from whether a tribunal has constitutional or statutory authority to hear the case.