27 Dec 2018

Update on Dundics v. Eric Petroleum Corporation

Travis Britton, Esq.

Claire Sergent Walls Legal Group PLLC

In a prior blog post titled “Did the Bad Guys Win? Dundics v. Eric Petroleum,” we discussed a would-be landmark decision regarding the oil and gas industry handed down by the Ohio Supreme Court and the effects it had on certain oil and gas professionals, namely land professionals engaging in the procurement of oil and gas leases from landowners (Dundics v. Eric Petroleum Corp., Slip Opinion No. 2018-Ohio-3826) (2018).

Essentially, the Court stated that it was compelled to interpret the law as written, which required an individual or entity to be a licensed real estate broker in order to engage in the negotiation of oil and gas leases, or for such individual to bring forth a cause of action for the collection of compensation related to said work. Although not historically enforced, Ohio law provided no exemption to licensure for oil and gas professionals negotiating oil and gas leases with landowners. As the Court’s duty is to interpret the law rather than to enact it, it concluded that land professionals should “take it up with the Ohio legislature” should they seek changes to the effect of the Court’s decision.

On December 19, 2018, Ohio Governor John Kasich signed SB 263 into law less than three months after the Ohio Supreme Court’s decision in Dundics placed these licensure requirements on land professionals.

Specifically, division (I)(1) of section 4735.01 of the Ohio Revised Code was amended to exempt the following from the definition of a real estate broker or salesperson: “an oil and gas land professional in the performance of the oil and gas land professional’s duties, provided the oil and gas land professional is not engaged in the purchase or sale of a fee simple absolute interest in oil and gas or other real estate and the oil and gas land professional complies with division (A) of section 4735.023 of the Revised Code” and “an oil and gas land professional employed by the person, partnership, association, limited liability company, limited liability partnership, or corporation for which the oil and gas land professional is performing the oil and gas land professional’s duties.”

The new law defines an oil and gas land professional as “a person regularly engaged in the preparation and negotiation of agreements for the purpose of exploring for, transporting, producing, or developing oil and gas mineral interests, including, but not limited to oil and gas leases and pipeline easements.”

In short, land professionals who are not purchasing fee interests but who comply with certain requirements (see below) as well as land professionals who are employees of the company for which they are negotiating are not required to obtain a real estate broker’s license.

Although the new law largely returns the requirements and responsibilities of the Ohio oil and gas land professional to the status quo, a few, less burdensome requirements on land professionals who are not negotiating on behalf of their employer were enacted with the legislation.

Division (A) of section 4735.023 of the Ohio Revised Code was added to require said land professionals to comply with the following requirements:

  • Register annually as an oil and gas land professional with the superintendent of real estate,
  • Pay an annual fee to the superintendent of real estate (not to exceed $100),
  • Make certain disclosures on a form (described therein) at or prior to first contacting a landowner,
  • Make those same disclosures on a form at or prior to entering into any agreements with landowners for the purposes of exploring for, transporting, producing, or developing oil and gas mineral interests, and
  • Be a member in good standing with an organization with a set of performance and ethical standards for oil and gas professionals, such as AAPL.

Although land professionals working in Ohio should be relieved that they are now exempt from licensure requirements imposed on real estate brokers in order to continue their work negotiating with landowners, they should ensure that they are fully in compliance with the new requirements enacted with the passage and signing into law of SB 263.

The new legislation is set to go into effect 90 days after Gov. Kasich’s signing on December 19, 2018.

If you have questions about the Ohio rule involving landmen, please contact:

Claire Sergent Walls, Esq. Ohio Bar License 90384.

Email: claire@cswlegalgroup.com