Ohio Supreme Court Invalidates Local Oil And Gas Regulation

Good news for the oil and gas industry in Ohio came last week in the form of a Supreme Court decision invalidating local ordinances that sought to regulate oil and gas production activities, weighing in on what has recently become one of the most contentious issues in the Appalachian Basin. Specifically, the Court held that the Home Rule Amendment to Ohio's Constitution does not grant municipalities the power to enact their own oil and gas permitting schemes, as the state government holds "sole and exclusive" authority over the regulation of oil and natural gas. However, the Court's 4-3 ruling was narrowly confined to the ordinances in question, leaving open the possibility of permissible local regulation through zoning.

Bittersweet for the industry in Ohio:

The Supreme Court invalidated five local permitting ordinances that conflicted with R.C. 1509.02, but left the door open for potentially valid local regulation in the zoning context.

In State ex rel. Morrison v. Beck Energy Corp., No. 2013-0465, 2015-Ohio-485 (Feb. 17, 2015), the city of Monroe Falls (a suburb of Akron) alleged violations of multiple local ordinances purporting to regulate oil and gas development within its borders, seeking injunctive relief to prohibit Beck Energy Corp. from continuing operations. Beck had obtained a permit to drill within the city from the Ohio Department of Natural Resources (ODNR) pursuant to Chapter 1509 of the Revised Code. Chapter 1509 is a comprehensive regulatory scheme that entrusts ODNR with "sole and exclusive authority" over oil and gas regulation within the state, and expressly prohibits local governments from impinging on that power. Despite this, the Summit County Court of Common Pleas enjoined Beck from drilling within the city pursuant to its ODNR permit until it complied with all local ordinances. The Court of Appeals for the Ninth District reversed and remanded. See 2013-Ohio-356, 989 N.E.2d 85. The city appealed, and the Ohio Supreme Court accepted jurisdiction.

The city argued on appeal that the drilling ordinances represented a valid exercise of its home rule authority. Although Ohio's Home Rule Amendment grants municipalities broad power, it prohibits them from exercising their police powers in a manner that "conflict[s] with general laws." Under a three-step analysis, Justice French (writing for the majority) held that: (1) the ordinances undisputedly constituted an impermissible exercise of the city's police power; (2) R.C...