Ohio Supreme Court Strikes Down A Municipality's Efforts To Regulate Oil And Gas Production

The rise of oil and gas production in the Utica and Marcellus shale plays, encouraged by state policies, has led many municipalities to seek to exert some control over oil and gas drilling within their borders. In the past two years, the highest courts in Pennsylvania and New York have sided with municipalities and have upheld municipal zoning ordinances against challenges that such ordinances were preempted by state regulation. The Ohio Supreme Court has weighed into this controversy, striking down a municipality's zoning and oil and gas ordinances on preemption grounds. The case produced five opinions, including a lead opinion signed by only three justices and concurred in by another. Because of the breadth of the ordinance at issue and the limited holding by the majority of justices, the Ohio court's decision leaves open the possibility that more traditional zoning approaches limiting drilling could be upheld.

In State ex rel.Morrison v. Beck Energy Corp., Slip Op. No. 2015-Ohio-485 (Feb. 17, 2015)

On February 17, 2015, the Supreme Court of Ohio issued its opinion in In State ex rel. Morrison v. Beck Energy Corp,1 holding that several municipal ordinances were preempted by Ohio's oil and gas wells and production operations statute, Chapter 1509 of the Ohio Revised Code. The decision was split, with four of seven justices in favor of striking the ordinances. Three justices joined in the lead opinion. The concurring opinion agreed with the result because the ordinances at issue set up a parallel licensing and permitting scheme that conflicted with the licensing and permitting scheme set forth in Chapter 1509. Notably, however, the concurring justice, drawing on recent decisions in New York and Pennsylvania, appeared to favor allowing municipal ordinances reflecting traditional zoning concerns that would indirectly prohibit oil and gas drilling. Thus, the Beck decision leaves open the possibility that municipal zoning ordinances that have the effect of prohibiting oil and gas drilling could be upheld.

Relevant Facts and Procedural History

Beck Energy Corporation ("Beck Energy"), an Ohio oil and gas driller, entered into a lease agreement with a landowner who owned several acres of property within the corporate limits of the City of Munroe Falls (the "City").2 Pursuant to that agreement, Beck Energy acquired the right to produce any natural gas under the landowner's property.3 In 2011, Beck Energy obtained a permit from the Ohio Department of Natural Resources ("ODNR") to begin drilling operations.4 The permit was issued pursuant to Section 1509.02 of the Ohio Revised Code.5 Amended in 2004 to provide "uniform statewide regulation"6 of oil and gas well operations, Section 1509.02 provides that the ODNR "has sole and exclusive authority to regulate the permitting, location, and spacing of oil and gas wells and production operations within the state...with respect to all aspects of the locating, drilling, well stimulation, completing, and operating of oil and gas wells within this state..."7 Further, "Nothing in this section affects the authority granted to...local authorities in section 723.01 or 4513.34 of the Revised Code, provided that the authority granted under those sections shall not be exercised in a manner that discriminates against, unfairly...