Ohio Supreme Court: Municipalities Cannot Obstruct Oil and Gas Development That the State Has Permitted

By:  Michael J. Matasich and Matthew R. Duncan

The Ohio Supreme Court has issued an important decision in State ex rel. Morrison v. Beck Energy Corp., Slip Opinion No. 2015-Ohio-485 reaffirming the preeminent role of the State of Ohio in regulating oil and gas drilling over local municipalities.

Beck Energy Corporation obtained a permit from the Ohio Department of Natural Resources in 2011 to drill a well in Monroe Falls, Ohio.   After Beck Energy began drilling, Monroe Falls issued a stop-work order and filed for an injunction because Beck Energy failed to comply with Monroe Falls’ local ordinances.  Specifically, the city had its own permitting scheme that required Beck Energy to obtain a “zoning certificate,” wait one year, pay a fee, deposit a performance bond, and hold a public hearing before it could begin drilling.  The trial court granted the injunction, but the Ninth District Court of Appeals reversed on grounds that the local ordinances conflicted with state statutes.

The Ohio Supreme Court issued its decision on February 17, 2015, affirming the Court of Appeals’ decision.  The Court held that Revised Code Chapter 1509 regulates oil and gas wells and production operations in Ohio.  R.C. 1509.02 in particular provides that the state government has the “sole and exclusive authority” to regulate permitting, location, spacing and production operations.

Monroe Falls argued that the Home Rule Amendment to the Ohio Constitution authorized it to enforce its own permitting process, but the Supreme Court rejected that argument.  The Court held that the Home Rule Amendment does not allow municipalities to exercise their police powers in a manner that conflicts with state statutes.  Monroe Falls’ local ordinances conflicted with the statutes by restricting an activity – drilling – that the state had already permitted.  Further, the ordinances conflicted with R.C. 1509.02 which gives the state the “sole and exclusive authority” to regulate permitting.

The Court was careful to limit its decision to the particular ordinances before it: “We make no judgment as to whether other ordinances could coexist with the General Assembly’s comprehensive regulatory scheme.”  But for those communities in Ohio that have banned or heavily regulated drilling activity within their borders, it is hard to believe that their local measures would survive a challenge under this decision.

Contact Michael J. Matasich or Matthew R. Duncan for more information.

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