Should Oil and Gas Professionals Be Licensed Real Estate Brokers?

On May 8, 2018, the Ohio Supreme Court heard oral arguments on whether professionals that deal in oil and gas leases are required to have a real estate broker’s license. At issue is whether the leases constitute an “interest in real estate” thereby requiring the professionals that negotiate them with landowners and petroleum companies to be licensed as a real estate broker.

The case stems from a contract dispute between Thomas Dundics, an oil and gas land professional, and Eric Petroleum Corp. Dundics alleged that Eric Petroleum agreed to pay him if he procured landowners that entered into an oil and gas lease with it. The lawsuit involves Eric Petroleum’s failure to pay Dundics for procuring a landowner that entered into an oil and gas lease.

The trial court and court of appeals dismissed Dundics’ lawsuit because he was not licensed as a real estate broker. Ohio law in R.C. 4735.21 provides in part:

No right of action shall accrue to any person .. for the collection of compensation for the performance of acts mentioned in 4735.01 of the Revised Code, without alleging and providing that such person .. was licensed as a real state broker.

R.C. 4735.01 defines “real estate” as “any and every interest or estate in land.” Eric Petroleum argued that an oil and gas lease is an “interest in land” and thus anyone that provides services pertaining to an oil and gas lease must first be licensed as a real estate broker.

Dundics argued that oil and gas professionals have been practicing in Ohio for many years without licensure, and no Ohio court has ever found that broker licensure is required. In his briefing he cited the differences between an oil and gas lease and a traditional residential or commercial real estate transaction, arguing that the state legislature never intended licensure for Oil and gas professionals. In his briefing before the Ohio Supreme Court, he references the absurdity of a ruling that would require oil and gas professionals to become licensed brokers.

The issue has left Ohio’s two federal district courts divided. In Wellington Resources Group, LLC v. Beck Energy Corp., the Federal District Court for the Southern District of Ohio held oil and gas leases are not “real estate” under Ohio law and thus Ohio’s real estate broker laws did not apply to oil and gas professionals.  Conversely, in Binder v. Trinity OG Land, the Federal District Court for the Northern District of Ohio held that the sale of mineral rights constituted the sale of real estate, thus any person procuring a potential seller of mineral rights had to be licensed as a real estate broker.

Although the Ohio Real Estate Commission in a 2011 Newsletter recommended that oil and gas professionals obtain licensure, it does not appear the Commission has taken any disciplinary actions against unlicensed oil and gas professionals.

Ultimately, this case will decide once and for all whether oil and gas land professionals who help obtain oil and gas leases, mostly for sophisticated oil and gas development businesses, should be licensed as real estate brokers.