Ohio Supreme Court Hands Down Slip Decision In Favor of 700 Landowners

SLIP OPINION NO. 2016-OHIO-178

THE STATE EX REL. CLAUGUS FAMILY FARM, L.P. v. SEVENTH DISTRICT

COURT OF APPEALS ET AL.

HUSTACK ET AL., APPELLANTS, v. BECK ENERGY CORPORATION, APPELLEE.

[Until this opinion appears in the Ohio Official Reports advance sheets, it

may be cited as State ex rel. Claugus Family Farm, L.P. v. Seventh Dist. Court

of Appeals, Slip Opinion No. 2016-Ohio-178.]

Oil and gas leases—Class certification—Validity of leases—Covenant to reasonably develop the land—Delay rentals do not extend beyond the fixed term of a lease.

(Nos. 2014-0423 and 2014-1933—Submitted December 15, 2015—Decided

January 21, 2016.)

IN MANDAMUS and PROHIBITION.

APPEAL from the Court of Appeals for Monroe County, Nos. 12 MO 6, 13 MO 2,

13 MO 3, and 13 MO 11, 2014-Ohio-4255.

_____________________

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Permalink Reply by Barry D on January 23, 2016 at 2:15am

Joseph,

I see a couple of "wins" for landowners. First - I believe that Beck was arguing that the payment of delayed rentals could extend the term of the lease past 10 years. The court said no. Now in order to maintain leases Beck must drill and produce a well. Of course some may argue that Beck will do this. I don't know how; there are so many leases, it would be virtually impossible to drill them all. To be sure, Beck/XTO may decide to drill a certain amount of the leases in areas they deem worthwhile. But remember, this will be an added cost to the ultimate development of the Utica etc.

Another win I see is the definition of "Capable of being produced". This is no longer at the discretion of the Lessee (Beck/XTO). Again, a producing well will have to be drilled in order to maintain expiring leases. Plus the determination of how shut in and dry hole payments may be applied to extend a lease.

Certainly not the slam dunk many had hoped for, but somewhat of a victory.

Permalink Reply by Barry D on January 23, 2016 at 2:37am

Slive?

Permalink Reply by Joseph-Ohio on January 23, 2016 at 3:11am

Something running afoul on my tablet or the GMS site.

Typed a reply on my tablet earlier and only a partial word posted.

Cyber Glitch to blame.

Read below which makes for a more sensible reply I think.

Don't know what happened to the earlier - but it's been happening awhile on numerous replies to posts I've attempted.

Wish me luck in the future - it is annoying when it happens.

J-O

Permalink Reply by Joseph-Ohio on January 23, 2016 at 2:41am

You find slivers of silver linings then.

All we can do is see what next pans out for the lessors.

Good luck to them and all of us.

Thanks for your interpretations Barry D.

Permalink Reply by Barry D on January 23, 2016 at 3:58am

Joseph,

Another general win for landowners is this:

           In the past Lessees (the companies) have interpreted clauses,

           in this form lease, to fit their needs. The Supreme Court decision

           means that this practice has been curtailed. I suspect that other

           interpretations of clauses in this lease will end up in court. So the

           process of defining terms has begun. It may not always be a win

           for landowners, but I think the overall effect will be to the benefit

           of landowners. Time will tell.

At the very least I hope that landowners considering a lease or renewing a lease take a long look at each and every word in the lease. Those words are not in the lease at random. Over one hundred years of refining lease language has been performed by companies. Every word means something; every clause is connected to other clauses. It's a serious matter to enter into a lease and I fear that too many folks have not treated it as such (including trusting some of the landowner groups). Now they are reaping the negative results of a bad decision. 

          

Permalink Reply by Barry D on January 23, 2016 at 7:50am

Joseph,

Yes, a sliver of a silver lining

Permalink Reply by LERRET on January 23, 2016 at 6:31am

HOW CAN ANYONE CLAIM LANDOWNERS WON!!!!!!  THEY LOST BIG TIME.

Beck gets to hold these leases forever without drilling yet the court declares it not a perpetual lease (which would have invalidated the lease in total).

from Judge Pfeiffer's very good dissent

Meanwhile, Beck Energy’s attorney argued that

Claugus’s interests, as an unnamed class member, were skillfully and properly

represented by the Hupps’ attorney, who was arguing directly contrary to Claugus’s

expressed interests. Because a class was certified and the leases tolled, Claugus

estimates that it will lose hundreds of thousands of dollars based on losing the lease

it negotiated with Gulfport. We have no way of knowing the total extent of the

economic carnage wrought on the 700 or so other landowners in Monroe County

and elsewhere in southeastern Ohio that are affected by this decision. The ultimate

irony, which you might think would only happen in a fictional case, is that the

Hupps, the lead plaintiffs in the class-action case, are no longer party to the suit.

It’s as if the Hupps’ attorney, whose ridiculous argument that the leases were

perpetual, made the argument just so he could initiate a Civ.R. 23(B)(2) suit,

thereby adding significant numbers to his oil and gas client base. It is as if the

Hupps and Beck Energy were part of a scheme to extend the Beck leases by

subterfuge—by making a specious argument about the validity of the leases and

tolling them—instead of extending the leases the old-fashioned way, by working

the land that is the subject of the leases. Beck Energy becomes the undisputed

winner of this case, whether by hook or by crook, because it assigned the disputed

leases to XTO Energy for $84 million. Claugus and other unnamed parties seeking

relief from this court were told below that they should have intervened in the

Seventh District—and that remains the best....

Permalink Reply by Barry D on January 23, 2016 at 7:38am

Lerret,

Beck cannot hold the leases forever.

Permalink Reply by searcherone on January 23, 2016 at 12:05pm

LERRET, I am agreeing with you that landowners lost big time and the Latin named poster of this discussion IMHO perhaps was misleading the frequent readers of this site.  Perhaps the headline  was a bit of "inside lawyer humor".  After all the only real info given was how to cite the case and how many on this site will be doing that.

 Barry, I do agree with you that there is a sliver of good in all this especially the "capable of being produced" definition.   However, that definition will have to be tested in court and that is more lawyers, court cases and time.

And Olive Sue this soap opera isn't over yet. . .a new season has just begun.  Stay tuned and watch what the sponsor EXXON/XTO does next to get their return on the 85 million they gave Beck Energy.  

Permalink Reply by Barry D on January 23, 2016 at 12:13pm

searcherone,

That is why I stated in one post that this may be the beginning of a process. Having seen the decision in this case I wonder how many companies will be willing to take the path of litigation.

Unfortunately, it will still fall to the average citizen to file lawsuits to protect their rights. A sad situation, all people want is to be treated fairly.

Permalink Reply by searcherone on January 23, 2016 at 12:30pm

Barry,  do you mean that companies will not want to get into a legal contest with the average citizen landowner over for example the definition of "capable of being produced".

Ohio has a lot of shallow wells holding lots of acreage with few wells drilled on the total acreage.   Isn't there  an acreage amount held based on how deep these shallow wells are?

Permalink Reply by Barry D on January 24, 2016 at 3:39am

searcherone,

I was just wondering out loud about litigation.

As for your second question:

There is a minimum amount of acreage required to drill certain depths. For example in many parts of Ohio the Clinton wells are about 4000' - 5000' which requires a 40 acre drilling/production unit.

However, one well could hold more than the 40 acre minimum acreage depending on lease language. Let's say you own 160 acres and sign a lease for all 160 acres without any Pugh clause or other limiting language. The company drills one well on the 160 acres (40 acre drilling/production unit), that 160 acres is now HBP.

Not fair, I know

Before anyone attacks me, this is just a general statement, I know the subject is a bit more complex.

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