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 searcherone on January 21, 2016 at 10:46am

Put this in plain English. . . are the Beck leases invalid?   and those people whose leases were in the tolling order, have those leases now expired?

Permalink Reply by searcherone on January 21, 2016 at 11:03am

http://www.courtnewsohio.gov/cases/2016/SCO/0121/140423_141933.asp#...

Here is the written summary of the case and ruling and I personally still don't understand the details.   Would someone please explain.

Permalink Reply by The Hiker on January 21, 2016 at 11:26am

It appears that the leases are not void, but are subject to a 10 year maximum term during which Beck can pay delay rentals and hold the leases without drilling.  After 10 years, the leases are void if no drilling has taken place.  That's how I read it.   I'm not sure about the tolling issue, but it appears the clock has started ticking again since the court has made its decision.

Permalink Reply by Portiuncula Franciscan Hermitage on January 21, 2016 at 11:41am

For those of us who's leases have expired as of the expiration date, the lease is no longer valid. For those who have time left on their leases, they have to wait until that date for it to conclude.

Permalink Reply by Puzzled on January 22, 2016 at 6:42am

Well at least now we know.....It would really be nice if the court would go ahead and rule on the DMA  questions that have been presented to them

Permalink Reply by searcherone on January 21, 2016 at 12:09pm

So for those with time on their leases they need to be worried that Beck Energy will make an attempt of drilling on their property, even a shallow well to hold the lease.   Always something in the oil patch, , , some of it like a soap opera.

Permalink Reply by Olive Sue on January 22, 2016 at 3:52am

Having read all info cited above, I would  understand this as follows:

Hupp suit in favor of Beck.

Claugus suit had four judges in favor of Beck and three dissenting, so until one reads the actual decision from the court I believe Beck won it all.  It would be nice to believe it not so but .........I think those of us (our lease should have expired February 2014) are exactly where we were, 18 months added to our lease.  You all are probably tired of hearing me say we should not have been tolled without our agreement.  Faith in our system has been severely discredited!

XTO is now in position to proceed, they have several sites ready to begin preparing pads.  Lets see  85 million invested, what is a few more million?  Oh maybe a few more dollars too!!!!

Oh yes Searcherone this might end this soap opera.  I have appreciated all the info you have shared over the last few years.

Permalink Reply by Olive Sue on January 22, 2016 at 4:16am

Reply to my own comments! that 18 months is 38 months.

Permalink Reply by Philip Brutz on January 22, 2016 at 5:54am

The Ohio Supreme Court Finds Oil and Gas Leases Are Not Void As Against Public Policy

http://w***********/hupp-claugus

Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A.
practice areas Oil, Gas & Mineral Law
Jan 22, 2016

Krugliak, Wilkins, Griffiths & Dougherty oil and gas attorneys, Scott M. Zurakowski, William G. Williams, Gregory W. Watts, and Aletha M. Carver successfully defended energy company, Beck Energy Corporation, in two significant cases in the Ohio Supreme Court, Hustack, et al. v. Beck Energy Corp.,[1] 2016-Ohio-178 and State ex rel. Claugus Family Farm,  L.P. v. Seventh District Court of Appeals, et al., 2016-Ohio-178.  Ohio’s prior oil and gas law stretching back to the 19th Century was being challenged.  The validity of almost every oil and gas lease in Ohio was on the line.  These decisions impact virtually every oil and gas producer (both local and national) who owns lease rights and/or is drilling in Ohio.   

In an unanimous decision from the Ohio Supreme Court (January 21, 2016), the Court affirmed the Seventh District Court of Appeals’ decision and concluded that the G&T 83 Oil and Gas Lease form was not a no-term, perpetual lease nor was the lease void ab initio as against public policy.  Specifically, the Court held:

  • Delay rental payments are limited to the primary term of a lease.
  • “Capable of being produced” refers to whether a well and not undeveloped land is capable of producing.
  • “Capable of being produced in the judgment of the lessee” does not permit discretion without development and applies to production from a well that has been drilled.
  • The dry hole lease provision only applies if drilling has occurred.
  • The shut-in payment provision only applies if a well is drilled and stops producing or cannot be marketed.
  • Specific lease language disclaiming or waiving implied covenants is contractually valid. 

Along with Hustack, the Court consolidated an original action that requested a writ of mandamus and prohibition in the Ohio Supreme Court by a member of the Hustack class action.  Petitioner, Claugus Family Farm, L.P., argued it was denied due process of law when the Seventh District Court of Appeals issued a tolling order, in Hustack, without first providing the petitioner with notice and an opportunity to opt out of the class action lawsuit. 

In a 5-2 decision, the Court dismissed Claugus Family Farm, L.P.’s original action.  The Court concluded Claugus Family Farm, L.P. had an adequate remedy at law by way of intervention in the Hustack litigation because counsel for Claugus knew about the tolling order and could have moved to intervene in the appeal before the Seventh District Court of Appeals.  The Court also found the court of appeals had jurisdiction to issue a tolling order that stayed the running of the primary term of the oil and gas leases to maintain the status quo during the pendency of the appeal. 

Permalink Reply by bo boboski on January 22, 2016 at 6:21am

Okay, I've read all the Mumbo-jumbo. Now someone explain what all this means to John Q. Landowner in S.E. ohio?

Permalink Reply by Barry D on January 22, 2016 at 6:43am

bo,

If you are under lease to Beck the clock on the term of the lease was suspended and only now begins to move again. Olive Sue stated above that you should add 38 months to the term of your lease. I'm not sure about the time to be added, I do know some time should be added to all valid leases.

Beck/XTO cannot pay delayed rentals to extend the term of the lease beyond the 10 year term.

A well capable of being produced will extend the term of the lease.

I would suspect that a well in the process of being developed would also extend the term of the lease.

Just my armchair lawyer opinion.

Permalink Reply by Joseph-Ohio on January 23, 2016 at 2:08am

I read / interpret that it's 'lease language dependent" and :

Yeah, but no and finally no as not in favor of the landowners / lessors.

Just how I as a layman interprets it.

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