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Tuesday, January 26, 2016

Beck Energy Victory in Oil and Gas Lease Case is Upheld by Ohio Supreme Court

From Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A.:
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. 
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