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Existing HBP Oil and Gas Lease Held Valid

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

The Guernsey County Court of Common Pleas recently entered an order upholding the validity of an oil and gas lease from 1980.  The lease covered 100 acres in Londonderry Township, Guernsey County and was written upon a standard form oil and gas lease, which contained the following handwritten provision, “If a second well is not drilled within one year after the first well, the acreage not included in the first well tract will be released.”  One oil and gas well was drilled under the lease utilizing all 100 acres of the leasehold.  In the case of Cox, et al. v. Doris J. Kimble dba Red Hill Development, the Court concluded that an oil and gas lease of RHDK Oil & Gas, LLC dba Red Hill Development was valid despite numerous arguments raised by the Plaintiffs, including that the older lease did not cover all depths, had expired due to a lack of production in paying quantities, was invalid due to an improper notary, was invalid under Ohio’s Forfeiture Statute found at O.R.C. 5301.332 and that Red Hill Development had breached their obligation to drill a second well and breached an implied covenant to develop the Utica Shale.  The Plaintiffs also raised issues with the fact that well in question contained H2S which ultimately prevented them from receiving free house gas.

The trial court rejected all of the Plaintiffs claims and held that the Plaintiffs were not entitled to a release of the oil and gas lease in question.  The trial court found that the lease contained a producing well, and therefore concluded that the Plaintiffs’ attempt to use O.R.C. 5301.332 to forfeit the lease “must fail on its face as a matter of law, as the Statute provides on its face that there is no producing oil and gas well on the premises,” and therefore had no application to the Red Hill Development lease.  The trial court also concluded that any claim by Plaintiffs that Red Hill Development should have drilled a second well was barred by the applicable 15-year statute of limitations, and that Plaintiffs had failed to prove any breach of any implied obligation to further develop the acreage.  As a result, Red Hill Development could not be liable to Plaintiffs for the alleged failure to develop the Utica Shale.  Further, the court found the spouse of the lessee was not precluded as a matter of law from acting as the notary, and further that the lessee’s performance of drilling an oil and gas well on the lessor’s property removed the issue from the application of the O.R.C. 5301.01. The case presents several significant issues for landowners and production companies to consider. 

The case also upholds the common proposition that an oil and gas lease covers all strata underlying the ground, unless an express exception is included in the oil and gas lease.  Finally, the decision falls in line with existing law that precludes forfeiture of an existing oil and gas lease under Ohio’s Forfeiture Statute when a producing oil and gas well exists under the lease.

If you have any questions about this article, please contact Attorney Gregory W. Watts or Attorney Owen J. Rarric.

 
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