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Ohio Supreme Court declines to review case involving temporary cessation and paying quantities issues related to oil & gas leases

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


On January 25, 2017, the Ohio Supreme Court declined to review RHDK Oil & Gas, L.L.C. v. Dye, 2016-Ohio-4654 (7th Dist. Harrison). The Dye case involved a 1980 oil and gas lease, in Harrison County, Ohio, covering 288 acres. On September 3, 1982, a well was drilled on the property covered by the lease.  During the 1990s, there were a few periods of time during which there was no recorded gas production from the well for several months, but never more than six months.


The trial court granted summary judgment to the lessee, finding that the lease had been held by production in paying quantities, in the judgment of the lessee. On appeal, the Seventh District Court of Appeals was confronted with the issue of whether the periods of non-production caused the lease to terminate. 2016-Ohio-4654, ¶ 15. The Court of Appeals found “[w]hile . . . there is no bright line rule in regard to cessation periods, the caselaw indicates that absent a finding of unreasonableness, a six-month cessation period is temporary and does not terminate a lease.” 2016-Ohio-4654, ¶ 24. The Court of Appeals found that there was no evidence that the lessee had acted unreasonably when it continued to produce the well after the periods of production cessation, acknowledging that there may always be temporary periods of production cessation, which could be caused by routine maintenance or even weather-related events. Based on these facts, the Court of Appeals held that the lease had not terminated during the periods of temporary cessation of production. 2016-Ohio-4654, ¶¶ 25-27.


As to the issue of whether there was consistent production in “paying quantities in the judgment of the Lessee,” the Court of Appeals first acknowledged that this phrase within an oil and gas lease’s habendum clause (the clause that measures the life of the lease) “provides the lessee even more discretion in judgment than that already given within the ‘paying quantities’ standard.’” 2016-Ohio-4654, ¶ 29. The Court of Appeals held that the lease had not expired due to lack of production of paying quantities, relying upon two affidavits from the lessee stating that it believed the well remained profitable and evidence supporting the existence of continuous royalty payments. 2016-Ohio-4654, ¶¶ 30-33.


On January 25, 2017, the Ohio Supreme Court declined to review the Seventh District’s decision. Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A. and Attorneys Owen J. Rarric and Matthew W. Onest represented the lessee in the litigation.


Founded in 1958, Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A. provides representation across various practice areas of law:  Oil, Gas & Mineral Law, Corporate and Business Law, Real Estate and Construction, Labor and Employment, Employee Benefits, Workers’ Compensation, Commercial Lending and Finance, Taxation, Health Care, Environmental Law, OSHA, Trusts and Estates, and Litigation in all areas. The Firm has over 50 attorneys with offices throughout Northeast Ohio, serving Canton, Akron, Alliance, New Philadelphia, and Sugarcreek. For more information visit www.kwgd.com

 
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