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Fifth District Court of Appeals Reverses Ruling In Favor of Lessor that Found an Oil and Lease was Forfeited as a Matter of Law

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

In Mauger v. Positron Energy Resources, Inc., the Fifth District Court of Appeals reviewed a decision from the Morgan County Court of Common Pleas that found an oil and gas lease forfeited as a matter of law and ordered the lessee to plug a well located on said leasehold.  The trial court in Mauger granted summary judgment in favor of the lessor, finding: the lease expired by its express terms based on a gap in production from 1995 to 2007 and lessee’s failure to pay delay rentals during said period; the lessee abandoned the oil and gas lease at issue during the period of time no oil or gas was produced; and the lessee breached the implied covenant of reasonable development. 

The Fifth District found that summary judgment was inappropriate based on the existence of questions of fact as to the lessor’s allegations.  Specifically, the Fifth District found that language contained in the lease habendum as to the secondary term created a question of fact as to whether the lease expired by its term.  The lease language stated the secondary term will continue for “so much longer thereafter as oil or gas is produced from said premises, or so long as gas is being injected, held in storage or withdrawn by Lessee in or from the lands hereinafter described or other lands located in the same or any adjoining township.”  The Fifth District looked to evidence presented that gas may have been injected, held in storage or withdrawn by the lessee from lands located in the same or adjoining township.  The Court further found summary judgment inappropriate as the lessor failed to present any evidence or assertion that lessee failed to make delay rental payments during the period of time no oil or gas was produced from the leasehold. 

Additionally, the Court found summary judgment inappropriate as to whether the lease was abandoned.  The Court held “[t]he passage of time alone is insufficient, but the absence of any activity on the property over a substantial period of time that should be considered in light of all the circumstances leading to a determination of relinquishment of possession, both as to the lease and the equipment thereon.”  The Court found questions of fact existed based upon the terms of the lease and removal of gas from adjacent property and the removal (and subsequent replacement of) the pump jack and tank to the well physically located on the leasehold.

Finally, the Fifth District addressed the trial court’s finding that the lessee breached the implied covenant of reasonable development (which was not waived in the underlying oil and gas lease), finding that the language contained within the habendum “contemplates more than production of oil and gas” on the leasehold, and “encompasses the injection, storage, or withdrawal of gas in or from [the leasehold] or other lands located in the same or adjoining township.”  As a result, he Court found that evidence presented before the trial court of production of oil and/or gas from a unit comprising acreage adjacent to the lessor’s property created a genuine issue of fact as to whether the implied covenant of reasonable development had been breached. 

Based on the above, the Fifth District reversed and remanded to the trial court for further proceedings consistent with the findings of the Court’s opinion. 

Mauger v. Positron Energy Resources, Inc., et al., 5th Dist. Morgan No. 14AP0001, 2014-Ohio-4613 (Oct. 6, 2014)

NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.

If you have any questions concerning this client alert, please contact Attorney Gregory W. Watts at 330-497-0700.

 
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