Christman v. Condevco, Inc. ( 2020 )

[Cite as Christman v. Condevco, Inc., 2020-Ohio-938.]
IN THE COURT OF APPEALS OF OHIO
SEVENTH APPELLATE DISTRICT
MONROE COUNTY
MICHAEL CHRISTMAN ET AL.,
Plaintiffs-Appellants,
v.
CONDEVCO, INC. ET AL.,
Defendants-Appellees.
OPINION AND JUDGMENT ENTRY
Case No. 19 MO 0008
Civil Appeal from the
Court of Common Pleas of Monroe County, Ohio
Case No. 2016-147
BEFORE:
David A. D’Apolito, Cheryl L. Waite, Carol Ann Robb, Judges.
JUDGMENT:
Affirmed.
Atty. David Wigham, and Atty. Leighann Fink, Roetzel & Andress, LPA, 222 South Main
Street, Suite 400, Akron, Ohio 44308, for Plaintiffs-Appellants and
Atty. Kristopher Justice, Atty. Daniel Corcoran, and Atty. Adam Schwendeman, Theisen
Brock, 424 Second Street, Marietta, Ohio 45750, for Defendants- Appellees.
–2–
Dated: March 5, 2020
D’APOLITO, J.
{¶1} Appellants, Michael and Crystal Christman, appeal from the February 19,
2019 judgment of the Monroe County Court of Common Pleas, granting summary
judgment in favor of Appellees, Condevco, Inc., Deep Rock Investments, LLC, Flat Rock
Development, LLC, Flat Rock Orion, LLC, Hartz Buckeye Energy, LLC, and Hartz Energy
Capital, LLC. On appeal, Appellants assert the trial court erred in granting Appellees’
motion for summary judgment. Appellants contend the trial court erred in wrongly
determining the credibility of their expert witness. Appellants further contend that genuine
issues of material fact remain as to whether Appellee Condevco adopted Appellants’ well
(“Christman Well”) and whether the Christman Well was producing oil and/or gas in
paying quantities. Finding no reversible error, we affirm.
FACTS AND PROCEDURAL HISTORY
{¶2} Appellants own 141.62 acres of land, including the oil, gas, and associated
mineral rights located in Monroe County, Ohio, Tax Parcel No. 16-022010.0000
(“Property”). On March 12, 2009, Appellant Michael Christman, the sole owner at the
time, leased the oil and gas underlying the Property to Appellee Condevco, which was
recorded on April 13, 2009 in the Monroe County Official Records at Volume 80, Page
686 (“Lease”). The remaining Appellees acquired an interest in the Lease through partial
assignments from December 2011 through December 2014.
{¶3} The Lease provides for a three-year primary term, expiring on March 12,
2012. (Lease, Exhibit B, Paragraph 2). The secondary term of the Lease provides that
the Lease will continue so long as oil or gas is produced in paying quantities from the
leased premises or lands unitized or pooled with the leased premises, or drilling
operations are continuously prosecuted on the leased premises, or the land is used for
gas or substance injection purposes. (Id.) In addition to the habendum clause contained
in Paragraph 2, the Lease additionally states:
Lessor and Lessee are aware of orphan wells existing on the leased
property and said wells are not made a part of the foregoing lease
Case No. 19 MO 0008
–3–
agreement. Nothing in this lease implies or indicates that either party will
have any obligation or responsibility for any existing wells on lease. Lessee
shall have the option to evaluate existing wells and utilize these wells at his
discretion and, if lessee decides to “adopt” an orphan well and return it to
production, any royalty income will be considered to have the same effect
as a newly drilled well for purposes of this lease.
(Id., Paragraph 20).
{¶4} Condevco restored the Christman Well, API No. 34111230020000, located
on the leased premises.1 Brian and Christy Chavez, both officers of Condevco, indicated
that Condevco made a capital investment of approximately $4,000 for materials and
services. (Affidavits of Brian and Christy Chavez). In March 2011, Condevco hired
Stampede Well Service to rework the Christman Well. Stampede swabbed the Christman
Well and produced 16.5 barrels of fluid. Prior to March 12, 2012, the expiration date of
the primary term of the Lease, Condevco produced $1,771.18 worth of oil from the
Christman Well. (Id.) Since it has been reworked through May 2016, the Christman Well
has produced $6,315.75 in gross revenue. (Id.)
{¶5} Appellants filed a complaint against Appellees on May 9, 2016 and an
amended complaint with leave of court on July 9, 2018. Appellants alleged that the Lease
had expired for lack of production in paying quantities. Appellants raised several claims,
including: declaratory judgment; quiet title; ejectment; trespass; and conversion.
Appellees filed answers and counterclaims. Appellants filed replies.
{¶6} On August 31, 2018, Appellees filed a motion for summary judgment,
supported by affidavits from Brian and Christy Chavez. Appellants filed a memorandum
in opposition, supported by an affidavit from their expert, Ronald Gibson. Appellees filed
a reply, supported by additional affidavits from Brian and Christy Chavez, and an affidavit
from their expert, Eddy Biehl.
1 The Christman Well was drilled on the Property in 1983. At the time the parties entered into the Lease,
the Christman Well was registered with the Ohio Department of Natural Resources (“ODNR”) as an orphan
well.
Case No. 19 MO 0008
–4–
{¶7} Appellees also filed a motion to strike Gibson’s affidavit. Appellees mainly
asserted that Appellants had not made Gibson available for a deposition. Appellants filed
a memorandum in opposition. Appellees filed a reply.
{¶8} On November 9, 2018, the trial court granted Appellees’ motion to strike in
part by allowing them to take Gibson’s deposition. The court also permitted supplemental
memoranda regarding summary judgment to be filed subsequent to the deposition.
{¶9} After taking Gibson’s deposition, Appellees filed a supplement in support of
their motion for summary judgment on December 28, 2018, supported by another affidavit
from Brian Chavez. Appellants filed a memorandum in opposition along with a
supplemental report from Gibson. Appellees filed a reply and moved to strike Gibson’s
supplemental report. Appellants filed a memorandum in opposition.
{¶10} On February 19, 2019, the trial court granted Appellees’ motion for
summary judgment, specifically stating:
Christy Chavez and Brian Chavez, both officers of Condevco, testified that
the Christman Well has produced oil and gas in paying quantities.
Meanwhile, in his opinion/report, Ronald Gibson opined on behalf of Plaintiff
that the Christman Well was not producing in paying quantities. This Court
finds that Mr. Gibson’s opinion is flawed in various respects.
First, in his opinion/report, Ronald Gibson used an assumed labor rate of
$30.00 per hour for Condevco’s employees despite acknowledging that
those employees are not paid $30.00 per hour by Condevco relating to the
Christman Well.
Second, Mr. Gibson admitted that his assumed ratio of oil to water produced
from the Christman Well was based on a 2013 estimate, and that he did not
know whether this estimate was based on any actual measurement. Mr.
Gibson also admitted that his assumed ratio of oil to water was inconsistent
with the ratio of oil to water that he measured in the tank during his
inspection. Mr. Gibson admitted that the difference in the measured ratio
Case No. 19 MO 0008
–5–
compared to what he had assumed could indicate that his ratio was “not
correct.”
Most troubling, however, were Mr. Gibson’s assumptions regarding the
combined cost of handling and trucking oil and brine water and of disposing
brine water. More specifically, Mr. Gibson made ridiculous assumptions
regarding the Christman Well’s operating costs and then plugged these
assumed costs into a formula that renders it nearly impossible for the within
well to produce profitably. Mr. Gibson even acknowledged the
ridiculousness and unreasonableness of his assumptions[.]
***
In effect, Mr. Gibson testified that when the price of oil is less than $68.18
per barrel, more production actually nets greater losses. It is evident to this
Court that rather than offering an opinion about the actual profitability of the
Christman Well, Mr. Gibson instead set a minimum oil price below which it
is nearly impossible for Defendants to earn a profit.
Mr. Gibson went on to testify that the price of oil would need to be $215.00
per barrel in order for the Christman Well to break even based on the
volumes of oil that were actually produced. He then acknowledged that the
price of oil has never been that high.
This Court finds Mr. Gibson’s calculations that the Christman Well was not
profitably produc[ing] are farfetched and based on innuendo and baseless
unreasonable assumptions.
Accordingly, based on the foregoing, this Court finds that Condevco
adopted an orphan well (the Christman Well) and restored it to production
before expiration of the primary term.
Likewise, this Court finds that there has been continuous production in
paying quantities of oil and/or gas from the Christman Well in the secondary
Case No. 19 MO 0008
–6–
term. There remain no genuine issues of material fact to be litigated. The
Lease remains valid and in full effect.
(2/19/2019 Judgment Entry, p. 6-9).
{¶11} Appellants filed a timely appeal and raised two assignments of error.
STANDARD OF REVIEW
An appellate court conducts a de novo review of a trial court’s decision to
grant summary judgment, using the same standards as the trial court set
forth in Civ.R. 56(C). Grafton v. Ohio Edison Co., 77 Ohio St. 3d 102, 105,
671 N.E.2d 241 (1996). Before summary judgment can be granted, the trial
court must determine that: (1) no genuine issue as to any material fact
remains to be litigated, (2) the moving party is entitled to judgment as a
matter of law, (3) it appears from the evidence that reasonable minds can
come to but one conclusion, and viewing the evidence most favorably in
favor of the party against whom the motion for summary judgment is made,
the conclusion is adverse to that party. Temple v. Wean United, Inc., 50
Ohio St. 2d 317, 327, 364 N.E.2d 267 (1977). Whether a fact is ‘material’
depends on the substantive law of the claim being litigated. Hoyt, Inc. v.
Gordon & Assoc., Inc., 104 Ohio App. 3d 598, 603, 662 N.E.2d 1088 (8th
Dist.1995).
‘(T)he moving party bears the initial responsibility of informing the trial court
of the basis for the motion, and identifying those portions of the record which
demonstrate the absence of a genuine issue of fact on a material element
of the nonmoving party’s claim.’ (Emphasis deleted.) Dresher v. Burt, 75
Ohio St. 3d 280, 296, 662 N.E.2d 264 (1996). If the moving party carries its
burden, the nonmoving party has a reciprocal burden of setting forth specific
facts showing that there is a genuine issue for trial. Id. at 293, 662 N.E.2d
264. In other words, when presented with a properly supported motion for
summary judgment, the nonmoving party must produce some evidence to
suggest that a reasonable factfinder could rule in that party’s favor. Brewer
Case No. 19 MO 0008
–7–
v. Cleveland Bd. of Edn., 122 Ohio App. 3d 378, 386, 701 N.E.2d 1023 (8th
Dist.1997).
The evidentiary materials to support a motion for summary judgment are
listed in Civ.R. 56(C) and include the pleadings, depositions, answers to
interrogatories, written admissions, affidavits, transcripts of evidence, and
written stipulations of fact that have been filed in the case. In resolving the
motion, the court views the evidence in a light most favorable to the
nonmoving party. Temple, 50 Ohio St. 2d at 327, 364 N.E.2d 267.
Doe v. Skaggs, 7th Dist. Belmont No. 18 BE 0005, 2018-Ohio-5402, ¶ 10-12.
ASSIGNMENT OF ERROR NO. 1
{¶1} THE TRIAL COURT ERRED IN WEIGHING THE EVIDENCE IN
FAVOR OF APPELLEES, THE MOVING PARTY, AND DETERMINING
CREDIBILITY ISSUES ON SUMMARY JUDGMENT.
{¶12} Appellants allege the trial court wrongly determined the credibility and
improperly weighed the evidence with respect to their professional petroleum expert,
Ronald Gibson.
* * * [E]xpert testimony * * * must comply with Evid.R. 702 to be admissible
during summary judgment proceedings. “Pursuant to Civ.R. 56(C), a court
may not consider any evidence when ruling on a motion for summary
judgment unless it conforms with Civ.R. 56.” Douglass v. Salem Community
Hosp., 153 Ohio App. 3d 350, 2003-Ohio-4006, 794 N.E.2d 107, at ¶ 21.
According to Civ.R. 56(E), “(s)upporting and opposing affidavits shall be
made on personal knowledge, shall set forth such facts as would be
admissible in evidence, and shall show affirmatively that the affiant is
competent to testify to the matters stated in the affidavit.” Thus, affidavits
containing opinions must meet the requirements in the Rules of Evidence
governing the admissibility of opinions. See Tomlinson v. Cincinnati (1983),
Case No. 19 MO 0008
–8–
4 Ohio St. 3d 66, 4 OBR 155, 446 N.E.2d 454, paragraph one of the syllabus;
see, also, Douglass.
The trial court has broad discretion in determining the admissibility of expert
testimony, and we may reverse only if the trial court abused its discretion.
See Kumho Tire Co. v. Carmichael (1999), 526 U.S. 137, 152-153, 119
S. Ct. 1167, 143 L. Ed. 2d 238; see, also, Miller v. Bike Athletic Co. (1998),
80 Ohio St. 3d 607, 616, 687 N.E.2d 735. “Abuse of discretion” implies that
a court acted in “an unreasonable, arbitrary, or unconscionable manner.”
See, e.g., State ex rel. Sartini v. Yost, 96 Ohio St. 3d 37, 2002-Ohio-3317,
770 N.E.2d 584, at ¶ 21; State v. Herring (2002), 94 Ohio St. 3d 246, 255,
762 N.E.2d 940; Blakemore v. Blakemore (1983), 5 Ohio St. 3d 217, 219, 5
OBR 481, 450 N.E.2d 1140. An abuse of discretion amounts to more than
an error of judgment and instead equates to “perversity of will, passion,
prejudice, partiality, or moral delinquency.” Pons v. Ohio State Med.
Bd. (1993), 66 Ohio St. 3d 619, 621, 614 N.E.2d 748. Furthermore, when
applying the abuse-of-discretion standard, an appellate court may not
substitute its judgment for that of the trial court. See, e.g., Berk v.
Matthews (1990), 53 Ohio St. 3d 161, 169, 559 N.E.2d 1301.
In general, courts should admit expert testimony whenever it is relevant and
satisfies Evid.R. 702. State v. Nemeth (1998), 82 Ohio St. 3d 202, 207, 694
N.E.2d 1332; see, also, State v. Williams (1983), 4 Ohio St. 3d 53, 58, 4
629OBR 144, 446 N.E.2d 444. Thus, the trial judge must perform a
“gatekeeping” role to ensure that expert testimony is sufficiently (a) relevant
and (b) reliable to justify its submission to the trier of fact. See Kumho
Tire, 526 U.S. at 152, 119 S. Ct. 1167, 143 L. Ed. 2d 238; Daubert v. Merrell
Dow Pharmaceuticals, Inc. (1993), 509 U.S. 579, 589, 113 S. Ct. 2786, 125
L. Ed. 2d 469; Nemeth, 82 Ohio St.3d at 211, 694 N.E.2d
1332; Douglass, 153 Ohio App. 3d 350, 2003-Ohio-4006, 794 N.E.2d 107,
at ¶ 32.
Case No. 19 MO 0008
–9–
Valentine v. PPG Industries, Inc., 158 Ohio App. 3d 615, 2004-Ohio-4521, ¶ 21-23 (4th
Dist.).
{¶13} Contrary to Appellants’ assertion, the trial court neither wrongly determined
the credibility nor improperly weighed the evidence with respect to their expert witness,
Ronald Gibson. Rather, we stress that the trial court acted within its discretion in
disregarding/striking Gibson’s opinions because his testimony was unreliable. See
Valentine, supra, at ¶ 22-23.
{¶14} Gibson opined that the Christman Well has not produced oil or gas in paying
quantities since the parties entered into the Lease. Gibson opined that the Christman
Well has operated at a loss each and every year, at a total loss exceeding $13,140.87.
Gibson admitted, however, that his assumptions regarding the combined cost of handling
and trucking oil and brine water, and of disposing brine water, were “absurd.” (Emphasis
added.) (12/5/2018 Deposition of Gibson, p. 176-177). In addition, many of the
assumptions in Gibson’s report regarding Condevco’s operating expenses were
baseless. Gibson acknowledged using an incorrect, assumed labor rate for Condevco’s
employees relating to the Christman Well. Also, Gibson admitted that his assumed ratio
of oil to water produced from the Christman Well was based on old estimates which could
indicate that his ratio was not correct.
{¶15} Thus, based on the facts presented, including Gibson’s own admission as
to the unreliability of his assumptions, the trial court did not abuse its discretion in
disregarding/striking his testimony as it was clearly unreliable.
{¶16} Appellants’ first assignment of error is without merit.
ASSIGNMENT OF ERROR NO. 2
GENUINE ISSUES OF MATERIAL FACT REMAIN AS TO WHETHER: (1)
CONDEVCO ADOPTED THE CHRISTMAN WELL AND (2) THE
CHRISTMAN WELL WAS PRODUCING OIL AND/OR GAS IN PAYING
QUANTITIES.
Oil and gas leases are contracts, and therefore, “‘(t)he rights and remedies
of the parties to an oil or gas lease must be determined by the terms of the
Case No. 19 MO 0008
– 10 –
written instrument.’” Lutz v. Chesapeake Appalachia, L.L.C., 148 Ohio St. 3d
524, 2016-Ohio-7549, 71 N.E.3d 1010, ¶ 9, quoting Harris v. Ohio Oil Co.,
57 Ohio St. 118, 129, 48 N.E. 502 (1897). “It is a well-known and established
principle of contract interpretation that ‘(c)ontracts are to be interpreted so
as to carry out the intent of the parties, as that intent is evidenced by the
contractual language.’” Lutz at ¶ 9, quoting Skivolocki v. E. Ohio Gas Co.,
38 Ohio St. 2d 244, 313 N.E.2d 374 (1974), paragraph one of the syllabus.
The burden of proof with respect to an oil and gas lease case is not
controlled by substantive oil and gas law, but, rather, by civil
procedure. Pfalzgraf v. Miley, 7th Dist. Monroe, 2018-Ohio-2828, 116
N.E.3d 893, ¶ 32, reconsideration denied, 7th Dist. Monroe No. 16 MO
0005, 2018-Ohio-3595, 2018 WL 4265449, and appeal not allowed, 154
Ohio St. 3d 1443, 2018-Ohio-4962, 113 N.E.3d 552 (2018). The party who
asserts a claim in an oil and gas case carries the burden of proof, just as in
any other civil case. Id. at ¶ 45.
After the primary term of an oil and gas lease expires, the lease terminates
by the express terms of the contract and by operation of law, and revests
the leased estate in the lessor, if the conditions of the secondary term are
not being met. Swallie v. Rousenberg, 190 Ohio App. 3d 473, 2010-Ohio-
4573, 942 N.E.2d 1109 (7th Dist.), ¶ 63. Typically, the secondary term of
the lease is conditioned on oil or gas being produced in paying
quantities. Dennison Bridge, Inc. v. Resource Energy, L.L.C., 7th Dist.
Harrison, 2015-Ohio-4736, 50 N.E.3d 242, ¶ 21.
Ohio courts have recognized forfeiture as an appropriate remedy only in
certain, limited circumstances: (1) when the lease specifically and expressly
provides for such a remedy; (2) when legal damages resulting from a
contractual breach are inadequate; (3) upon a breach of implied covenants;
(4) upon a claim of abandonment; or (5) when necessary to do justice. Ionno
v. Glen-Gery Corp., 2 Ohio St. 3d 131, 134-135, 443 N.E.2d 504, 508
Case No. 19 MO 0008
– 11 –
(1983). When causes for forfeiture are explicitly delineated in the lease,
others cannot be implied. Beer v. Griffith, 61 Ohio St. 2d 119, 121-122, 399
N.E.2d 1227 (1980).
***
The term “paying quantities,” when used in the habendum clause of an oil
and gas lease, generally means quantities of oil or gas sufficient to yield
even a small profit to the lessee over operating expenses, even though such
things as drilling costs or equipping costs are not recovered, which may
result in the undertaking as a whole suffering a loss. Blausey v. Stein, 61
Ohio St. 2d 264, 265-266, 400 N.E.2d 408 (1980). In determining whether a
well is profitable, courts look to the discretion of the lessee. Lang v. Weiss
Drilling Co., 7th Dist., 2016-Ohio-8213, 70 N.E.3d 625, ¶ 34. Although the
lessee has discretion to determine a well’s profitability, that determination
cannot be arbitrary. Id. Courts impose a standard of good faith on the
lessee. Pfalzgraf v. Miley, 7th Dist. Monroe, 2018-Ohio-2828, 116 N.E.3d
893, ¶ 17-19, reconsideration denied, 7th Dist. Monroe No. 16 MO 0005,
2018-Ohio-3595, 2018 WL 4265449, ¶ 17-19, and appeal not allowed, 154
Ohio St. 3d 1443, 2018-Ohio-4962, 113 N.E.3d 552, ¶ 17-19 (2018).
Jacobs v. Dye Oil, LLC, 7th Dist. Monroe No. 18 MO 0020, 2019-Ohio-4085, ¶ 41-44,
61.
{¶17} First, Appellants argue Condevco did not legally adopt the Christman Well
because ODNR records show it was instead adopted by Heinrich Enterprises. Appellants
assert that only Condevco had the option to adopt an existing well and return it to
production.
{¶18} The plain language of the Lease gave Condevco the right to adopt an
orphan well and to maintain the term of the Lease by restoring it to production. As stated,
the Lease provides that it continues for a term of three years “and as long thereafter as
oil or gas is produced from said leased premises.” (Lease, Paragraph 2). The Lease
further states that for a well adopted by the lessee “any royalty income will be considered
Case No. 19 MO 0008
– 12 –
to have the same effect as a newly drilled well for purposes of this lease.” (Lease,
Paragraph 20).
{¶19} One of the duties associated with the adoption of a well is placing it on a
bond with ODNR. The continuation of the Lease depends on the well’s production, not
on whether or when the well is transferred with ODNR. Submitting an ODNR transfer of
ownership form is not a condition on the term of the Lease in the habendum clause. In
fact, nothing in the Lease prohibits Condevco from delegating or transferring its duties to
a third party. Thus, under the Lease, Condevco had the right to delegate the responsibility
for bonding the Christman Well to Heinrich Enterprises. See Kuhens v. Weaver, 7th Dist.
Carroll No. 643, 1996 WL 172369, *4 (Apr. 5, 1996), citing Illinois Controls, Inc. v.
Longham, 70 Ohio St. 3d 512, 524 (1994); Chapin v. Longworth, 31 Ohio St. 421 (1877)
(“[a]bsent a clause making delegation ineffective, a party may generally delegate his or
her duties under a contract” to a third party.)
{¶20} Christy Chavez explained the relationship between Condevco and Heinrich
Enterprises in her deposition.
Q. Does Heinrich Enterprises do business with Condevco?
A. Yes.
Q. And did Heinrich Enterprises do anything with Condevco related to the
Talbott or the Christman wells?
A. Yes.
***
Q. Which well or wells does it do business with Condevco on?
A. Both.
Q. And what does Heinrich Enterprises do?
A. It is the bond holder with the state.
Q. Can you explain to me how that works? It is the bond holder for
Condevco’s wells?
A. Yes.
Q. And for Heinrich Production’s wells?
A. Yes.
Q. Can you explain how that works?
Case No. 19 MO 0008
– 13 –
A. The bond with ODNR is Heinrich Enterprises and those companies have
agreements with Heinrich Enterprises and they hold the bonds. So they’re
the regulatory holder of the bond for all of the wells.
Q. When you say that they have agreements, do they have written
agreements?
A. I don’t know.
Q. When you say agreements exist, I guess I am trying to figure out if they
are written down. If they are not written down, how do you know you have
an agreement?
A. Because I am an owner in those companies and that is my
understanding. That system has been set up for years.
Q. That is just how it has been done. That does not mean that an agreement
exists, right? That is how it has been done for years?
A. Yes. And at the very least, there is a verbal agreement.
Q. But the verbal agreement would have to be between the same people
that own the same companies?
A. Yes.
Q. So you actually had a conversation with yourself about what the
agreement was?
A. We made that decision, yes.
(1/22/2018 Deposition of Christy Chavez, p. 36-38).
{¶21} In addition, Appellees’ expert, Eddy Biehl, a managing member of
Stonebridge Operating Co., LLC and President of Positron Energy Resources, Inc., filed
an affidavit on October 9, 2018. Biehl possesses a degree in Economic Geology from
Harvard and has been qualified as an expert in the oil and gas industry. Biehl averred
that “it is common for a well to be held in the name of an operator with ODNR and for the
name of the operator to differ from the actual owner of the working interest under the
lease.” (10/9/2018 Affidavit of Biehl).
Case No. 19 MO 0008
– 14 –
{¶22} Accordingly, there is no basis for this court to conclude that Condevco failed
to adopt the Christman Well by placing it on the bond with its affiliated sister company,
Heinrich Enterprises.
{¶23} Second, Appellants allege that the Christman Well was not producing oil
and/or gas in paying quantities.
{¶24} Again, the Lease provides for a three-year primary term, expiring on March
12, 2012. (Lease, Paragraph 2). The secondary term of the Lease provides that the
Lease will continue so long as oil or gas is produced in paying quantities from the leased
premises or lands unitized or pooled with the leased premises, or drilling operations are
continuously prosecuted on the leased premises, or the land is used for gas or substance
injection purposes. (Id.)
{¶25} The evidence establishes that Condevco adopted the Christman Well and
restored it to production before the expiration of the primary term of the Lease. The
evidence further reveals there has been continuous production of oil and/or gas from the
Christman Well in the secondary term of the Lease.
{¶26} As stated, Appellants’ expert, Gibson, opined that the Christman Well has
not produced oil or gas in paying quantities since the parties entered into the Lease.
Gibson admitted, however, that his assumptions were absurd, baseless, and incorrect.
Thus, Gibson’s testimony was clearly unreliable and should not have been considered.
{¶27} Biehl averred in his affidavit that he has personal knowledge of the facts
and reviewed all documents “for the purpose of writing a report and offering opinions
relating to whether * * * the ‘Christman Well’ is or was producing oil and/or gas in paying
quantities.” (10/9/2018 Affidavit of Biehl). The report provided a full and detailed analysis
of, and support for, how Biehl reached his opinion. Specifically, Biehl concluded: “Based
on my review of the documents listed in my Report, my education and training, and my
experience, it is my opinion, to a reasonable degree of professional certainty, that the
Christman Well is producing and has produced oil and/or gas in paying quantities from
March 2011 to present.” (Id.)
{¶28} Furthermore, as averred by Brian and Christy Chavez, since it was
reworked through May 2016, the Christman Well produced $6,315.75 in gross revenue,
yielding a net income of $4,664.20, or $2,263.55 if factoring in labor charges. Excluding
Case No. 19 MO 0008
– 15 –
all of Condevco’s capital expenditures, the revenue from the Christman Well exceeds its
operating costs. Thus, the Christman Well produced oil and/or gas in paying quantities.
Id.; See Blausey, supra, at 265-266 (“[t]he term ‘paying quantities,’ when used in the
habendum clause of an oil and gas lease, generally means quantities of oil or gas
sufficient to yield even a small profit to the lessee over operating expenses[.]”)
{¶29} According to Brian Chavez, Condevco determined that the most efficient
manner of producing oil from the Christman Well is by pumping it just three to four times
per month. Condevco has kept its operating expenses low on the Christman Well by
using its own employees. Condevco has also kept its expenses low by assigning the well
tender a large group of wells, pipelines, meters, and compressors in a given geographic
area. These facts should apply to Condevco’s benefit in determining that the production
is in paying quantities. See Blausey, supra, at 266 (“The fact that a lessee can keep
operating costs at a minimum should inure to his benefit in a determination of whether a
well produces in paying quantities.”)
{¶30} Having met their initial burden for purposes of Appellees’ motion for
summary judgment, Appellants had a reciprocal burden to produce evidence on any issue
for which they bear the burden of proof at trial. Appellants failed, however, to present
admissible evidence that a reasonably prudent operator would not continue to operate
the Christman Well in good faith. See generally Paulus v. Beck Energy Corp., 7th Dist.
Monroe No. 16 MO 0008, 2017-Ohio-5716, ¶ 76 (A good faith standard is imposed on the
lessee’s judgment when determining paying quantities of oil or gas from a well). No
credible evidence exists to dispute that Condevco’s conclusions are in good faith, i.e.,
that the Christman Well produced paying quantities during the secondary term of the
Lease.
{¶31} Appellants have been attempting to cancel the Lease since the action was
filed in May 2016. Appellants, however, cannot use prolonged litigation to stifle additional
investment that otherwise would have taken place on the Lease and then use that lack of
additional investment as a reason for terminating the Lease. In determining whether the
Lease has been maintained in the secondary term by production in paying quantities, the
proper inquiry is limited to the production that occurred during the period of time prior to
the onset of the litigation between the parties. See Jicarilla Apache Tribe v. Andrus, 687
Case No. 19 MO 0008
– 16 –
F.2d 1324, 1341 (10th Cir.1982) (“When a lessor actively asserts to a lessee that his
lease is terminated or subject to cancellation, the obligations of lessee to lessor are
suspended during the time such claims of forfeiture are being asserted”); see also
Summitcrest, Inc. v. Eric Petroleum Corp., 7th Dist. Columbiana No. 12 CO 0055, 2016-
Ohio-888, ¶ 44 (Holding that the term of an oil and gas lease should be tolled in equity
“to preserve the status quo where the validity of those leases is challenged. * * * The
remedy prevents leases from expiring on their own terms while the outcome of litigation
challenging the lease is decided by the courts.”) Thus, the Lease cannot be terminated
for lack of production during the period after the lawsuit had been filed.
{¶32} Upon consideration, the trial court properly granted Appellees’ motion for
summary judgment.
{¶33} Appellants’ second assignment of error is without merit.
CONCLUSION
{¶34} For the foregoing reasons, Appellants’ assignments of error are not well-
taken. The judgment of the Monroe County Court of Common Pleas granting summary
judgment in favor of Appellees is affirmed.
Waite, P.J., concurs.
Robb, J, concurs.
Case No. 19 MO 0008
[Cite as Christman v. Condevco, Inc., 2020-Ohio-938.]
For the reasons stated in the Opinion rendered herein, the assignments of error
are overruled and it is the final judgment and order of this Court that the judgment of
the Court of Common Pleas of Monroe County, Ohio, is affirmed. Costs to be taxed
against the Appellants.
A certified copy of this opinion and judgment entry shall constitute the mandate
in this case pursuant to Rule 27 of the Rules of Appellate Procedure. It is ordered that
a certified copy be sent by the clerk to the trial court to carry this judgment into
execution.
NOTICE TO COUNSEL
This document constitutes a final judgment entry.