Bohlen v. Anadarko E&P Onshore, L.L.C. (Slip Opinion)

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as
Bohlen v. Anadarko E&P Onshore, L.L.C., Slip Opinion No. 2017-Ohio-4025.]
NOTICE
This slip opinion is subject to formal revision before it is published in an
advance sheet of the Ohio Official Reports. Readers are requested to
promptly notify the Reporter of Decisions, Supreme Court of Ohio, 65
South Front Street, Columbus, Ohio 43215, of any typographical or other
formal errors in the opinion, in order that corrections may be made before
the opinion is published.
SLIP OPINION NO. 2017-OHIO-4025
BOHLEN ET AL., APPELLANTS, v. ANADARKO E&P ONSHORE, L.L.C.;
ALLIANCE PETROLEUM CORPORATION ET AL., APPELLEES.
[Until this opinion appears in the Ohio Official Reports advance sheets, it
may be cited as Bohlen v. Anadarko E&P Onshore, L.L.C., Slip Opinion No.
2017-Ohio-4025.]
Oil and gas leases—Rights and remedies of the parties to an oil and gas lease are
determined by the terms of the written document—Termination provision in
delay-rental clause did not extend beyond primary term of lease.
(No. 2015-0187—Submitted March 1, 2017—Decided June 1, 2017.)
APPEAL from the Court of Appeals for Washington County,
No. 14CA13, 2014-Ohio-5819.
_________________
FISCHER, J.
{¶ 1} In this case, we are asked to determine a lessor’s right to terminate an
oil and gas lease when a lessee fails to make minimum annual-rental or royalty
payments. We determine that the provision in the lease requiring the lessee to pay
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a minimum annual rental of $5,500 does not invoke the termination provision in
the unrelated delay-rental clause and that the lease is not void as against public
policy. Accordingly, we affirm the judgment of the court of appeals reversing the
trial court’s summary judgment in favor of the lessors and remanding the cause to
the trial court for further proceedings.
I. FACTUAL BACKGROUND AND PROCEDURAL POSTURE
{¶ 2} Plaintiffs-appellants, Ronald and Barbara Bohlen, own 12 parcels of
real estate in Lawrence Township in Washington County, Ohio. The tracts total
approximately 500 acres of land. In February 2006, the Bohlens entered into an oil
and gas lease with defendant-appellee Alliance Petroleum Corporation
(“Alliance”). The Bohlens granted Alliance the exclusive right to use their land for
oil and gas exploration and operations, and in exchange, Alliance agreed to make
“royalty” payments to the Bohlens based on Alliance’s oil and gas production and
proceeds.
{¶ 3} In terms of duration, the lease provides for “a term of One (1) years
[sic] and so much longer thereafter as oil or gas or their constituents are produced
or are capable of being produced on the premises in paying quantities, in the sole
judgment of the Lessee, or as the premises shall be operated by the Lessee in the
search for oil or gas.” The lease also provides that Alliance must pay the Bohlens
a “delay rental” of $5,500 each year “for the privilege of deferring the
commencement of a well,” otherwise the lease “become[s] null and void” and the
rights of the parties under the lease terminate. Under the lease, a well is commenced
“when drilling operations have commenced on leased premises.”
{¶ 4} In addition, the lease contains an addendum that provides that if the
royalty payments Alliance makes to the Bohlens are less than $5,500 in any
calendar year, then Alliance must pay the Bohlens any shortfall between the royalty
payments and the $5,500 “annual rental payment.”
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{¶ 5} Within a year after the lease was executed, Alliance drilled and
completed two wells on two separate parcels on the Bohlens’ property. Neither of
the wells produced any oil. Well No. 1 produced gas in 2007, but it has not
produced any since that time. Well No. 2 has produced gas since its inception in
2007.
{¶ 6} The Bohlens received annual payments from Alliance as follows:
$5,500 in 2007, $4,284.83 in 2008, $4,172.47 in 2009, $4,757.22 in 2010,
$5,448.51 in 2011, $5,141.84 in 2012, and $5,245.90 in 2013. Alliance assigned a
partial interest in the lease to Anadarko E&P Onshore, L.L.C. (“Anadarko”) in
September 2011.
{¶ 7} In 2013, the Bohlens filed a declaratory-judgment action against
Alliance and Anadarko, requesting an order declaring the lease forfeited. The
parties filed cross-motions for summary judgment. In their motion for summary
judgment, the Bohlens argued that the lease violates public policy and is void ab
initio because it allows Alliance and Anadarko to encumber the property
indefinitely by paying delay rentals. The Bohlens also argued that the lease
terminated under its own terms because Alliance and Anadarko did not pay the
minimum annual rental of $5,500 as required by the delay-rental clause. Finally,
the Bohlens argued that the lease terminated under its own terms because of a
failure of production.
{¶ 8} The trial court found in favor of the Bohlens and declared that (1) the
lease is void ab initio as against public policy because it allows the lessees to
indefinitely forestall production by paying a nominal annual delay rental, (2) the
lease had terminated under its own terms because Alliance and/or Anadarko had
failed to pay $5,500 annually, and (3) Alliance and Anadarko had violated the
express and implied terms of the lease by failing to produce sufficient oil or gas
from the wells. Thus, the trial court ordered forfeiture of the lease.
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{¶ 9} Alliance and Anadarko appealed the trial court’s judgment. The
Fourth District Court of Appeals reversed the trial court’s judgment. The appellate
court determined that the trial court erred in holding that the lease is a no-term lease,
because the lease contains a primary term during which drilling must commence.
2014-Ohio-5819, 26 N.E.3d 1176, ¶ 19 (4th Dist.), citing Hupp v. Beck Energy
Corp., 2014-Ohio-4255, 20 N.E.3d 732, ¶ 115 (7th Dist.). The appellate court
determined that the trial court erred in holding that the lease allows Alliance and/or
Anadarko to extend the lease in perpetuity by paying a delay-rental fee, because the
delay-rental clause applies only during the primary term of the lease. Id. at ¶ 20.
The appellate court also determined that the trial court erred in holding that the
lease had terminated when Alliance failed to pay the annual minimum rental of
$5,500 as required in the lease addendum. Id. at ¶ 26. According to the Fourth
District, because Alliance began drilling its wells in 2007, within the one-year
primary term, the termination provision never became effective and the requirement
in the addendum that the lessee pay $5,500 a year did not revive the termination
provision. Id. Finally, the appellate court determined that the trial court erred in
holding that the lease had expired because of Alliance and/or Anadarko’s failure to
produce oil or gas in paying quantities or to reasonably develop the property. Id.
at ¶ 35. In late 2014, appellee Artex Energy Group, L.L.C. (“Artex”) became the
successor in interest to Anadarko. The Bohlens filed a discretionary appeal in this
court in February 2015, and we accepted their appeal on four propositions of law.
143 Ohio St. 3d 1416, 2015-Ohio-2911, 34 N.E.3d 929.
II. ANALYSIS
{¶ 10} This court conducts a de novo review of a summary-judgment ruling.
Grafton v. Ohio Edison Co., 77 Ohio St. 3d 102, 105, 671 N.E.2d 241 (1996). Under
Civ.R. 56(C), summary judgment is granted when no genuine issues of material
fact remain to be litigated, the moving party is entitled to judgment as a matter of
law, and, viewing the evidence in the light most favorable to the nonmoving party,
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reasonable minds can reach a conclusion only in favor of the moving party. Temple
v. Wean United, Inc., 50 Ohio St. 2d 317, 327, 364 N.E.2d 267 (1977).
{¶ 11} The first proposition of law raised by the Bohlens relates to
enforcement of oil and gas leases as contracts. The second and third relate to the
application of delay-rental clauses, and the fourth relates to oil and gas leases that
indefinitely forestall production, such that they are void as against public policy.
A. Enforcement of Oil and Gas Leases as Contracts
{¶ 12} We recently discussed the nature of oil and gas leases in Chesapeake
Exploration, L.L.C. v. Buell, 144 Ohio St. 3d 490, 2015-Ohio-4551, 45 N.E.3d 185,
¶ 41-42. In Buell, we explained that “[t]here is general consensus among the states
that an oil and gas lease creates a property interest, but there is disagreement about
the nature of that property interest.” Id. at ¶ 42, citing Keeling & Gillespie, The
First Marketable Product Doctrine: Just What Is the “Product”?, 37 St. Mary’s
L.J. 1, 7 (2005).
{¶ 13} We have also long maintained that an oil and gas lease is a contract
to which the law of contracts applies. Harris v. Ohio Oil Co., 57 Ohio St. 118, 129,
48 N.E. 502 (1897) (“The rights and remedies of the parties to an oil or gas lease,
must be determined by the terms of the written instrument * * *. Such leases are
contracts, and the terms of the contract with the law applicable to such terms must
govern the rights and remedies of the parties”); see Brown v. Fowler, 65 Ohio St.
507, 520, 63 N.E. 76 (1902).
{¶ 14} In this case, the parties have raised no arguments concerning the
nature of the property interest created. Instead, the parties agree that this case
requires interpretation of the lease under the principles of contract law.
{¶ 15} When determining the rights of parties under oil and gas leases,
courts must apply a cardinal principle of contract law: the unambiguous language
of the contract governs, and courts “will not give the contract a construction other
than that which the plain language of the contract provides.” Aultman Hosp. Assn.
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v. Community Mut. Ins. Co., 46 Ohio St. 3d 51, 544 N.E.2d 920 (1989), syllabus;
see Lutz v. Chesapeake Appalachia, L.L.C., 148 Ohio St. 3d 524, 2016-Ohio-7549,
71 N.E.3d 1010, ¶ 9. Keeping in mind that this court’s duty is to give effect to the
words employed by the parties in a contract, we now turn to the provisions of the
oil and gas lease at issue in this case.
B. Delay-Rental Clauses
{¶ 16} Generally, a contemporary oil and gas lease sets forth the duration
of the lease in a habendum clause that contains two tiers: a “primary term” and a
“secondary term.” See Buell, 144 Ohio St. 3d 490, 2015-Ohio-4551, 45 N.E.3d 185,
at ¶ 77; State ex rel. Claugus Family Farm, L.P. v. Seventh Dist. Court of Appeals,
145 Ohio St. 3d 180, 2016-Ohio-178, 47 N.E.3d 836, ¶ 20. The primary term sets
forth a period of definite duration, and the secondary term then sets forth a period
of indefinite duration, permitting extension of the lease as long as certain conditions
are met, typically, when oil and gas are produced in paying quantities. Claugus
Family Farm at ¶ 20; T.W. Phillips Gas & Oil Co. v. Jedlicka, 615 Pa. 199, 210, 42
A.3d 261 (2012). Oil and gas leases also typically contain a delay-rental clause,
which allows a lessee to delay drilling a well during the primary term as long as the
lessee compensates the lessors. Claugus Family Farm at ¶ 3, 25, citing Brown.
{¶ 17} Like a typical oil and gas lease, the lease between the Bohlens and
Alliance contains a habendum clause, and it provides for a primary term of one
year. The secondary term then sets forth a continuation of the lease for “so much
longer thereafter as oil or gas or their constituents are produced or are capable of
being produced on the premises in paying quantities, in the sole judgment of the
Lessee, or as the premises shall be operated by the Lessee in the search for oil or
gas.” The lease also contains a delay-rental clause, which provides:
This lease, however, shall become null and void and all rights of
either party hereunder shall cease and terminate unless, unless [sic]
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the Lessee shall thereafter pay a delay rental of $5,500.00 Dollars
each year, payments to be made yearly, but in no event not less than
yearly, for the privilege of deferring the commencement of a well.
A well shall be deemed commenced when drilling operations have
commenced on leased premises.
{¶ 18} The Bohlens argue that the court of appeals erred in holding that a
delay-rental clause, as a matter of course, applies only to the primary term, because
the language employed by the parties in this particular lease provides otherwise.
The addendum to the lease provides that Alliance must pay the Bohlens at least
$5,500 as an “annual rental.” According to the Bohlens, the $5,500 annual-rental
payment as provided for in the addendum must be read in conjunction with the
delay-rental clause, which also refers to a $5,500 rental. When those two provisions
are read together, the Bohlens contend, the lessees must pay the Bohlens at least
$5,500 per year throughout the life of the lease, otherwise the lease terminates as
provided in the delay-rental clause.
{¶ 19} Alliance and Artex contend that the appellate court correctly applied
the unambiguous language of the lease to the facts of this case. Under the lease, a
well is commenced “when drilling operations have commenced on leased
premises.” Because Alliance drilled at least one well on the leased property within
the one-year primary term of the lease, Alliance did not “defer[] the commencement
of a well” outside of that primary term.
{¶ 20} To support their argument that the termination provision in the
delay-rental clause should be extended beyond the primary term, the Bohlens rely
on Price v. K.A. Brown Oil & Gas, L.L.C., 7th Dist. Monroe No. 13 MO 13, 2014-
Ohio-2298, and Clay v. K. Petroleum, Inc., E.D. Ky. No. 07-113-REW, 2008 U.S.
Dist. LEXIS 42972 (June 2, 2008). In Price, lessors/property owners whose
property was encumbered by an oil and gas lease filed a declaratory-judgment
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action, seeking to terminate the lease. Price at ¶ 9. Previous owners of the subject
property had entered into an oil and gas lease in 1979, and two wells were drilled
on the property, but those wells never produced any oil or gas. Id. at ¶ 3. The
previous owners then entered into another lease in 1988 for the same property. The
purpose of the 1988 lease was to put the existing wells into production—the first
well within six months and the second well within the following six months. Id. at
¶ 5. If the lessee failed to adhere to this production schedule, then the lessee had to
release the lease or pay shut-in royalties. Id. The 1988 lease also had a habendum
clause that set forth a six-month primary term and a secondary term that continued
the lease “ ‘as long thereafter as said premises are operated by lessee in the search
for or production of oil or gas in paying quantities or as long as this lease is extended
by any other provision hereof.’ ” Id. at ¶ 4. The first well was put into production
in 1988, but the second well was not put into production until 1995, and no shut-in
royalties were paid. Id. at ¶ 5.
{¶ 21} That trial court granted summary judgment in favor of the property
owners and terminated the oil and gas lease, and the oil and gas company appealed.
Id. at ¶ 1. The oil and gas company argued that the trial court erred in terminating
the 1988 lease, because the habendum clause did not require the company to put
both wells into production within the six-month primary term. Id. at ¶ 22. In
affirming the trial court’s judgment, the appellate court determined that the
habendum clause was irrelevant to the appeal and that a separate provision in the
lease required both wells to be put into production within a year. Id. The record
evidence showed that the second well had not been put into production within a
year and that no shut-in royalties had been paid, and thus, the court determined that
it was “clear the lease was at an end unless there [was] some other lease provision
or legal theory that would prevent termination.” Id.
{¶ 22} Price is obviously distinguishable from the instant case. In Price,
the parties had included a provision requiring that two existing wells be put into
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production within a year, otherwise the lease terminated. One of the wells had not
been put into production within a year, and thus, the lease terminated. In this case,
the lease does not contain a similar termination provision apart from the delay-
rental clause, and this case does not deal with a lease of property with preexisting
wells.
{¶ 23} The Bohlens’ reliance on Clay is similarly misplaced. In Clay, an
oil and gas lease covered over 1,000 acres in Clay County, Kentucky, and it
provided that the lessee had to pay an annual minimum royalty of $3,000, otherwise
the lease would terminate “ ‘as to all but each producing well and 40 acres around
it.’ ” 2008 U.S. Dist. LEXIS 42972, at *1-3. The lessors/property owners filed an
action to terminate the lease, and the lessee admitted in discovery that the annual
minimum royalty had not been paid. Id. at *17. The court rejected the lessee’s
defenses and terminated the lease consistent with the language of the lease. Id. at
*25.
{¶ 24} The lease in this case differs significantly from the lease at issue in
Clay. The lease in Clay contained a termination provision within the annual-
minimum-royalty clause. Here, the Bohlens seek to join two separate and distinct
clauses of the lease together—the delay-rental clause, which contains a termination
provision, and the annual-rental-payment clause in the lease addendum, which does
not contain a termination provision. Because the lease in Clay stated explicitly that
a failure to pay the minimum royalty would result in termination, it is
distinguishable.
{¶ 25} In further support of the their contention that the termination
provision in the delay-rental clause applies when the lessee fails to make annual
rental payments as provided in the lease addendum, the Bohlens point out that the
leased property covers noncontiguous acreage. They argue that this shows that the
parties intended to create multiple primary terms in order to obtain maximum
production from all the available tracts. To support this argument, the Bohlens rely
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on a federal district court decision, Beaverkettle Farms, Ltd. v. Chesapeake
Appalachia, L.L.C., N.D.Ohio No. 4:11CV02631, 2013 U.S. Dist. LEXIS 124509,
*35-36 (Aug. 30, 2013).
{¶ 26} In Beaverkettle, the lessor/property owner filed a declaratory-
judgment action seeking to terminate an oil and gas lease and prevent the lessee
from conducting hydraulic fracturing on its property. Id. at *1-3. The property
owner argued, in part, that the lease had terminated because the lessee had not paid
delay rentals. Id. at *6. The habendum clause in the lease provided:
“This lease, however, shall become null and void and all rights of
either party hereunder shall cease and terminate unless within 12
months from the date hereof, Lessee commences the drilling of a
well on the premises for production of oil and gas or unless Lessee
shall pay a delay rental of Ten dollars ($10.00) per acre each year
commencing on the date of this lease * * *. Said delay rental shall
not be due and payable for each acre which is contained within an
approved drilling plat, provided that once Lessee commences
drilling, Lessee proceeds with due diligence to complete such well,
and once completed, such well continues to produce and sell oil and
gas in paying quantities. * * *
The payment for the first quarter shall be made not later than
the date of this Lease. Once a well is drilled on the Lease, said Lease
shall be held by production and Lessee shall be entitled to maintain
all undrilled acreage under this Lease by paying delay rentals as
provided above.”
(Emphasis by Beaverkettle court deleted.) Id. at *35-36.
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{¶ 27} The property owner in Beaverkettle argued that the lessee’s failure
to pay delay rentals after the expiration of the primary term caused the lease to
become null and void as to the undrilled acreage. Id. at *35. The lessee argued that
under established oil and gas law, delay rentals apply only during the primary term.
Id. at *37. Although the Beaverkettle court determined that nothing in the lease
explicitly limited the payment of delay rentals to the primary term, the court
ultimately concluded that the meaning of “delay rental” and whether the lessee must
pay delay-rental payments during the secondary term should be resolved at trial.
Id. at *41, 51.
{¶ 28} Given that the Beaverkettle court determined that a factual issue
existed for trial as to the meaning of “delay rental,” the case is inapplicable.
Moreover, the habendum and delay-rental clauses at issue in Beaverkettle differ
significantly from those clauses in the lease at issue here. The lease in the case at
bar does not mention undrilled acreage or parcels.
{¶ 29} The Bohlens also argue that the parties’ intent to maximize
production of the noncontiguous acreage is evidenced by crossed-out language in
paragraph 13 of the lease form, which deals with the lessee’s assignment and
transfer of the lease. Paragraph 13 of the lease form contained a provision, which
the parties to this lease struck through with a horizontal line, that stated, “Failure
of payment of rental or royalty on any part of this lease shall not void or have any
effect on this lease as to any other part.” According to the Bohlens, the language
crossed out of paragraph 13 shows the parties’ intent that a failure to pay the annual
rental would terminate the lease.
{¶ 30} The deletion of the sentence in paragraph 13 relating to assignment
is irrelevant to the unambiguous language of the stand-alone delay-rental clause.
Under the plain language of the lease, the lessee must pay a delay rental for
deferring commencement of a well. But Alliance did not defer commencement of
a well beyond the primary-term of the lease, because at least one well was drilled
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within the first year. Therefore, the lease did not terminate under the delay-rental
clause.
{¶ 31} Finally, the Bohlens assert that after the Fourth District Court of
Appeals released its decision in this case, it issued a contrary decision in Sims v.
Anderson, 2015-Ohio-2727, 38 N.E.3d 1123 (4th Dist.). In Sims, the court
considered whether an oil and gas lease terminated after the lessee failed to make
minimum royalty payments. Id. at ¶ 1. The lease contained a primary term of six
months and provided that if a well had not been completed by July 1, 1977, then
the lease terminated. Id. at ¶ 3. The lease then provided that the lease terminated
on July 1, 1977, “unless the Lessee is then producing oil or gas or their constituents
in paying quantities.” Id. The lease defined “paying quantities” as “production
sufficient to net the Lessors a minimum of $400 royalty per year for oil or gas
marketed.” Id. The plaintiffs sought a judgment declaring that the lease had
terminated when the lessee failed to make a $400 minimum-royalty payment in
2012. Id. at ¶ 5. In reversing the trial court’s judgment in favor of the lessee, the
appellate court determined that the trial court had erred in relying on equitable
considerations, because the lease terminated under the express forfeiture provision
when the lessee did not make the required $400 payment. Id. at ¶ 16.
{¶ 32} The Fourth District’s decision in Sims is not contrary to its decision
in this case. In Sims, the court gave effect to the parties’ intent as provided in the
express forfeiture provision in the habendum clause. But no similar forfeiture
provision exists in the habendum clause in this case. Thus, the Fourth District’s
application of the plain language of the lease in this case is consistent with Sims.
{¶ 33} Therefore, we conclude that the underpayment by the lessees of the
minimum annual rental, as provided in the lease addendum, does not entitle the
Bohlens to a forfeiture of the lease under the unrelated delay-rental clause.
C. Indefinite Forestalling of Production as Against Public Policy
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{¶ 34} In the discussion of their final proposition of law, the Bohlens assert
that the court of appeals erred in determining that the lease did not violate public
policy. The Bohlens argue that the lease allows Alliance and Artex to indefinitely
forestall drilling and development on the undrilled acreage by paying the $5,500
minimum annual rental. The trial court agreed and found that the lease at issue is
a no-term, perpetual lease, which violates public policy under Ionno v. Glen-Gery
Corp., 2 Ohio St. 3d 131, 443 N.E.2d 504 (1983).
{¶ 35} In Ionno, lessors/property owners sought forfeiture of a mining
lease, contending that the mining corporation had breached its implied duty to
reasonably develop the land. Id. at 132. That lease did not contain a time period
in which mining operations were required to commence, and the mining
corporation argued that its payment of an annual minimum rent or royalty relieved
it of any obligation to reasonably develop the land. Id. at 132-133. It asserted that
as long as timely payments were made, the mining corporation could forestall
production. Id. at 133. After determining that an implied covenant existed in the
mining lease that the corporation would work the land with ordinary diligence, the
Ionno court held that the minimum rent or royalty payments were not “a substitute
for timely development.” Id. at 134. The court went on to opine that
[t]o hold otherwise would be to reward mere speculation without
development, effort, or expenditure on the part of the lessees. It
would allow a lessee to encumber a lessor’s property in perpetuity
merely by paying an annual sum. Such long-term leases under
which there is no development impede the mining of mineral lands
and are thus against public policy.
Id.
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{¶ 36} This court recently distinguished Ionno in Claugus Family Farm,
145 Ohio St. 3d 180, 2016-Ohio-178, 47 N.E.3d 836. In Claugus Family Farm, the
lessors/property owners challenged a ruling from the Seventh Appellate District,
Hupp, 2014-Ohio-4255, 20 N.E.3d 732. The property owners’ leases with an
energy company contained a habendum clause that set forth a primary term of ten
years and a secondary term that continued the lease “ ‘so much longer thereafter as
oil and gas or their constituents are produced or are capable of being produced on
the premises in paying quantities, in the judgment of the Lessee, or as the premises
shall be operated by the Lessee in the search for oil or gas.’ ” Id. at ¶ 23. The
property owners argued that the form that the energy company used to create the
oil and gas leases did not require development to begin during the primary term and
thus the leases were perpetual, just as in Ionno, and were void as against public
policy. Claugus Family Farm at ¶ 24.
{¶ 37} The Claugus Family Farm court distinguished the Ionno lease from
the lease at issue in that case. The Ionno lease did not contain a time in which
operations had to begin and allowed the mining company to pay royalties for years
without developing the land, whereas the oil and gas leases at issue in Claugus
Family Farm permitted delay rentals only during the primary lease term of ten years
if no well was commenced. Id. at ¶ 22, 25-29. The court also determined that the
language used in the secondary term of the habendum clause did not permit
extension of delay-rental payments into the secondary term, nor did the language
permit indefinite continuation of the leases at the lessee’s discretion without the
development of oil and gas. Id. at ¶ 27-28.
{¶ 38} The lease at issue in this case contains a similar habendum clause to
the lease at issue in Claugus Family Farm. Just as this court held in Claugus Family
Farm, the lease at issue in this case is not a no-term, perpetual lease. The Bohlens
attempt to distinguish Claugus Family Farm by arguing that the lease in that case
had a ten-year primary term in which drilling could be postponed, and here,
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according to the Bohlens, the lease and addendum allow Alliance and Artex to
postpone drilling on the undrilled acreage indefinitely by paying the $5,500
minimum annual rental. As we have determined, the Bohlens’ interpretation of the
lease and its addendum goes against the plain language of the lease. The addendum
language does not modify the delay-rental clause. Therefore, under Claugus
Family Farm, the lease is not a no-term, perpetual lease, and thus, the court of
appeals correctly determined that the trial court erred in concluding that the lease
is void as against public policy.
III. CONCLUSION
{¶ 39} The plain language of the parties’ oil and gas lease requires the lessee
to pay a delay rental for deferring commencement of a well, otherwise the lease
terminates; however, the lessee did not defer commencement of a well beyond the
primary term of the lease, because at least one well was drilled within the first year.
Therefore, the lease did not terminate under the delay-rental clause. The
requirement in the addendum that the lessees pay $5,500 as a minimum annual
rental did not invoke the termination provision in the delay-rental clause. Whether
Alliance and/or Artex must compensate the Bohlens for underpayment per the
addendum is not an issue before this court. Moreover, the lease in this case does
not qualify as a no-term, perpetual lease for the same reasons that the lease at issue
in Claugus Family Farm did not qualify as a perpetual lease. Therefore, the
Bohlens are not entitled to summary judgment. The judgment of the Fourth District
is affirmed, and the cause is remanded to the trial court for further proceedings.
Judgment affirmed
and cause remanded.
O’CONNOR, C.J., and O’DONNELL, FRENCH, O’NEILL, and DEWINE, JJ.,
concur.
KENNEDY, J., concurs in judgment only.
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Fields, Dehmlow & Vessels, L.L.C., and Ethan Vessels, for appellants.
Hanlon, Estadt, McCormick & Schramm Co., L.P.A., and Erik A.
Schramm, for appellee Alliance Petroleum Corporation.
Kegler, Brown, Hill & Ritter Co., L.P.A., and John P. Brody, for appellee
Artex Energy Group, L.L.C., successor in interest to Anadarko E&P Onshore,
L.L.C.
Vorys, Sater, Seymour & Pease, L.L.P., Timothy B. McGranor, and
Gregory D. Russell, urging affirmance for amicus curiae, Ohio Oil and Gas
Association.
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