COLUMBUS, Ohio (Legal Newsline) – The Ohio Supreme Court has affirmed a Fourth District Court of Appeals ruling and remanded a legal battle over an oil and gas lease back to the trial court.
In Bohlen v. Anadarko E&P Onshore LLC, decided on June 1, the court was asked to determine if a lessor has the right to terminate an oil and gas lease when a lessee fails to make minimum annual-rental or royalty payments.
The issues surrounding the case began in February 2006 when the plaintiffs, Ronald and Barbara Bohlen, entered into an oil and gas lease with defendant-appellee Alliance Petroleum Corp. and Anadarko E&P Onshore, who joined with Alliance Petroleum Corp. as a partial participant in the lease in 2011 on 12 parcels of real estate in Washington County, Ohio.
According to the lease, Alliance Petroleum Corp. was granted exclusive rights to use the plaintiff's land for oil and gas exploration and operations in exchange for royalties from the proceeds. The lease stipulated that Alliance Petroleum Corp. must pay the plaintiffs at least $5,500 every year for access to the property, even if the royalties do not total that amount, according to the court documents.
Over, the next six years Alliance Petroleum Corp. allegedly only made payments to the plaintiffs of $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.
In 2013, the plaintiffs filed a declaratory judgment action against Alliance and Anadarko, requesting an order declaring the lease to be forfeited.
In their request for a summary judgment, the plaintiffs argued that the lease violates public policy and is void because it allows Alliance and Anadarko to encumber the property indefinitely and is terminated under its own terms because neither of the defendants maintained the minimum agreed upon rental payment.
A trial court agreed to terminate the lease on the grounds stated by both of these arguments, as well as the fact that the defendants had violated the expressed and implied terms of the contract by failing to produce oil and gas from the properties.
The defendants responded by filing an appeal with the Fourth District Court of Appeals, which overturned nearly every decision made by the trial court. The plaintiffs then appealed to the Ohio Supreme Court.
In reviewing the dispute, the court ruled that first, the underpayment of royalties did not violate the plain language of the initial lease and that in turn was not cause to violate the lease. Similarly, because the lease does in fact contain stipulations for its termination, the court ruled that it is not a no-term, perpetual lease and therefore does not violate public policy.
It also ruled that the defendants did not violate the terms of the lease by failing to exploit the potential oil and gas resources on the property as they did drill at least one well.
Therefore, the judgment of the 4Fourth District Appellate Court was unanimously affirmed by the Ohio State Supreme Court and any further issues were remanded back to the trial court.