After years of protracted lawsuits, the Ohio Supreme Court heard oral arguments on Tuesday in a case that could release hundreds of landowners from undeveloped oil and natural gas lease agreements and cast doubt on similarly worded leases that have been used for decades in the state.
Legacy driller Beck Energy Corp. has been fighting two groups of landowners over leases signed to explore for oil and gas in southern and eastern Ohio. The parties, including Beck's partner, XTO Energy Inc., have claimed the dispute has prevented millions in bonus payments, royalties and profits.
The high court would decide if the leases signed with Beck are void because they include language to allow the company to perpetually control mineral rights without drilling. If the landowners are successful, a certified class of 700 of them could end their leases and negotiate new ones.
In September 2011, five landowners filed a lawsuit in Monroe County Common Pleas Court against Beck claiming they signed lease forms, labeled G&T (83), that allowed Beck to control their land indefinitely without drilling and paying royalties if the company paid a few hundred dollars per year in rentals for the property. Beck argued those leases followed decades of precedent under Ohio law that allowed it to drill within 10 years of the lease and remain on the land as long as the company continued operations. The following year, the lower court ruled for the landowners and declared the leases void as a violation of public policy against leases that have no end date.
The landowners also filed for class-action certification, alleging an estimated 700 people throughout the state had signed with Beck. During that time, Beck signed an agreement with XTO Energy Inc., turning over the deep rights on some of the land in question to the ExxonMobil Corp. subsidiary. The trial court granted class action and Beck appealed to the Seventh District Court of Appeals (see Shale Daily, Feb. 28, 2013).
But because the landowners were not seeking monetary damages with the class action suit, the group was designated under Ohio law as one that did not require notification or a right to opt-out as is typical in class action cases. The Seventh District reversed the lower court's ruling in 2013, declaring the leases valid again and granted an order freezing the leases until the case could be resolved by the Ohio Supreme Court on appeal by the landowners.
In 2014, a family farm filed a request with the Supreme Court to prevent its lease from being frozen. The farm said it should have been notified of the class action and should not have been involuntarily included in it. The high court consolidated the farm's complaint with the case against Beck and will decide on both after oral arguments this week.
At issue is whether the Beck leases contain proper primary and secondary clauses that require it to drill for oil and gas within the first 10 years of the lease and control land only after production has occurred. The court would also decide if class members that weren't notified have a right to end their leases and renegotiate them.
The Ohio Oil and Gas Association (OOGA) has filed an amicus brief supporting Beck and the appeals court's decision. Six other oil and gas companies operating in the state have done the same. In its brief, OOGA argues that many companies use the G&T (83) leases or similar ones, saying "countlessly similar worded Ohio leases will be thrown into doubt," if the landowners are successful.
There were 19 oil and natural gas rigs running in Ohio at the beginning of December, according to Baker Hughes data, including eight rigs in Belmont County and five in Monroe County.