Shale Energy Law Blog
Articles, News and Regulatory Information on Shale Energy Law from Babst Calland
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Our Shale Energy Law Blog provides timely legal and business information on issues impacting the energy industry and specifically natural gas development, as well as articles published by the attorneys of Babst Calland.
On June 1, 2017, the Ohio Supreme Court ruled that a provision in an oil and gas lease requiring the lessee to pay a minimum rental/royalty does not automatically invoke a termination provision in an unrelated delay rental clause and is not void as against public policy.
In Bohlen v. Anadarko E&P Onshore, L.L.C., Slip Opinion No. 2017-Ohio-4025, the Ohio Supreme Court was asked to determine whether a lessor can terminate an oil and gas lease if the lessee fails to pay minimum rental/royalty payments. In Bohlen, the oil and gas lease contained a primary term of one year along with standard secondary term language. The lease allowed the lessee to pay a delay rental for the privilege of deferring the commencement of a well. If this delay rental was not paid, then the lease would terminate. The Addendum attached to the lease stipulated that if royalty payments due to the lessor under the lease were less than $5,500, then lessee would pay any shortfall between the royalty payments and the $5,500. This minimum rental/royalty clause did not contain a termination provision. Lessee drilled two wells during the primary term of the lease but ultimately failed to pay yearly royalty amounts equal to or greater than $5,500. Lessors argued that the failure to pay a minimum rental/royalty triggered the termination clause found within the delay rental provision.
In Bohlen, the Court reasoned that the delay rental clause and the minimum annual-rental/royalty clause were two distinct clauses. Therefore, since the minimum rental/royalty clause did not contain termination language, the failure to pay the minimum royalty would not trigger the termination of the lease. It was of no consequence that the lease contained termination language in the delay rental clause since the two clauses at issue were to be read separately. Whether the lessee needed to compensate the lessor for underpayment was not at issue in the case.
Additionally, since the lease at issue contained a primary term, it did not violate public policy for being an indefinite lease.
Tagged: Land and Leasing, Ohio, Oil and gas
Tagged: Land and Leasing, Litigation, Natural gas, Royalties, West Virginia
Tagged: Oil and gas, SB 576, Severance tax, West Virginia
Tagged: Air, Air quality, EPA, White House
Tagged: Land and Leasing, Litigation, Ohio
- The percentage of cotenant mineral ownership interests needed to consent to mineral development is increased from two-thirds to three-fourths.
- Non-consenting mineral owners are still entitled to production royalties free of post-production expenses, but they are also entitled to a bonus payment calculated as “equal to the average amount paid to such consenting cotenants calculated on net mineral acre basis.”
- Non-consenting mineral owners may forgo receiving a production royalty payment by electing to obtain a “revenue share” in development, which allows the non-consenting mineral interest holders to essentially obtain a working interest in the production activities on the tract.
- If any property subject to mineral development under this statute has a non-consenting mineral interest owner, the surface of that property may not be disturbed for that development without the consent of the surface owner, unless such disturbance is permitted through a prior surface use agreement or is otherwise permitted by a “valid contractual arrangement.”
- “Joint development” is still permitted for multiple contiguous oil and gas leases, but the “operator” must pay surface owners damages available under W. Va. Code §22-6B-3, all damages permissible under common law, and $30,000 for “each well pad constructed by the operator which results in damage to that surface owner’s property.”
- “In the absence of specific language to the contrary, the royalty for all royalty owners of acreage jointly developed . . . shall not be reduced for post-production expenses incurred by the operator.” This provision, however, is not “intended to impact royalties due for wells drilled prior to the effective date of this chapter.”
- Consenting cotenants (or the operators) are subject to detailed reporting requirements that includes the amount of oil or natural gas produced and sale information, including price, for that oil and natural gas.
- Detailed guidelines for the payment of royalties are added, which include a requirement that royalties must be paid once the royalties due exceed $100, payment must be made within 180 days from the date that the sale of mineral is realized, and regardless of the amount of royalty due, payment must be made at least once a year.
Tagged: Oil and gas, Royalties, West Virginia, joint development, mineral owner
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Tagged: Land and Leasing, Oil and gas, Pennsylvania
Tagged: Appalachian Basin, Energy law, Land and Leasing, Legislation, Marcellus Shale, Natural gas, Oil and gas, Oil and gas drilling, West Virginia
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