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Ohio Supreme Court Resolves Hupp v. Beck Energy Once and For All

The Ohio Supreme Court definitively decided a case that at one time threatened the validity of thousands of Ohio oil and gas leases. As previously reported in April of 2014, the Seventh District Court of Appeals overturned the decision of the Monroe County trial court in Hupp v. Beck Energy Corp., which originally held that a standard oil and gas lease form was void against public policy because it allowed a lease to be held in perpetuity. In January of 2015, the case was accepted for review by the Supreme Court of Ohio which issued a decision this morning affirming the District Court’s ruling.   The Court held that the leases were not void against public policy and could not held in perpetuity because (i) delay rentals could only be used to maintain the leases during their stated primary term; (ii) the phrase “capable of being produced,” as used in the lease referred to the potential for production from a well drilled on the leased lands rather than the lands themselves; and (iii) that production “in the judgment of the Lessee” also applied to production from an existing well and not possible production from the leased lands.  The Court also declined to read an implied covenant of reasonable development into the leases as they required development to commence within a certain period and contained specific language disclaiming implied covenants.