Alford v. Collins-McGregor Operating Co. (Slip Opinion)
152 Ohio St. 3d 303
| Ohio | 2018Background
- Landowners own ~74 acres subject to a 1980 oil-and-gas lease to Collins-McGregor; lease continues while oil or gas is produced but is silent on number/depth of wells and does not disclaim implied covenants.
- A single well drilled in 1981 produces from the Gordon Sand and has produced in paying quantities since; no production has occurred from deeper formations (e.g., Marcellus, Utica) beneath the property.
- Landowners allege Collins-McGregor failed to explore or drill below the Gordon Sand (claiming it lacks equipment/funds) and seek partial termination/quiet title for depths below the Gordon Sand (horizontal forfeiture) based on breaches of implied covenants, including an implied covenant to explore further.
- Collins-McGregor moved to dismiss under Civ.R. 12(B)(6); trial court granted dismissal and the Fourth District affirmed, holding Ohio does not recognize partial horizontal forfeiture.
- Ohio Supreme Court accepted discretionary review to decide whether Ohio recognizes an independent implied covenant to explore further and, if so, whether horizontal forfeiture is an available remedy.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Ohio recognizes an implied covenant to explore further (distinct from reasonable development) | Alford: Ohio should recognize a distinct implied covenant to require further exploration/drilling into deeper formations. | Collins-McGregor: No separate covenant is needed; the implied covenant of reasonable development already protects lessors; courts in other states declined to recognize a separate covenant. | Court held Ohio does not recognize an implied covenant to explore further separate from the implied covenant of reasonable development. |
| Whether partial horizontal forfeiture (forfeiture of rights to specific depths/formations) is available as a remedy for breach | Alford: Breach of an implied covenant to explore further can be remedied by partial horizontal forfeiture. | Collins-McGregor: Ohio law does not permit horizontal forfeiture as relief. | Court did not decide the remedy issue because it resolved the covenant question; it declined to reach whether horizontal forfeiture is available. |
| Whether lease terms/instrument control the parties’ rights and can preclude implied covenants | Alford: (implicit) lease is silent on depth, so implied covenants govern. | Collins-McGregor: Lease language governs; implied covenants apply only where lease is silent and parties may disclaim. | Court reaffirmed that leases are contracts and rights are determined by the written instrument; implied covenants apply where lease is silent. |
| Whether the implied covenant of reasonable development covers claims about deep-formation exploration enabled by new technology | Alford: New technologies and adjacent activity justify a separate exploration duty. | Collins-McGregor: Reasonable-development covenant encompasses consideration of exploration, costs, market, and geology, including new technologies. | Court held reasonable-development covenant is the proper vehicle to assess lessee conduct, including factors like new drilling tech; no separate covenant required. |
Key Cases Cited
- Lutz v. Chesapeake Appalachia, 148 Ohio St.3d 524 (2016) (oil-and-gas lease rights are governed by the written instrument and interpreted to carry out parties’ intent)
- Harris v. Ohio Oil Co., 57 Ohio St. (1897) (recognition of implied covenant to reasonably develop when lease silent as to number of wells)
- Beer v. Griffith, 61 Ohio St.2d 119 (1980) (parties may disclaim implied covenants by express provisions in lease)
- Ionno v. Glen-Gery Corp., 2 Ohio St.3d 131 (1982) (implied covenant to work the land with ordinary diligence despite advance royalty payments)
- Chesapeake Exploration, L.L.C. v. Buell, 144 Ohio St.3d 490 (2015) (context on royalty and development obligations under leases)
- Mitchell v. Amerada Hess Corp., 638 P.2d 441 (Okla. 1981) (declining to recognize an independent implied covenant to explore further)
- Sun Exploration & Prod. Co. v. Jackson, 783 S.W.2d 202 (Tex. 1989) (refusing to recognize a separate implied covenant to explore further)