Bohlen v. Anadarko E&P Onshore, L.L.C. (Slip Opinion)
150 Ohio St. 3d 197
Ohio2017Background
- Ronald and Barbara Bohlen leased ~500 acres to Alliance Petroleum in Feb 2006; habendum clause: 1-year primary term, then continued while oil/gas produced or premises operated.
- Lease included a delay-rental clause stating the lease "shall become null and void" unless lessee paid $5,500 yearly "for the privilege of deferring the commencement of a well." A separate addendum required that if royalties in any year were less than $5,500, lessee must pay the shortfall as an "annual rental payment."
- Alliance drilled two wells within the first year; one produced gas initially but then ceased; the other produced gas continuously from 2007. Annual payments to the Bohlens varied and were sometimes below $5,500.
- The Bohlens sued in 2013 seeking declaratory judgment that the lease was forfeited: they argued (1) the lease is void as against public policy because it permits indefinite encumbrance via delay rentals, (2) failure to pay the $5,500 minimum annual rental triggered forfeiture, and (3) failure of production/adequate development terminated the lease.
- Trial court granted forfeiture on all grounds. The Fourth District reversed, holding the delay-rental termination applied only to the primary term and the addendum’s annual-minimum provision did not revive that forfeiture clause. The Ohio Supreme Court affirmed the Fourth District.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether failure to pay the addendum’s $5,500 minimum annual rental triggers the delay-rental forfeiture | Bohlen: addendum’s $5,500 annual payment must be read with delay-rental clause so failure to pay invokes the forfeiture provision throughout the lease | Alliance/Artex: delay-rental forfeiture applies only to deferral of commencement during the primary term; at least one well commenced during year 1 so forfeiture never triggered | Held: Addendum shortfalls do not invoke the unrelated delay-rental forfeiture; lease did not terminate under delay-rental clause. |
| Whether the delay-rental clause extends beyond the primary term so lessee can avoid development indefinitely by paying $5,500 | Bohlen: identical $5,500 amounts show intent to allow annual payments to continue and thus permit indefinite deferral | Alliance/Artex: plain language ties delay-rental to deferral of commencement; drilling within primary term precludes application thereafter | Held: Delay-rental clause applies to primary term deferral only; plain language controls. |
| Whether the lease is void as against public policy because it permits perpetual encumbrance | Bohlen: combined provisions allow lessee to forestall development indefinitely by paying minimal annual amounts, violating Ionno public-policy principles | Alliance/Artex: habendum and delay-rental clauses limit delay rentals to the primary term; analogous precedents distinguish Ionno | Held: Not void as against public policy; similar to Claugus Family Farm, the lease is not a no-term perpetual lease. |
| Whether failure to produce in paying quantities or develop reasonably terminated the lease | Bohlen: lack of sustained paying production and reasonable development supports termination | Alliance/Artex: drilling occurred in primary term and production existed on at least one well; contractual terms govern | Held: Trial court erred to conclude termination for failure of production at summary judgment; factual and contractual issues remain for trial. |
Key Cases Cited
- Chesapeake Exploration, L.L.C. v. Buell, 45 N.E.3d 185 (Ohio 2015) (oil-and-gas leases are contracts; habendum clauses typically create primary and secondary terms)
- State ex rel. Claugus Family Farm, L.P. v. Seventh Dist. Court of Appeals, 47 N.E.3d 836 (Ohio 2016) (delay-rental payments limited to primary term; lease not necessarily perpetual)
- Ionno v. Glen-Gery Corp., 443 N.E.2d 504 (Ohio 1982) (minimum-rent provisions cannot be a substitute for timely development; perpetual mineral leases contrary to public policy)
- Harris v. Ohio Oil Co., 48 N.E. 502 (Ohio 1897) (rights under oil-and-gas leases governed by written instrument/contract principles)
- Grafton v. Ohio Edison Co., 671 N.E.2d 241 (Ohio 1996) (summary-judgment review is de novo)