Bohlen v. Anadarko E&P Onshore, L.L.C. (Slip Opinion)
2017 Ohio 4025
| Ohio | 2017Background
- Ronald and Barbara Bohlen (lessors) leased ~500 acres to Alliance Petroleum in Feb 2006: 1‑year primary term "and so much longer" thereafter while production or operations continued.
- Lease contains a delay‑rental clause: pay $5,500/year to defer commencement of a well or the lease "become[s] null and void." A separate addendum required the lessee to top up royalty payments to a $5,500 annual minimum.
- Alliance drilled wells within the first year (one produced intermittently; one ceased), and paid varying annual amounts (some under $5,500). Anadarko/Artex later acquired an interest.
- In 2013 the Bohlens sought declaratory judgment declaring the lease forfeited for (1) violating public policy (perpetual lease via delay rentals), (2) failure to pay the $5,500 annual minimum (invoking forfeiture), and (3) failure to produce in paying quantities.
- Trial court granted forfeiture on all grounds; the Fourth District reversed, holding the delay‑rental termination applied only to the primary term, the addendum did not revive that termination right, and the lease was not a no‑term/perpetual lease.
- Ohio Supreme Court affirmed the appellate court: delay‑rental termination did not apply after the primary term because drilling commenced within that term; the addendum’s minimum‑rental requirement did not trigger the unrelated delay‑rental forfeiture; lease not void as against public policy.
Issues
| Issue | Plaintiff's Argument (Bohlen) | Defendant's Argument (Alliance/Artex) | Held |
|---|---|---|---|
| Whether failure to pay $5,500 annual minimum (addendum) triggers forfeiture under the lease’s delay‑rental termination provision | The $5,500 annual‑rental addendum should be read with the delay‑rental clause, so underpayment triggers the clause’s forfeiture language throughout the lease | Delay‑rental termination applies only to deferring commencement of a well in the primary term; Alliance began drilling within the primary term, so termination never arose | Held for defendants: addendum underpayments do not invoke the unrelated delay‑rental forfeiture provision |
| Whether delay‑rental clause can be extended beyond the primary term to allow indefinite deferral of development | The delay‑rental clause together with the addendum allows the lessee to keep the lease in effect indefinitely by paying $5,500/year | The clause’s plain language ties delay rentals to deferring commencement of a well; drilling commenced during the primary term, so clause never operated to terminate the lease later | Held for defendants: delay rentals did not create perpetual deferral; clause applies to the primary term context |
| Whether the lease is a no‑term, perpetual lease void as against public policy (Ionno challenge) | The combination of delay rentals and the addendum permits indefinite encumbrance of the land, violating public policy against perpetual mineral leases | The habendum and delay‑rental language create a conventional primary/secondary term structure; unlike Ionno, the lease requires drilling (or delay payment) in the primary term and does not allow perpetual deferral | Held for defendants: lease not a no‑term/perpetual lease; not void as against public policy |
| Whether failure to produce in paying quantities or to reasonably develop terminated the lease | Nonproduction and lack of reasonable development justify forfeiture | Drilling occurred during primary term; factual issues remain about production and development; summary judgment for plaintiffs inappropriate | Held: plaintiffs not entitled to summary judgment on production/development grounds; remanded for further proceedings |
Key Cases Cited
- Chesapeake Exploration, L.L.C. v. Buell, 144 Ohio St.3d 490 (2015) (describes modern habendum clauses and primary/secondary term structure in oil and gas leases)
- State ex rel. Claugus Family Farm, L.P. v. Seventh Dist. Court of Appeals, 145 Ohio St.3d 180 (2016) (distinguishes Ionno and holds delay rentals limited to primary term; lease not no‑term)
- Ionno v. Glen‑Gery Corp., 2 Ohio St.3d 131 (1983) (holding that leases allowing perpetual forestalling via minimum rents can violate public policy)
- Harris v. Ohio Oil Co., 57 Ohio St. 118 (1897) (oil and gas leases are contracts; rights determined by written instrument)
- Brown v. Fowler, 65 Ohio St. 507 (1902) (contract principles govern oil and gas leases)
- Temple v. Wean United, Inc., 50 Ohio St.2d 317 (1977) (standard for summary judgment under Civ.R. 56)