OH Supremes to Decide if Landowner Getting Free Gas can End Lease

Here’s a case in Ohio that has the potential to impact Utica Shale, as well as conventional, leases. According to OOGA (the Ohio Oil and Gas Association) it has the potential to affect “the validity and viability of thousands of oil and gas leases across the state.” In brief, a conventional gas well was drilled on property in Washington County, OH in 1951. The landowner later agreed to exchange royalty payments for free, unlimited gas to her home. Leases can be terminated if they stop producing profitable amounts of oil and gas. Between 1977 and 1981 there was no commercial sale of gas from the well–but the landowner kept getting her free gas. Using that five-year period of time of no commercial output, the landowner filed paperwork to declare the lease has been terminated and reverts back to her, the landowner. The driller says she continued receiving her “royalty payments” (i.e. free gas) even though nothing was sold from the well–and that’s enough to keep the lease in effect. There appear to be strong arguments on both parts, and apparently this arrangement of receiving free gas in lieu of royalty payments is not uncommon in Ohio. So the Ohio Supreme Court will decide, having recently heard oral arguments…

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