[Cite as Gateway Royalty, L.L.C. v. Chesapeake Exploration, 2020-Ohio-1311.]

IN THE COURT OF APPEALS OF OHIO 

SEVENTH APPELLATE DISTRICT 

CARROLL COUNTY

GATEWAY ROYALTY, L.L.C., 

Plaintiff-Appellant, 

v. 

CHESAPEAKE EXPLORATION, ET AL., 

Defendants-Appellees.

 

OPINION AND JUDGMENT ENTRY 

Case No. 19 CA 0933 

 

Civil Appeal from the 

Court of Common Pleas of Carroll County, Ohio 

Case No. 2017CVH28970 

BEFORE: 

Gene Donofrio, Cheryl L. Waite, David A. D’Apolito, Judges. 

JUDGMENT: 

Affirmed. 

Atty. Robert Sanders, 12051 Old Marlboro Pike, Upper Marlboro, Maryland 20772 and 

Atty. James Lowe, Lowe, Eklund & Wakefield Co. LPA, 1660 West Second Street, 

610 Skylight Office Tower, Cleveland, Ohio 44113, for Plaintiff-Appellant and 
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Case No. 19 CA 0933

Atty. Peter Lusenhop, Atty. Timothy McGranor, Atty. Andrew Guran, Atty. Thomas 

Fusonie, Atty. Mitchell Tobias, Atty. Ilya Batikov, Vorys, Sater, Seymour and Pease 

LLP., 52 East Gay Street, P.O. Box 1008, Columbus, Ohio 43216, and 

Atty. William Connolly, Drinker Biddle & Reath, LLP., One Logan Square, Suite 2000, 

Philadelphia, Pennsylvania 19103, and 

Atty. Daniel Donovan, Kirkland & Ellis, LLP., 655 Fifteenth Street, N.W., Washington,

DC 20005, for Defendants-Appellees. 

 

April 3, 2020 

 

Donofrio, J. 

{¶1} Plaintiff-appellant, Gateway Royalty, LLC (Gateway), appeals from a Carroll 

County Common Pleas Court judgment granting summary judgment in favor of 

defendants-appellees, Chesapeake Exploration, LLC (CELLC), Chesapeake Utica, LLC 

(CHK Utica), Jamestown Resources, LLC (Jamestown), Pelican Energy, LLC (Pelican), 

and EnerVest Operating, LLC (EnerVest), on Gateway’s claim for breach of contract 

alleging underpayment of oil and gas royalties. 

{¶2} Gateway is a Texas company that owns a royalty interest in six leases at 

issue in this case. All six leases require that the royalties on gas, including natural gas 

liquids (NGLs), are to be calculated on the price paid for the products marketed and used 

off the premises. 

{¶3} In five of the leases (the Eric Petroleum Leases), the original lessee was 

Eric Petroleum, Inc. The current lessees of the Eric Petroleum Lease are CELLC, CHK 

Utica, Jamestown, and Pelican. The Eric Petroleum Leases provide that the lessee shall 

pay, 

as royalty for the gas marketed and used off the premises and produced 

from each well drilled thereon, the sum of one-eighth (1/8) of such gas so 

marketed and used at the price paid to Lessee * * * less any charges for 

transportation, compression and/or dehydration to deliver the gas for sale. 

(Eric Petroleum Leases). 
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Case No. 19 CA 0933

{¶4} In the sixth lease (the Great Lakes Lease), the original lessee was Great 

Lakes Energy Partners, LLC. Currently, the sole lessee of the Great Lakes Lease is 

EnerVest. The Great Lakes Lease provides the identical provision quoted above in the 

Eric Petroleum Leases except that the last line reads, “less any charges for transportation, 

dehydration and compression paid by Lessee to deliver the gas for sale.” (Great Lakes 

Lease). 

{¶5} CELLC produces the gas and sells its share and CHK Utica’s share of the 

gas to Chesapeake Energy Marketing, LLC (CEMLLC) at or near the wellhead. 

Jamestown and Pelican also entered into marketing agreements with CELLC to market 

and sell their oil, gas, and NGLs. CEMLLC then processes the raw product into gas and 

NGLs and markets these products to third-party buyers downstream. CEMLLC incurs 

post-production costs to move the gas downstream for further sale. 

{¶6} Instead of paying royalties on the third-party price, appellees pay royalties 

on the price paid by the third-party buyers minus the post-production costs incurred by 

CEMLLC between the well and the sale to the third parties. 

{¶7} On December 28, 2017, Gateway filed a complaint against appellees 

alleging the underpayment of oil and gas royalties under counts of breach of contract, 

conversion, and violations of Ohio’s Corrupt Practices Act. Gateway alleged that CELLC, 

on behalf of all appellees, miscalculated the royalties it paid. It asserted the only price 

actually paid for the gas and NGLs is the price paid by third-party buyers. Therefore, 

Gateway claimed the royalties must be calculated on the third-party price. On appellees’ 

motion, the trial court dismissed the conversion and Ohio Corrupt Practices counts. 

{¶8} CELLC, CHK Utica, Jamestown, and Pelican (the Chesapeake Defendants) 

filed a joint motion for summary judgment on the remaining breach of contract claim. 

EnerVest filed its own motion for summary judgment on that remaining claim. The trial 

court granted both motions for summary judgment but for different reasons. 

{¶9} As to the Chesapeake Defendants, the trial court found that while Gateway 

sought to receive royalty payment based on the downstream sales price paid to CEMLLC, 

this is not what is specified in the Eric Petroleum Leases. Instead, the royalty payment is 

based on the price paid to CELLC at the wellhead. The court pointed out that per the Eric 

Petroleum Leases, the contract price is to be reduced by the buyer’s actual cost of any 
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Case No. 19 CA 0933

fees incurred in marketing such as taxes and fees for gravity adjustment, transportation, 

or treating. The court also noted that the reasonably prudent operator’s price does not 

have to be the highest possible price but rather it must be reasonable under the 

circumstances. It found the Chesapeake Defendants met that burden. Thus, the trial 

court found that no genuine issues of material fact existed and granted summary 

judgment in favor of the Chesapeake Defendants. 

{¶10} As to EnerVest, the trial court pointed out that the royalty statement 

provided by Gateway showed no deductions from royalties other than for taxes. 

Therefore, it found there were no damages from improper deductions. The court pointed 

out that Gateway relied on the Buck Well Documents, the Henceroth Discovery, and 

conversations between Bruce Buck and unidentified oil haulers. The court found that the 

Buck Well Documents related to a different lease. The Henceroth Discovery involved a 

matter in which EnerVest was not a party and, therefore, could not be used against 

EnerVest. And the conversations between Bruce Buck and the oil haulers did not concern 

the Great Lakes Lease. Thus, the trial court found that Gateway relied only on 

unsupported inferences and presented no evidence to create a genuine issue of material 

fact. Therefore, the court granted summary judgment in EnerVest’s favor. 

{¶11} Gateway filed a timely notice of appeal from both judgments on July 29, 

2019. It now asserts that summary judgment in favor of appellees was improper. 

{¶12} An appellate court reviews a summary judgment ruling de novo. Comer v. 

Risko, 106 Ohio St.3d 185, 2005-Ohio-4559, 833 N.E.2d 712, ¶ 8. Thus, we shall apply 

the same test as the trial court in determining whether summary judgment was proper. 

{¶13} A court may grant summary judgment only when (1) no genuine issue of 

material fact exists; (2) the moving party is entitled to judgment as a matter of law; and 

(3) the evidence can only produce a finding that is contrary to the non-moving party. 

Mercer v. Halmbacher, 9th Dist. Summit No. 27799, 2015-Ohio-4167, ¶ 8; Civ.R. 56(C). 

The initial burden is on the party moving for summary judgment to demonstrate the 

absence of a genuine issue of material fact as to the essential elements of the case with 

evidence of the type listed in Civ.R. 56(C). Dresher v. Burt, 75 Ohio St.3d 280, 292, 662 

N.E.2d 264 (1996). A “material fact” depends on the substantive law of the claim being 

litigated. Hoyt, Inc. v. Gordon & Assoc., Inc., 104 Ohio App.3d 598, 603, 662 N.E.2d 1088 
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Case No. 19 CA 0933

(8th Dist.1995), citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-248, 106 S.Ct. 

2505, 91 L.Ed.2d 202 (1986). 

{¶14} If the moving party meets its burden, the burden shifts to the non-moving 

party to set forth specific facts to show that there is a genuine issue of material fact. Id.; 

Civ.R. 56(E). “Trial courts should award summary judgment with caution, being careful 

to resolve doubts and construe evidence in favor of the nonmoving party.” Welco 

Industries, Inc. v. Applied Cos., 67 Ohio St.3d 344, 346, 617 N.E.2d 1129 (1993). 

{¶15} Gateway raises two assignments of error that it addresses together. 

Gateway’s first assignment of error states: 

 THE TRIAL COURT ERRED IN ENTERING SUMMARY 

JUDGMENT IN FAVOR OF APPELLEES BECAUSE THERE ARE 

GENUINE ISSUES OF MATERIAL FACT AS TO WHETHER THE GAS 

AND NATURAL GAS LIQUIDS WERE “MARKETED” AT THE WELL OR 

ONLY IN SALES TO THIRD-PARTY BUYERS DOWNSTREAM OF THE 

WELL. 

{¶16} Gateway’s second assignment of error states: 

 THE TRIAL COURT ERRED IN ENTERING SUMMARY 

JUDGMENT IN FAVOR OF APPELLEES BECAUSE THERE ARE 

GENUINE ISSUES OF MATERIAL FACT AS TO WHETHER THE “PRICE 

PAID” TO APPELLEES FOR THE GAS AND NATURAL GAS LIQUIDS 

WAS A WELLHEAD PRICE OR THE PRICE PAID BY THIRD-PARTY 

BUYERS DOWNSTREAM OF THE WELL. 

{¶17} The leases provide that the royalties on gas and NGLs shall be 1/8 of the 

price “paid” to the lessee for all gas and NGLs “marketed and used off the premises.” 

Gateway argues that, by definition, the marketing must occur off of the leased premises. 

It asserts that two documents produced by CELLC establish that the only gas marketed 

is the gas marketed to the third-party buyers. 

{¶18} First, Gateway points to a document called the “Transaction Confirmation.” 

(Opposition to Summary Judgment Ex. 2). The Transaction Confirmation provides that 
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Case No. 19 CA 0933

CELLC will sell to CEMLLC the gas and NGLs and the “marketing obligations for royalty 

owners.” Thus, Gateway argues, CELLC cannot perform marketing for royalty owners 

because CELLC sold that right to CEMLLC. 

{¶19} Second, Gateway points to the Development Agreement between CELLC 

and CHK Utica. (Opposition to Summary Judgment Ex. 1). The Development Agreement 

provides: “Chesapeake Exploration will arrange for Affiliated or non-Affiliated Persons to 

provide, on a Reasonably Prudent Operator Standard, all marketing and Other Services 

helpful or necessary for the sale, at market prices, of Utica’s Hydrocarbon production.” 

(Emphasis added). Gateway argues that CELLC clearly does not perform any marketing 

because per the Development Agreement, it is required to arrange for other entities (in 

this case CEMLLC) to perform “all” marketing. 

{¶20} Next, Gateway points out that the leases provide that the royalties shall be 

1/8 of the price “paid to Lessee.” Because it asserts the only price paid to lessee is the 

price paid by the third-party buyers, Gateway argues this is the amount from which 

royalties must be calculated. 

{¶21} Gateway continues by arguing that the trial court incorrectly ruled that 

CELLC marketed and sold the gas and NGL’s to CEMLLC. Therefore, it contends, the 

trial court erroneously ruled that CELLC took no cost deductions from the royalties. 

Gateway argues instead that the only actual sale and payment was the sale to the thirdparty buyers. Consequently, it asserts the third-party price is the price that must be used 

for royalty purposes, without any deductions. 

{¶22} Gateway goes on to argue that no costs can be deducted from the price 

paid by the third-party buyers for two reasons. First, the costs were not incurred by 

appellees but by CEMLLC. And second, the costs were incurred after CELLC transferred 

title to CEMLLC at the well. Thus, all of the post-production costs were incurred by 

CEMLLC downstream of the well. Therefore, Gateway concludes, none of the postproductions costs can be deductible from the amounts paid by the third-party buyers when 

calculating royalties. 

{¶23} The court's role in reviewing a contract is to determine the parties’ intent 

and give effect to it. Hamilton Ins. Serv., Inc. v. Nationwide Ins. Cos., 86 Ohio St. 3d 270, 

273, 714 N.E.2d 898 (1999). “A contract is defined by the words written within the four 
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Case No. 19 CA 0933

corners of the document.” Cleveland Mack Leasing, Ltd. v. Chef's Classics, Inc., 7th Dist. 

Mahoning No. 05 MA 59, 2006-Ohio-888, ¶ 19. When contract language is clear and 

unambiguous, and not subject to multiple interpretations, a court will not consider extrinsic 

evidence to interpret the contract's terms. Love v. Beck Energy Corp., 7th Dist. Noble 

No. 14 NO 415, 2015-Ohio-1283, ¶ 21, citing Shifrin v. Forest City Enterprises, Inc., 64 

Ohio St.3d 635, 597 N.E.2d 499 (1992), syllabus. 

{¶24} Thus, if the Leases are clear and unambiguous, we may not consider the 

extrinsic evidence Gateway urges us to consider. 

{¶25} The Eric Petroleum Leases provide that CELLC will pay royalties, “for the 

gas marketed and used off the premises and produced from each well” in the amount of 

one-eighth of “such gas so marketed and used at the price paid to Lessee * * * less any 

charges for transportation, compression and/or dehydration to deliver the gas for sale.” 

This language appears clear and unambiguous. 

{¶26} According to Merriam-Webster’s online dictionary, to “market” is “to expose 

for sale in a market” or to “sell.” https://www.merriam-webster.com/dictionary/market. 

Thus, when CELLC sold the gas and NGLs to CEMLLC, it “marketed” the product. 

Because there is no ambiguity, we will not consider the extrinsic documents that Gateway 

relies on. 

{¶27} The price CEMLLC pays to CELLC is calculated in the following way: (1) 

CELLC produces and markets the gas and NGLs by bringing the hydrocarbons to the 

surface; (2) CELLC sells its working interest share, along with CHK Utica’s, Jamestown’s, 

and Pelican’s working interest shares, to CEMLLC at or near the wellhead; (3) CEMLLC 

calculates the “netback” price by taking the proceeds it receives from third-party buyers 

downstream and deducting the transportation, compression, gathering, and other postproduction costs it incurs; and (4) CEMLLC pays the Chesapeake defendants the 

“netback” price for the gas and NGLs produced and sold at the wellhead. (Chesapeake 

Defendants’ Motion for Summary Judgment Ex. A, Gipson Aff. ¶ 3; Ex. B, Bowles Aff. ¶ 

4, 7, 11). The Chesapeake defendants then pay Gateway royalties based on this netback 

price. 

{¶28} In a similar case, the United States District Court, Northern District of Ohio, 

Eastern Division, approved this method. The court granted summary judgment in favor 
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Case No. 19 CA 0933

of CELLC on a class action suit brought by royalty owners for breach of contract arising 

from CELLC’s alleged underpayment of oil and gas royalties asserting CELLC paid the 

royalties on the wrong price. Henceroth v. Chesapeake Expl., L.L.C., N.D.Ohio No. 

4:15CV2591, 2019 WL 4750661 (Sept. 30, 2019). The leases at issue provided CELLC 

would pay royalties “in an amount equal to one-eighth of the net proceeds realized by 

Lessee from the sale of all gas and the constituents thereof produced and marketed from 

the Leasehold.” Id. at * 1. 

{¶29} The court found: 

Defendant’s motion presents the issue of whether CELLC paid royalties 

consistent with the Class Leases. The Court concludes that it did. 

Defendant paid “one-eighth of the net proceeds realized.” The lease 

language is plain and unambiguous and the evidentiary record is clear: 

CELLC (the Lessee) paid Plaintiffs 1/8th of the proceeds it received from 

the sale of the oil and gas produced and marketed from the leaseholds. * * 

* CELLC sells the oil and gas at the wellhead to CEMLLC * * * receives a 

netback price from CEMLLC for those sales, and paid Plaintiffs 1/8th of 

those proceeds, without taking any deductions from the proceeds realized 

from CEMLLC. That is exactly what the parties negotiated for in section 5(B) 

of the Class Leases. 

Id. at *7. Thus, the court concluded that the language “one-eighth of the net proceeds 

realized by Lessee from the sale of all gas and the constituents thereof produced and 

marketed from the Leasehold” was clear and unambiguous. And that the netback price 

was the proper price from which to calculate the one-eighth royalty payment. 

{¶30} The same federal district court also confirmed an arbitrator’s award in favor 

of CELLC, CK Utica, and CEMLLC on the almost identical lease issue. In Hale v. 

Chesapeake Expl., L.L.C., N.D.Ohio No. 4:18CV2217, 2019 WL 1863670 (Apr. 25, 2019), 

reconsideration denied, N.D.Ohio No. 4:18CV2217, 2019 WL 5420147, the royalty 

owners pursued claims against CELLC, CK Utica, and CEMLLC asserting breach of 

contract. Per the terms of their lease, the royalty owners were to receive royalties 

calculated as a percentage of the proceeds attributable to the production from each well. 
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Case No. 19 CA 0933

Id. at * 1. The royalty owners alleged they should have received royalties on the revenue 

figure of the sale from CEMLLC to downstream purchasers, rather than on the revenue 

figure of the sale from CELLC to CEMLLC. Id. They further argued that CELLC does not 

perform any marketing, instead CEMLLC does. Id. at * 2. They argued that CELLC’s 

obligation to “market” the oil and gas does not occur until CEMLLC sells the product to 

third-party buyers downstream. Id. 

{¶31} The arbitration panel unanimously decided against the royalty owners and 

in favor of the Chesapeake parties. Id. The panel found the royalty owners provided no 

evidence that CEMLLC paid a price to CELLC that was “less than that which would be 

received from a sale to an unaffiliated third party in an arm’s length transaction 

considering the volume available quality, location, and length of term of the proposed 

sale.” Id. It further found CELLC transfers title and receives total consideration from 

CEMLLC for the oil and gas produced from the leases, CELLC markets the oil and gas 

produced from the leases, and CELLC and its affiliates make legally sufficient accounting 

entries on their books and records to evidence transfer of title and consideration paid. Id. 

{¶32} The district court observed that the arbitration panel also found that CELLC 

“marketed” the oil and gas when it sold the oil and gas to CEMLLC. Id. at * 4. The court 

confirmed the panel’s award finding that the panel stayed well within its powers to 

adjudicate the dispute and executed those powers appropriately. Id. 

{¶33} Given all of the above, the Leases are clear and unambiguous and the 

Chesapeake defendants properly calculated the royalty payments based on the Leases’ 

terms. Accordingly, the trial court properly granted summary judgment in their favor. 

{¶34} EnerVest raises a different argument than the Chesapeake defendants. 

EnerVest argues that Gateway has not identified any evidence to support its claim that 

EnerVest breached the Great Lakes Lease. Nor has Gateway identified any damages. 

EnerVest points out that in its complaint, Gateway made the same allegations against all 

defendants regarding each of the Leases and calculations of royalties. In its interrogatory 

answers, Gateway identified the evidence it stated support its allegations of breach: (1) 

the “Buck Well Documents;” (2) the “Henceroth Discovery;” and (3) conversations 

between non-party Bruce Buck and unidentified oil haulers. EnerVest argues none of this 

evidence applies to it or the Great Lakes Lease. 
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Case No. 19 CA 0933

{¶35} EnerVest argues that the Buck Well Documents have no bearing on the 

Great Lakes Lease because they relate to a different lease to which it is not a party. It 

contends the Henceroth Discovery is likewise unrelated to the Great Lakes Lease. 

Additionally, EnerVest argues, it contains hearsay. Finally, it points out that Bruce Buck 

has no connection with the Great Lakes Lease. EnerVest argues Gateway has only 

offered inferences against it. It asserts Gateway wishes the court to infer that the alleged 

breach of the Eric Petroleum Leases results in a finding that EnerVest breached the Great 

Lakes Lease. 

{¶36} Finally, EnerVest argues the evidence is uncontroverted that Gateway has 

no evidence of damages resulting from the Great Lakes Lease. It points to Gateway’s 

royalty statements for production from the wells in drilling units subject to the Great Lakes 

Lease. (EnerVest Motion for Summary Judgment, Ex. A). It notes that under the heading 

“DEDUCT,” all entries read “0.0,” indicating that no deductions were taken. 

{¶37} The trial court relied on these reasons in granting summary judgment to 

EnerVest. In its appellate brief, Gateway did not address these arguments. In its reply 

brief, however, Gateway argued that the record is clear that CELLC functions as the 

“operator” under both the Eric Petroleum Leases and the Great Lakes Lease. As such, 

CELLC has the responsibility for selling the gas and paying the royalties. Gateway argues 

that EnerVest, as the gas producer, cannot arrange for its agent, CELLC, to calculate and 

pay royalties and then avoid liability if the agent underpays the royalties. 

{¶38} CELLC is the operator of the Great Lakes Lease. (EnerVest Motion for 

Summary Judgment Exs. A-1, A-2, A-3). EnerVest admitted in its motion for summary 

judgment that it is not the operator of any of the wells drilled pursuant to the Great Lakes 

Lease, does not calculate or pay royalties to Gateway, does not market any products from 

the wells, and had not negotiated any contracts for the sale of production from the wells. 

(EnerVest Motion for Summary Judgment p. 3, Ex. B). 

{¶39} Based on the analysis above, summary judgment was proper finding that 

CELLC did not breach the Eric Petroleum Leases in calculating royalty payments to 

Gateway. Therefore, whether EnerVest should be held to be responsible for the royalty 

payment calculated by CELLC, as Gateway alleges, or whether CELLC should be the 

responsible party on the Great Lakes Lease, as EnerVest alleges, is immaterial here. 
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Case No. 19 CA 0933

Because the trial court properly found that CELLC calculated and paid royalties in 

accordance with the Leases, under either scenario summary judgment in favor of 

EnerVest was proper. 

{¶40} Accordingly, Gateway’s first and second assignments of error are without 

merit and are overruled. 

{¶41} For the reasons stated above, the trial court’s judgment is hereby affirmed. 

Waite, P. J., concurs. 

D’Apolito, J., concurs. 
[Cite as Gateway Royalty, L.L.C. v. Chesapeake Exploration, 2020-Ohio-1311.]

 

 

For the reasons stated in the Opinion rendered herein, the assignments of error 

are overruled and it is the final judgment and order of this Court that the judgment of 

the Court of Common Pleas of Carroll County, Ohio, is affirmed. Costs to be taxed 

against the Appellant. 

A certified copy of this opinion and judgment entry shall constitute the mandate 

in this case pursuant to Rule 27 of the Rules of Appellate Procedure. It is ordered that 

a certified copy be sent by the clerk to the trial court to carry this judgment into 

execution. 

NOTICE TO COUNSEL 

This document constitutes a final judgment entry.