Opinion ID: 6326322
Heading Depth: 2
Heading Rank: 4

Heading: The Nature of Oil and Gas Leases

Text: {¶ 15} It is well settled in our caselaw that an oil and gas lease grants the lessee a property interest in the land. Bohlen v. Anadarko E & P Onshore, L.L.C., 150 Ohio St.3d 197, 2017-Ohio-4025, 80 N.E.3d 468, ¶ 12; Harris v. Ohio Oil Co., 57 Ohio St. 118, 129-130, 48 N.E. 502 (1897). Notably, R.C. 5301.09 provides that all oil and gas leases must be recorded in the applicable county’s land records, “[i]n recognition that such leases and licenses create an interest in real estate.” See also R.C. 317.08(A)(25). This is consistent with our prior determination that when an oil and gas lease burdens property, it prevents the landowner from passing “title free and clear of all liens and encumbrances.” Karas v. Brogan, 55 Ohio St.2d 128, 129, 378 N.E.2d 470 (1978). And our decision in Buell made clear that an “oil and gas lease constitutes a title transaction because it affects title” to real estate. 6 January Term, 2022 (Emphasis added.) Id. at ¶ 66; see also R.C. 5301.47(F) (defining “title transaction” for purposes of Ohio’s Marketable Title Act, R.C. 5301.47 et seq.). {¶ 16} In addition, an oil and gas lease affects the possession of the land. As this court said long ago in Harris, an oil and gas lease “is a lease of the land for the purpose and period limited therein, and the lessee has a vested right to the possession of the land to the extent reasonably necessary to perform the terms of the instrument on his part.” (Emphasis added.) Id. at 129-130. Similarly and more recently, this court explained in Buell that an oil and gas lease affects the possession of the land “[b]ecause the lessee also enjoys reasonable use of the surface estate to accomplish the purposes of the lease.” Id. at ¶ 60. That is, the lessee may exercise dominion over the part of the real estate that is subject to the lease, sometimes to the exclusion of the lessor. {¶ 17} What happens, then, when an oil and gas lease expires under its own terms? Our precedent also supplies the answer to that question. {¶ 18} “Generally, a contemporary oil and gas lease sets forth the duration of the lease in a habendum clause that contains two tiers: a ‘primary term’ and a ‘secondary term.’ ” Bohlen, 150 Ohio St.3d 197, 2017-Ohio-4025, 80 N.E.3d 468, at ¶ 16. “The primary term sets forth a period of definite duration, and the secondary term then sets forth a period of indefinite duration, permitting extension of the lease as long as certain conditions are met, typically, when oil and gas are produced in paying quantities.” Id. If the conditions of the primary term or the secondary term are not met, then the lease terminates by its express terms and the property interest that it created is revested to the lessor by operation of law. State ex rel. Claugus Family Farm, L.P. v. Seventh Dist. Court of Appeals, 145 Ohio St.3d 180, 2016-Ohio-178, 47 N.E.3d 836, ¶ 20. The expiration or termination of an oil and gas lease returns the lessor and the lessee to the status quo prior to the execution of the lease: the lease no longer encumbers the land or affects title to it, 7 SUPREME COURT OF OHIO and the lessee has no right to possess it. See Buell, 144 Ohio St.3d 490, 2015-Ohio4551, 45 N.E.3d 185, at ¶ 73.