Appeals court sides with Chesapeake and Statoil in lease renewal dispute

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YOUNGSTOWN — In a suit filed against Chesapeake Appalachia and Statoil USA Onshore Properties, the Ohio 7th District Court of Appeals ruled in favor of the two energy companies March 30.

But the decision, according to the appellants’ attorney, is not likely to have a bearing on many future lease agreements.

”This is a kind of a rare instance, most of these types (of leases) were written in 2002, and then there was another round of them in 2007, so most of them are at the end of their life,” said Sean R. Scullin, attorney for appellants Patrick and Michelle Kenney, Joseph Calderone and Roberta McClure, all of Columbiana County.

“A lot of it has to do with who is writing the lease. In the newer ones, it is usually spelled out what exactly is in the renewal.”

Attorneys for Chesapeake and Statoil did not return calls for comment.

At issue was alleged ambiguity in the lease extension language. The appellants argued that the renewal clause did not create a legally binding offer, as required for an option, because there was no certainty as to the terms of the extension.

“(The appellants) dispute that the word ‘extend’ by itself would necessarily mean on the exact same terms,” the court wrote in its decision.

Background

The Kenneys and Calderone leased their minerals to Great Lakes Energy Partners in February and April 2007, respectively. In January 2008, McClure leased her minerals to Range Resources Appalachia, which had acquired as a subsidiary the remaining half of Grant Lakes that it did not already own.

In December 2011, Range Resources assigned all of its Columbiana County leases to Chesapeake and Statoil.

When the five-year leases were about to end, letters were sent to the property owners, stating that the option to extend the primary term of the lease by an additional five years was being exercised.

The property owners did not cash the enclosed checks and filed suit in April 2013, seeking to have the extensions declared invalid and the leases declared expired.

Every case, and every lease is different. From our previous coverage: Federal court: Oil and gas lease is no longer valid

In their suit, the property owners took issue with a portion of the lease that stated: “upon the expiration of this lease, and within 60 days thereafter, lessor grants lessee an option to extend or renew under similar terms a like lease.”

“We argued that it was uncertain, and that it couldn’t be determined what the exact terms of the extension would be,” Scullin said. “The courts felt that the language was clear and (they could extend).”

Going forward

Scullin said his clients could appeal to the Ohio Supreme Court, but there is no guarantee that the case would be heard. The unique nature of the complaint, he added, makes it even less likely the higher court would hear it.

“It appears that this will only affect a certain type of lease with this kind of language,” Scullin said.

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