Reed v. Columbia Gas Transmission LLC

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF OHIO

EASTERN DIVISION

James D. Reed and Deborah Reed.,

Case No. 2:22-cv-3417

Plaintiffs,

v. Judge Graham

Columbia Gas Transmission, LLC, et al., Magistrate Judge Jolson

Defendants.

Opinion and Order

Plaintiffs James and Deborah Reed own land in Hocking County, Ohio. The prior land

owners entered into an oil and gas lease with Ohio Fuel Gas Company, the predecessor-in-interest

to defendant Columbia Gas Transmission, LLC. Plaintiffs have brought this diversity action alleging

various state law claims arising out of Columbia’s decision to plug and abandon a gas storage well on

their land. They also assert a claim for breach of the implied covenant to develop the oil and gas

rights. This matter is before the Court on the parties’ cross-motions for summary judgment. For

the reasons set forth below, the Court grants summary judgment to Columbia.

I. Factual Background

A. The 1950 Lease

In 1950, landowners Harold and Margaret Eigensee entered into an oil and gas lease with

Ohio Fuel. The lease covered about 80 acres over three contiguous parcels of land in Hocking

County. The 1950 Lease granted Ohio Fuel the right to “all the oil and gas in and under the lands

hereinafter described together with the exclusive rights to drill for, produce and market oil and gas

and also the right to enter thereon at all times for the purpose of drilling and operating for oil, gas

and water.” Doc. 57-4 at PAGEID 1264. The lease had a 20-year term and for so much longer

thereafter as oil or gas was produced in paying quantity. Id.

Under the 1950 Lease, Ohio Fuel was to “deliver to Lessor in tanks or pipe lines one-eighths

(1/8) of the oil produced and saved from the premises.” Id. Ohio Fuel was also to pay a $200

“annual rental” payment for each gas well from which gas was marketed. Id. The 1950 Lease

imposed on Ohio Fuel a duty to “drill a well producing oil or gas in paying quantity” within one

year. Id. If Ohio Fuel failed to do so, then it became obligated to pay delay rental payments of $42

per year. There is no indication on the record that Ohio Fuel drilled any wells under the 1950 Lease.

B. The 1952 Lease

The parties entered into a superseding lease in January 1952, which provided for the addition

of gas storage rights. The 1952 Leases granted to Ohio Fuel “all the oil and gas in and under the

lands hereinafter described together with the exclusive right at all times to enter thereon and drill

for, produce and market oil and gas and the exclusive right to inject, store and remove gas,

regardless of the source thereof, in and from the oil and gas strata underlying said premises and to

possess, use and occupy so much of said premises as is necessary and convenient for the purposes

herein specified.” Doc. 57-4 at PAGEID 1258. The 1952 Lease had a term of “twenty (20) years

and so much longer thereafter as oil or gas is produced therefrom in paying quantity, or gas is being

injected and stored therein or removed therefrom.” Id.

The addition of gas storage rights carried through to other parts of the lease. Ohio Fuel was

still obligated to deliver to the lessor one-eighth of any oil produced, but it now was to pay a $200

annual rental for each gas well for which “gas is being marketed, injected, stored or removed.” Id. at

PAGEID 1259. Ohio Fuel had to “drill a well producing oil or gas in paying quantity, or a well to

be utilized for storage purposes on said premises by Apr. 27, 1952” or pay $84.00 each year in delay

rental payments. Id.

An important provision of the 1950 Lease which remained the same in the 1952 Lease was

the lessor’s right to “lay a line to any gas well” on the property and “take gas produced from said

well for use for light and heat in one dwelling house on said land, at Lessor’s own risk, subject to the

use and the right of abandonment of the well by Lessee.” Id. “The first two hundred thousand

cubic feet of gas taken each year shall be free of cost,” with any amount in excess to be paid at a

market rate. Id.

Ohio Fuel soon drilled three gas wells on the premises. See Am. Compl. ¶¶ 16–18. All three

wells were “drilled for the purposes of injecting and removing stored gas.” Doc. 61-2 at PAGEID

2836–37, Answer to Request for Admission No. 11. That is, the wells were drilled exclusively as gas

storage wells and not as production wells. It is undisputed that no oil and gas has ever been

produced from the leasehold under the 1952 Lease.

A cabin has always stood on the property, and a line was placed to supply gas to it. See J.

Reed Dep. at 139. Of the three storage wells on the property, the gas to the cabin was supplied by

the one designated as Well 9172. See Am. Compl. ¶ 21.

C. Developments in the 1990s and early 2000s

In 1990 a company named Creative Stucco Corporation acquired the land subject to the

recorded 1952 Lease. See Doc. 59-1 at PAGEID 2088; Doc. 57-4 at PAGEID 1258. James Reed

owned Creative Stucco. See J. Reed Dep. at 15. By this time, Columbia Gas had succeeded the

interests of Ohio Fuel. Creative Stucco later conveyed the land to the Reeds in August 2001. See

Doc. 59-1 at PAGEID 2090.

In 1993, Creative Stucco and Columbia entered into an agreement which the parties refer to

as the “Overburn Agreement.” It increased the annual volume of free gas to which the lessor is

entitled under the 1952 Lease from 200,000 to 300,00 cubic feet. See Doc. 18-3 at PAGEID 394.

The Overburn Agreement further provided that the lessor’s “right to receive free gas is derived

solely from the referenced [1952] lease.” Id..

In the mid-1990s, Columbia contracted with a sister company, Columbia Natural Resources

(CNR) and another party to conduct oil and gas exploration in the region where the Reed’s property

is located. See Cable Dep. at 97–101. The exploration activities lasted from 1995 to 2011 and

included two-dimensional seismic surveys1 of the leasehold and nearby areas in Hocking County.

See id. at 101, 106; J. Reed Dep. at 78–79, 158. Upon identifying areas of likely oil or gas reserves,

CNR drilled 48 wells, none of which were on the leasehold, though some were within a three-mile

radius of it. See Cable Dep. at 54, 106; Cable Decl., ¶ 7; J. Reed Dep. at 79. Twenty-six of the wells

drilled were “dry holes,” 15 wells “likely did not provide a return on investment,” 3 wells “may or

may not have had a return on investment,” and 4 “likely had a return on investment.” Cable Decl.,

¶ 7. These results reflected a “high rate of failure” even after the seismic surveys had indicated the

potential for reserves, and no production wells were drilled on the Reeds’ property leasehold. Id.

D. Columbia Notified the Reeds of its Intent to Plug Well 9172

On September 18, 2021, a land agent contracted by Columbia sent written notice to the

Reeds that Columbia intended to plug and abandon Well 9172. See Doc. 59-2 at PAGEID 2129.

1 A seismic survey is a geophysical exploration technique in which an energy wave is bounced “off

underground oil and gas deposits back up to small, strategically positioned sensors on the surface.”

Nat. Res. Def. Council v. Nat’l Park Serv., 250 F. Supp. 3d 1260, 1275 (M.D. Fla. 2017). “The data

acquired during the survey may be either two or three dimensional, depending on the layout of the

geophones and the location of the energy source points, but 3–D seismic surveys produce better

images and successfully identify subtle geological features.” Id. (changes made). See also Musser Davis

Land Co. v. Union Pac. Res., 201 F.3d 561, 566 (5th Cir. 2000) (“[T]he seismic method obtains this

information [about subsurface structures] by measuring the reflection, refraction, and velocity of

shock waves created by explosive charges set off in holes in the earth.”).

The notice told the Reeds that this would “result in the retirement of your tap from Columbia’s

facilities and the corresponding cessation and termination of free natural gas” to the cabin. Id.

The Reeds received a letter dated January 4, 2022 which reiterated Columbia’s intent to plug

and abandon Well 9172. See Doc. 18-8 at PAGEID 518. The letter further stated that Columbia

would need first to obtain approval from the Federal Energy Regulatory Commission (FERC). The

letter advised that the project would involve, among other things, “earth disturbance, the presence

of workers and equipment, . . . [and] grading and excavation.” Id. Columbia estimated that the

project would begin in March 2022 and last four months. Finally, the letter gave the Reeds notice of

their right to protest the project to FERC.

The land agent sent another letter to the Reeds on January 13, 2022. See Doc. 18-9 at

PAGEID 522. It too stated Columbia’s intent to plug and abandon Well 9172 upon FERC

approval. It again advised that the project would require “temporary workspace” and could involve

earth disturbance, grading, excavation, and new or modified access roads. Id. The letter stated that

Columbia would follow FERC’s erosion control and revegetation plan during construction and

restoration activities. The letter gave a longer, six-month timeframe for the duration of the project.

Information was provided for the Reeds to contact the land agent or FERC to raise questions or

concerns about the project.

E. Columbia Receives FERC Approval and Plugs Well 9172

On January 3, 2022, Columbia filed with FERC a plan to plug and abandon four natural gas

storage wells, including Well 9172. See Doc. 59-6 at PAGEID 2314. The other three wells were not

on the Reeds’ property. The application contained extensive statements and plans concerning

Columbia’s proposed compliance with applicable environmental regulations, including those relating

to erosion control, revegetation, and restoration.

On March 2, 2022, FERC filed an Environmental Assessment Report. See Doc. 59-6 at

PAGEID 2297. The Repot contained an environmental analysis of the proposed project. It found

that the project would require tree clearing and excavation to plug Well 9172. See id. at PAGEID

2300. Columbia would be required to implement erosion control and topsoil conservation measures

and to stabilize and revegetate the disturbed area. See id. at PAGEID 2301. Impact on vegetation

was expected to be “minor.” Id. at PAGEID 2303. The Report concluded that Columbia’s

proposed project would comply with applicable regulations and “would not constitute a major

federal action significantly affecting the quality of the human environment.” Id. at PAGEID 2308.

Upon receiving FERC’s approval, Columbia began clearing trees from approximately 0.65

acres around the wellhead in March 2022. See Medziuch Dep. at 57; Doc. 59-6 at PAGEID 2388.

With Well 9172 being on a slope, work crews had to excavate land to create a level working area,

onto which composite mats with underlayment were placed. See Karns Dep. at 30; see also Medziuch

Dep. at 64 (testifying that site preparation, with grading and erosion control, taking place in July

2022). By October 27, 2022 Columbia completed its plugging activities and then backfilled the

hillside cut, regraded the land at pre-existing contours, and reseeded the disturbed area with grass.

See id. at 94, 101–102. Columbia retained an environmental inspector, who issued a report

December 1, 2022 stating that backfill, final grading, and restoration was 100% completed and that

vegetative coverage was at 93%. See Doc. 69-1 at PAGEID 3253.

II. Procedural Background

The Reeds originally filed this suit in state court. After Columbia removed the case to

federal court, the Reeds amended their complaint. The Amended Complaint also named Columbia

Energy Ventures, LLC, as a defendant.

The Amended Complaint asserts eight claims. The first is for breach of the 1952 Lease.

Plaintiffs allege that Columbia breached the lease by unilaterally terminating the supply of free gas

(also known as “house gas”) to the cabin. The second claim likewise alleges that Columbia breached

the Overburn Agreement by terminating the supply of house gas to the cabin.

The third claim is for diminution of value of real property. Plaintiffs allege that the

termination of house gas has caused the value of their property to be diminished.

The fourth cause of action is for conversion. Plaintiffs assert that Columbia’s breach of the

1952 Lease should result in Columbia forfeiting its right to produce gas from the property. Plaintiffs

further contend that Columbia has improperly taken “Plaintiffs’ native gas despite its breach of its

lease obligations.” Am. Compl., ¶ 59.

Plaintiffs’ fifth claim is for destruction of property. They allege that in connection with

plugging Well 9172, Columbia destroyed trees and other vegetation and damaged the surface of the

land.

The sixth cause of action is for ejectment. Plaintiffs allege that because Columbia has

breached the 1952 Lease, it should be required to surrender its rights and be ejected from the land.

The seventh claim is for declaratory judgment that Columbia has breached the 1952 Lease

and Overburn Agreement. Plaintiffs seek the remedy of an order requiring Columbia to reinstate

the supply of house gas.

Plaintiffs’ eighth claim is for breach of an implied covenant to produce. This claim is

brought against Columbia and also Columbia Energy Ventures, LLC, which allegedly has been

assigned the development rights for plaintiffs’ land. Plaintiffs assert that Ohio law imposes an

implied duty to produce upon lessees in oil and gas leases. They further allege that Columbia has

failed to make reasonable efforts to produce oil and gas under the 1952 Lease.

Each party has moved for summary judgment. Plaintiffs seek summary judgment on their

claim for breach of the implied covenant to produce. Defendants seek summary judgment as to all

claims.

III. Standard of Review

Under Federal Rule of Civil Procedure 56, summary judgment is proper if the evidentiary

materials in the record show that there is “no genuine dispute as to any material fact and the movant

is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see Longaberger Co. v. Kolt, 586 F.3d

459, 465 (6th Cir. 2009). The moving party bears the burden of proving the absence of genuine

issues of material fact and its entitlement to judgment as a matter of law, which may be

accomplished by demonstrating that the nonmoving party lacks evidence to support an essential

element of its case on which it would bear the burden of proof at trial. See Celotex Corp. v. Catrett,

477 U.S. 317, 322-23 (1986); Walton v. Ford Motor Co., 424 F.3d 481, 485 (6th Cir. 2005).

The “mere existence of some alleged factual dispute between the parties will not defeat an

otherwise properly supported motion for summary judgment; the requirement is that there be no

genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in

original); see also Longaberger, 586 F.3d at 465. “Only disputed material facts, those ‘that might affect

the outcome of the suit under the governing law,’ will preclude summary judgment.” Daugherty v.

Sajar Plastics, Inc., 544 F.3d 696, 702 (6th Cir. 2008) (quoting Anderson, 477 U.S. at 248). Accordingly,

the nonmoving party must present “significant probative evidence” to demonstrate that “there is

[more than] some metaphysical doubt as to the material facts.” Moore v. Philip Morris Cos., Inc., 8 F.3d

335, 340 (6th Cir. 1993).

A district court considering a motion for summary judgment may not weigh evidence or

make credibility determinations. Daugherty, 544 F.3d at 702; Adams v. Metiva, 31 F.3d 375, 379 (6th

Cir. 1994). Rather, in reviewing a motion for summary judgment, a court must determine whether

“the evidence presents a sufficient disagreement to require submission to a jury or whether it is so

one-sided that one party must prevail as a matter of law.” Anderson, 477 U.S. at 251-52. The

evidence, all facts, and any inferences that may permissibly be drawn from the facts must be viewed

in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,

475 U.S. 574, 587 (1986); Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 456 (1992).

However, “[t]he mere existence of a scintilla of evidence in support of the plaintiff’s position will be

insufficient; there must be evidence on which the jury could reasonably find for the plaintiff.”

Anderson, 477 U.S. at 252; see Dominguez v. Corr. Med. Servs., 555 F.3d 543, 549 (6th Cir. 2009).

IV. Columbia’s Motion for Summary Judgment as to Counts One through Seven

A. Breach of Contract – Counts One and Two

Count One of the Amended Complaint alleges that Columbia unilaterally terminated the

Reeds’ supply of house gas in violation of the 1952 Lease. The elements of a breach of contract

claim are: (1) the existence of a contract, (2) performance by the plaintiff, (3) breach by the

defendant, and (4) damage or loss to the plaintiff. White v. Pitman, 2020-Ohio-3957, ¶ 37, 156

N.E.3d 1026, 1036 (Ohio Ct. App.).

Columbia argues that the Reeds cannot demonstrate a breach because the right to house gas

was subject to Columbia’s right to abandon Well 9172. The Court agrees. The 1952 Lease

provided, “Lessor may lay a line to any gas well on said lands and take gas produced from said well

for use for light and heat in one dwelling house on said land, at Lessor’s own risk, subject to the

use and the right of abandonment of the well by Lessee.” Doc. 57-4 at PAGEID 1259

(emphasis added). The plain language of the 1952 Lease conditions the Reeds’ privilege to receive

house gas on Columbia’s right to abandon the well. There are no contractual restrictions on

Columbia’s right to abandon the well. Further, there are no allegations that Columbia acted

improperly or in bad faith in deciding to abandon the well. To the contrary, Columbia’s decision

received FERC approval.

Columbia exercised its right to abandon Well 9172 in 2022. Columbia concedes that the

Reeds still have a right to receive house gas if they chose to “lay a line” to one of the two remaining

gas storage wells on their property. Importantly, the lease imposes the duty on the Reeds to place a

line to another well. The evidence shows that Columbia, through legal counsel, inquired of the

Reeds at least twice in the summer of 2022 as to their desire to lay another line. See Doc. 70-1 at

PAGEID 3291 (June 9, 2022 email); id. at PAGEID 3293 (Aug. 10, 2022 email). James Reed

testified that Columbia offered to allow the Reeds, at their expense, to lay a line to one of the other

wells before service to Well 9172 was cut off in late 2022. See J. Reed Dep at 51. The Reeds chose

not to lay another line because of the cost, and they switched their cabin over to propane. See id. at

51–53; D. Reed Dep. at 58–59.

In response to Columbia’s motion for summary judgment, plaintiffs do not dispute that

Columbia had a right to abandon Well 9172. Nor do they dispute that, had they opted to lay a new

line, the 1952 Lease imposed the cost of doing so on them. Instead plaintiffs argue that prior to the

lawsuit Columbia “denied the Reeds the opportunity to lay another gas line to other storage wells.”

Doc. 66 at PAGEID 3190. They cite the initial September 18, 2021 written notice from Columbia,

which stated that Columbia’s plan to plug and abandon Well 9172 would result in the “termination

of free natural gas to the service address.” Doc. 59-2 at PAGEID 2129. The notice further stated

that the Reeds “may need to convert to an alternative source of energy.” Id. Plaintiffs also cite

some pre-suit communications between legal counsel in which Columbia’s early posturing suggested

that it might no longer be willing to supply house gas. See Doc. 18-10 at PAGEID 525.

Plaintiffs’ response brief does not use the term “anticipatory breach,” but that appears to be

the gist of what they are now arguing. The Court must reject this argument. The Amended

Complaint does not contain a claim for anticipatory breach or repudiation, even though Columbia’s

conduct occurred before the filing of the suit in state court and well before the filing of the

Amended Complaint in April 2023. See Tucker v. Union of Needletrades, Indus. & Textile Emps., 407

F.3d 784, 788–89 (6th Cir. 2005) (holding that a plaintiff may not raise a new legal claim for the first

time in response to defendant’s motion for summary judgment when the new claim is based on facts

within plaintiff’s knowledge at the time the complaint was filed). Moreover, the Reeds both testified

that in the summer of 2022 – several months before Well 9172 was plugged – Columbia offered to

allow them to lay a line to an existing well to receive the free supply of house gas. See J. Reed Dep.

at 51, 134–35; D. Reed Dep. at 59. Because Columbia offered to perform its contractual obligation

to supply house gas in the event the Reeds laid a line, the Reeds cannot prove an essential element

of anticipatory breach. Namely, they cannot prove that Columbia expressed an “unequivocal

repudiation” of the contract. AMP V, LP v. Long Point Energy, LLC, 2025-Ohio-201, ¶ 58, __

N.E.3d __ (Ohio Ct. App.).

The Court reaches the same legal conclusions with respect to the second claim for breach of

contract. The Overburn Agreement increased the volume of house gas to which the Reeds were

entitled, but it did not otherwise change the operation of the 1952 Lease. The Reeds’ right to house

gas “derived solely” from the 1952 Lease. Doc. 18-3 at PAGEID 394. Because Columbia had a

right to abandon Well 9172 and because the duty to lay a new line was placed on the Reeds,

Columbia did not breach the Overburn Agreement.

Accordingly, the Court finds that Columbia is entitled to summary judgment on the claims

for breach of the 1952 Lease and the Overburn Agreement.

B. Diminution of Value, Conversion, Ejectment, and Declaratory Judgment –

Counts Three, Four, Six, and Seven

The Reeds allege in the third cause of action that Columbia’s improper termination of house

gas to the cabin has caused the value of their property to decline. Columbia argues that diminution

in value is not a standalone claim but rather a measure of damages. See Ludolph v. Tuel & Thoenen,

Inc., 6 Ohio Misc. 117, 124, 214 N.E.2d 696, 701 (Ct. Com. Pl. 1965). Columbia further argues that

the claim fails because plaintiffs cannot prove that the termination of house gas was in breach of the

1952 Lease. Plaintiffs’ response brief concedes that diminution of value is a method of calculating

damages. See Doc. 66 at PAGEID 3191. The Court agrees with Columbia’s argument that

diminution of value is a measure of damages and that plaintiffs cannot prove an underlying breach

of contract. Thus, Columbia is entitled to summary on the diminution of value claim.

The fourth claim is for conversion and it requires a showing that defendant wrongfully

exercised domain over property belonging to plaintiffs. See Joyce v. Gen. Motors Corp., 49 Ohio St. 3d

93, 96, 551 N.E.2d 172, 175 (Ohio 1990). The Amended Complaint alleges that Columbia has taken

native gas from the Reeds’ property and that such activity is improper because Columbia forfeited its

rights to produce gas when it breached the 1952 Lease by terminating the supply of house gas. But

plaintiffs now concede that their conversion claim fails because discovery produced no evidence that

Columbia has ever produced native gas from their property. See Doc. 66 at PAGIED 3203 n. 13.

For this reason, and because plaintiffs cannot prove an underlying breach of contract, the Court

finds that Columbia is entitled to summary judgment on the conversion claim.

The sixth and seventh claims for ejectment and declaratory judgment fail as well. Both are

contingent upon plaintiffs demonstrating that Columbia breached the 1952 Lease and thereby

forfeited its contractual rights. Because the Reeds have not demonstrated that Columbia breached

the lease by terminating the supply of house gas, Columbia is entitled to summary judgment on the

claims for ejectment and declaratory judgment. See Maddox v. Reser, 110 Ohio App. 213, 217–18, 168

N.E.2d 923, 926–27 (Ohio Ct. App. 1959) (claim for ejectment can be defeated by defendant’s

showing of a contractual right of possession).

C. Destruction of Property – Count Five

In their fifth claim, the Reeds allege that “[w]ithout right to do so, Defendant has entered on

Plaintiffs’ property.” Doc. 18 at ¶ 64. They further allege that Columbia destroyed trees and other

vegetation and damaged the surface of the land. They seek recovery for damage to the property and

for emotional distress. The Reeds explain in their brief that the damage to the land’s surface relates

to alleged destabilization of the backfilled slope on the hillside where Well 9172 was located.

Columbia’s motion for summary judgment assumes that Count 5 is a tort claim of some sort.

See Doc. 61 at PAGEID 2799. Columbia argues that the claim is defeated by the terms of the 1952

Lease, which contractually limits Columbia’s liability for property damage to losses involving crops.

Columbia also argues that, to the extent plaintiffs seek to impose additional standards of care on

Columbia, the claim is preempted by Natural Gas Act, which commits such matters to FERC’s

jurisdiction. In response, the Reeds do not clarify the nature of the cause of action or discuss the

standards which would apply to their tort claim. Their brief in fact muddies the waters. They argue

both that Columbia failed to comply with the FERC certificate in restoring their property and that

Columbia breached an implied covenant to restore the surface of the estate.

In attempting to address the fifth cause of action, the Court starts with the Amended

Complaint. Based on the allegations alone, the claim would appear to be one for trespass. The

Reeds allege that Columbia forfeited its rights under the 1952 Lease because it cut off their house

gas. See Doc. 18 at ¶ 63. The next allegations are that Columbia entered the land “[w]ithout right to

do so” and damaged the property and caused emotional distress. Id. at ¶¶ 64, 65. In Ohio, a

“common-law tort in trespass upon real property occurs when a person, without authority or

privilege, physically invades or unlawfully enters the private premises of another [and] damages

directly ensue.” Apel v. Katz, 83 Ohio St.3d 11, 19, 697 N.E.2d 600 (Ohio 1998) (internal quotation

marks omitted). However, as explained above, the Court finds that Columbia did not forfeit its

contractual rights by terminating the supply of house gas. The 1952 Lease grants Columbia

authority to “enter” the land for purposes related to its storage of natural gas. Doc. 57-4 at

PAGEID 1258. Thus, any claim for trespass fails.

The Court next looks to how the claim is labeled. The Amended Complaint calls it a claim

for “destruction of property.” A civil claim for destruction of property is uncommon, if not rare, in

Ohio.2 But it is a recognized cause of action. An Ohio Court of Appeals has rejected the argument

that there is no legal basis for a claim of malicious destruction of property. See Thomas v. Murry,

2021-Ohio-206, ¶ 60 (Ohio Ct. App.). The court reasoned:

Ohio courts routinely recognize civil actions for injury to personal property. As set

forth in R.C. 2307.011(J), a “tort action” is defined as “a civil action for damages for

injury, death, or loss to person or property.” “This definition is broad and does not

require that the cause of action be based in common law as opposed to statute.”

Gurry v. C.P., 2012-Ohio-2640, 972 N.E.2d 154, ¶ 13 (8th Dist.). As recognized by

this court, “a ‘tort action’ is present where one brings a private cause of action for

property damage.” Id.

Id., ¶ 61. The court did not discuss the elements of a civil claim for malicious destruction of

property, as a motion for sanctions was at issue. But the court’s discussion of the facts and its

holding that plaintiff had a basis to assert the claim (sufficient to avoid sanctions) suggests that a

plaintiff at a minimum must show that defendant, without consent or right, knowingly damaged

property belonging to plaintiff. See id., ¶ 62. This would mirror the elements of a criminal offense

for the same type of conduct. See, e.g., O.R.C. § 2909.07 (criminal mischief).

The Court finds that a tort claim for destruction of property fails here because the parties are

in a contractual relationship in which Columbia had a right to enter and use the property. The 1952

Lease speaks both to Columbia’s right to enter the property and to Columbia’s standard of care in

using the land. The lease grants Columbia the right to enter the land for purposes of drilling for oil

and gas and for storing and removing gas, and it grants Columbia the right to abandon a well. The

lease also provides that Columbia may “possess, use and occupy so much of said premises as is

necessary and convenient for the purposes herein specified.” Doc. 57-4 at PAGEID 1258. Even if

Columbia’s conduct in plugging Well 9172 caused damage to the surface estate, the factual record is

undisputed that Columbia had a right to enter and use the land in connection with its well-plugging

operation. The 1952 Lease, not tort law, governs the parties’ conduct in relation to each other. See

Netherlands Ins. Co. v. BSHM Architects, Inc., 2018-Ohio-3736, ¶ 27, 111 N.E.3d 1229, 1236 (Ohio Ct.

App.) (“Generally, the existence of a contract precludes a tort claim on the same underlying actions,

unless the defendant also breached a duty owed independent of the contract.”).

2 Malicious destruction of property has long been a criminal offense, although the various aspects of

that behavior (criminal mischief, vandalism, arson, criminal damaging, etc.) are now separate

offenses under the criminal code. See City of Toledo v. Miller, No. L-78-038, 1978 WL 214857, at *2

(Ohio Ct. App. Sept. 15, 1978) (discussing former O.R.C. § 2909.01, entitled “Malicious Destruction

of Property”); O.R.C. §§ 2909.03, 2909.05, 2909.06, 2909.07.

The Amended Complaint does not assert a breach of contract claim with respect to

Columbia’s removal of trees or damage to the surface of the land. The Court could hold that the

Reeds cannot assert a new claim in response to the motion for summary judgment. See Tucker, 407

F.3d at 788–89. However, Columbia’s motion – which argued that 1952 Lease sets forth the

applicable standard of care – clearly anticipated that contractual issues would arise, and they did.

Plaintiffs’ response brief argues that Columbia breached an implied contractual right to restore the

land. Because plaintiffs’ new theory has been briefed, the Court will address it.

The 1952 Lease gives Columbia the right to enter, use, and occupy the land “as is necessary

and convenient” for Columbia to exercise its contractual rights, including that of storing gas and

abandoning a well. Regarding Columbia’s standard of care in using the land, the lease further

provides that “Lessee shall bury when so requested by Lessor, all pipe lines used to conduct gas or

oil off the premises and shall pay all damage to growing crops caused by operations under this

lease.” Doc. 57-4 at PAGEID 1259. Columbia argues that the lease’s express provision for

compensation for damaged crops means that other types of surface damage caused by lessee’s

operations are not compensable.

The case law cited by Columbia fully supports its position. In Voisard v. Marathon Ashland

Pipe Line, L.L.C., 2006-Ohio-6926, ¶ 2 (Ohio Ct. App), defendant had a contractual easement to lay,

operate, and maintain a pipeline on plaintiff’s property and to use the premises in a manner

“necessary” to exercising its rights. The contract, entered into in 1952, provided that defendant

would pay the landowner “any damages caused by it to growing crops or fences by the laying,

erecting, maintaining, operating or removing of said pipe lines.” Id. (emphasis omitted). Defendant

removed trees from the property so that it could conduct aerial inspections of the pipeline, and

plaintiff sued for damages for breach of the easement. The court rejected plaintiff’s claims and

granted summary judgment to defendant. The court first found that plaintiff had failed to produce

any evidence that the removal of trees was not necessary to defendant’s exercise of rights. The court

further found that “giving the damages clause its plain and ordinary meaning,” “the parties did not

intend to include damages for the cutting of trees or timber.” Id. ¶ 10. The court examined the

dictionary definition of “crops” and found that the trees at issue, which were not fruit-bearing trees,

did not meet the definition. Thus, trees were not among the items for which defendant owed a duty

to compensate plaintiff. See id.

Similarly, in Andrews v. Columbia Gas Transmission Corp., 544 F.3d 618, 621 (6th Cir. 2008), the

defendant had a contractual easement dating from 1947 to lay, operate, and maintain a pipe on

plaintiffs’ land in Ohio. Defendant was to “pay any damages which may arise to crops and fences

from the laying, maintaining, operating and final removal of said pipe line.” Id. Defendant notified

plaintiffs of its intent to clear a stand of pine trees in order to access and inspect the pipeline, and

plaintiffs sued to enjoin the removal of the trees and, in the alternative, for damages. After a bench

trial in which the district court determined that clearing the trees was “necessary and convenient” to

defendant’s exercise of rights, the court rejected plaintiffs’ claim for compensation, and the Sixth

Circuit upheld that decision. Id. at 622. Relying on Voisard, the Sixth Circuit held: “Here, the

agreement provided for damages to crops and fences, not trees. The plain and ordinary meaning of

these words is clear.” Id. at 632.

In this case, when the original parties entered into the 1952 Lease, they expressly

contemplated that the lessee would drill wells for production or storage, would have the right to

abandon the wells, and would have the right to enter, occupy, and use the land in a manner

“necessary and convenient” for those purposes. The Reeds do not dispute that Columbia’s clearing

of trees and other vegetation was necessary and convenient to Columbia’s exercise of its contractual

right to plug and abandon Well 9172. Nor do the Reeds dispute that Columbia’s excavation of the

hillside to create a level surface for its equipment was necessary and convenient. The 1952 Lease

provides for compensation only when “growing crops” are damaged by Columbia’s operations. The

trees which Columbia removed were not crops, and the Reeds do not argue otherwise. See Doc. 59-

6 at PAGEID 2361 (Environmental Report submitted to FERC identifying the trees as hardwoods

such as oak and maple). Under the plain language of the lease, the Court finds that the Reeds are

not entitled to compensation for the trees and other vegetation which Columbia removed when

plugging Well 9172 or for alleged damage to the land’s surface.

The Reeds assert that there exists an implied covenant to restore the surface of the estate.

This assertion is not persuasive for two reasons. For one, courts will not read an implied duty into a

contract when express terms govern the matter. See Fifth Third Mortg. Co. v. Chicago Title Ins. Co., 758

F.Supp.2d 476, 485 (S.D. Ohio 2010) (holding that an alleged implied duty “does not supplant

express contract terms”) (citing Ed Schory & Sons, Inc. v. Soc. Nat’l Bank, 75 Ohio St.3d 433, 662

N.E.2d 1074 (1996)). The 1952 Lease expressly addresses what the lessee’s obligations are when

exercising its rights in using the land – to bury pipelines when requested and to pay for damaged

crops.

Secondly, although the Reeds raise the claim of an implied covenant to restore, they fail to

discuss its contours or application. Perhaps this is not surprising, as the Court’s research found just

three Ohio cases which mention the implied covenant to restore. See Rudolph v. Viking Int’l Res. Co.,

2017-Ohio-7369, ¶ 74, 84 N.E.3d 1066, 1085–86 (Ohio Ct. App.); Yoder v. Artex Oil Co., 2014-Ohio-

5130, ¶ 45 (Ohio Ct. App.); Alford v. Collins-McGregor Operating Co., 2016-Ohio-5082, ¶ 15 (Ohio Ct.

App.). None of the three cases addressed the substance of such a claim. In Randolph, a lessee to an

oil and gas lease abandoned a well without plugging it. The lessor sued for breach of an implied

covenant to restore, asserting that defendant had an implied duty to plug the well. Without

discussing the nature of the claim or the standards imposed, the Ohio appellate court held that the

lower court had improperly dismissed the claim as time-barred. See Rudolph, 2017-Ohio-7369, ¶ 74.

In both Yoder and Alford, the courts cited an energy industry article in stating that implied covenants

have been recognized in oil and gas leases. See Yoder., 2014-Ohio-5130, ¶ 45 (citing Keith B. Hall,

The Application of Oil & Gas Lease Implied Covenants in Shale Plays: Old Meets New, 32 Energy & Min. L.

Inst. 304 (2011)); Alford, 2016-Ohio-5082, ¶ 15 (same). The courts then listed examples of potential

implied covenants, including a duty to restore the surface, but they did not otherwise explain or

discuss the implied covenant to restore the surface because such a claim was not at issue.

Looking outside Ohio case law, the Court notes the general view is that an implied covenant

to restore the surface estate does not exist in oil and gas leases. See 62 A.L.R.4th 1153, § 8. Indeed,

the author of the energy industry article cited in Yoder and Alford states that the “implied duty of

surface restoration is not widely recognized in jurisprudence.” See Keith B. Hall, The Application of

Oil & Gas Lease Implied Covenants in Shale Plays: Old Meets New, p. 8, https://emlf.org/wp-

content/uploads/2016/06/Min.Law_Sample-Outline.Hall_.pdf (citing a lone case which recognized

the covenant). Protection for landowners instead comes in one of several forms: negotiating an

express right to land restoration in the lease; claiming that the lessee’s conduct was not a necessary

operation, such that it violated the clause commonly found in oil and gas leases that the lessee’s use

of the land is limited to that which is necessary and convenient to carry out the lease’s purposes; or

asserting that the lessee’s conduct violated a body of statutory or regulatory requirements which

have been developed to protect landowners. See 62 A.L.R.4th 1153, §§ 8, 10, 12.

The Reeds argue that the original parties to the 1952 Lease – in limiting damages to injury to

growing crops – could not have envisioned or intended to allow Columbia to destabilize the hillside

on which Well 9172 was located. But the language of the lease controls. See Corder v. Ohio Edison

Co., 177 Ohio St. 3d 319, 328, 252 N.E.3d 32, 41 (Ohio 2024) (“That the drafters of the easements

did not contemplate or foresee Ohio Edison’s use of herbicides is of no import. First, as discussed

above, the rights and limitations of the easements find their source in the easements’ text. . . .

Second, provided that an easement’s language does not prohibit it, an easement holder is entitled to

vary the mode of enjoyment and use of the easement by availing himself of modern inventions if by

doing so he can more freely exercise the purpose for which the grant was made.”) (internal

quotation marks omitted). Columbia deemed it necessary to excavate the hillside and to later

backfill the slope. Again, the Reeds do not argue that the excavation and backfilling were

unnecessary to the well-plugging operation.

The Reeds are not left without recourse. They allege that Columbia failed to comply with

FERC’s requirements as to how to restore the backfilled hillside. See Doc. 66 at PAGEID 3196

(arguing that “the FERC certificate obligated Columbia to properly restore the Reed Property”).

The FERC certificate’s conditions required Columbia to implement “topsoil conservation

measures,” “successfully revegetate/stabilize disturbed areas,” and restore “[o]riginal topographic

contours.” Doc. 59-6 at PAGEID 2301. It further provided that “Columbia will perform all

abandonment and restoration activities in accordance with . . . the Commission’s Upland Erosion

Control, Revegetation and Maintenance Plan” and with other specific standards cited by FERC. Id.

at PAGEID 2298–99. The Reeds maintain that Columbia did not comply with applicable standards

regarding slope stability and that scarps (steep banks caused by soil faults or erosion) are developing

on the hillside as a result.

The Reeds’ claim for noncompliance with the FERC certificate must be brought to FERC.

As one court explained:

The relevant statute and regulations place the power to police compliance squarely

upon FERC. FERC’s authority for imposing such conditions is provided in 15

U.S.C. § 717f(e): “The Commission shall have the power to attach to the issuance of

the certificate and to the exercise of the rights granted thereunder such reasonable

terms and conditions as the public convenience and necessity may require.” Section

717m authorizes FERC to investigate violations of provisions of FERC’s orders, see

15 U.S.C. § 717m(a), and FERC regulations specify procedures for such

investigations, see 18 C.F.R. §§ 1b.1—.20. In accordance with 18 C.F.R. § 1b.8, any

person may request that FERC institute an investigation. FERC can bring an action

in district court to enforce its orders. See 15 U.S.C. § 717s(a).

Portland Nat. Gas Transmission Sys. v. 4.83 Acres of Land, 26 F.Supp.2d 332, 339 (D.N.H. 1998). This

Court does not have jurisdiction over the Reeds’ claim, to the extent they seek an order requiring

Columbia to restore the land in compliance with the FERC certificate. See id. (“The district court

does not have the authority to enforce compliance with pre-construction conditions [of the FERC

certificate].”); Millennium Pipeline Co. v. Certain Permanent & Temp. Easements, 777 F.Supp.2d 475, 481

(W.D.N.Y. 2011) (“[W]hen a landowner contends that the certificate holder is not in compliance

with the certificate, that challenge must be made to FERC, not the court.”); Columbia Gas

Transmission LLC v. 0.85 Acres, No. CIV. WDQ-14-2288, 2014 WL 4471541, at *7 (D. Md. Sept. 8,

2014) (“Columbia’s noncompliance with the FERC Certificate would be an issue for FERC, not this

Court.”); Guardian Pipeline, L.L.C. v. 295.49 Acres of Land, No. 08-C-0028, 2008 WL 1751358, at *16

n.6 (E.D. Wis. Apr. 11, 2008) (“[T]o the extent the Landowners allege that Guardian is not in

compliance with the terms of the FERC certificate regarding route alterations, that challenge must

be made to FERC, not the court.”).

Accordingly, the Court grants Columbia’s motion for summary judgment as to the Amended

Complaint’s fifth cause of action for destruction of property, but does so without prejudice to the

Reeds bringing a claim of noncompliance before FERC.

V. Cross-Motions for Summary Judgment as to Count Eight

A. Introduction

The Reeds’ eighth and final claim is for breach of an implied covenant to produce. Though

sometimes called an implied covenant to “produce,” see Am. Energy Serv. v. Lekan, 75 Ohio App. 3d

205, 210, 598 N.E.2d 1315, 1318 (Ohio Ct. App. 1992), the duty is more accurately called an implied

covenant to “develop,” see State ex rel. Claugus Fam. Farm, L.P. v. Seventh Dist. Ct. of Appeals, 145 Ohio

St. 3d 180, 186, 47 N.E.3d 836, 843 (Ohio 2016). The covenant refers to an obligation to make

reasonable efforts to develop oil and gas interests, not to an absolute duty to produce oil and gas

when it is practically impossible or not economically prudent.

It has long been the law in Ohio that where an oil and gas lease is silent as to the

development of production wells, “there is an implied covenant in [the] lease to reasonably develop

the lands, by drilling and operating such number of wells as would be ordinarily required for the

production of the oil contained in such lands, and afford ordinary protection to the lines.” Harris v.

Ohio Oil Co., 57 Ohio St. 118, 127, 48 N.E. 502, 505 (Ohio 1897). The rationale behind this rule is

that “[l]ong-term leases of mineral rights under which there is no development of the land are void

as against public policy.” Claugus, 145 Ohio St. 3d at 184, 47 N.E.3d at 841 (citing Ionno v. Glen–Gery

Corp., 2 Ohio St.3d 131, 134, 443 N.E.2d 504 (Ohio 1983). “When a lease does not require

development within a definite period, a court will impose an implied covenant to reasonably

develop, absent express provisions to the contrary.” Id.

Both sides have moved for summary judgment on this claim. It is undisputed that neither

Ohio Fuel nor Columbia have ever drilled a well producing oil or gas under the 1952 lease. The

only wells on the premises have been used for natural gas storage. The Reeds assert that Columbia

and Columbia Energy Ventures have implied duties to explore and produce, but they have failed to

do so. According to the Reeds, a reasonable owner of oil and gas rights would conduct exploration

efforts using 3D seismic surveys to determine if oil or gas reserves are likely to exist below their

property. Defendants maintain that the terms and structure of the 1952 Lease foreclose application

of the implied covenant to develop. They further argue that even if the implied covenant does exist,

the Reeds cannot satisfy their burden of showing that defendants have breached it.

Before addressing the parties’ arguments, the Court begins with reviewing the nature of the

1952 Lease. “It is universally recognized within the field that oil and gas leases commonly contain

several key provisions,” and these include the “granting clause,” the “habendum clause,” and the

“royalty clause.” Jacobs v. CNG Transmission Corp., 332 F.Supp.2d 759, 764 (W.D. Pa. 2004) (citing

treatises). The granting clause establishes the rights which the lessor conveys to the lessee. In the

1952 Lease, the lessor conveyed the right to drill for and produce oil and gas from the property and

the right to store gas. The lease is known as a “dual purpose” lease. See id. at 765; Mason v. Range

Res.-Appalachia LLC, 120 F.Supp.3d 425, 429–30 (W.D. Pa. 2015) (“With the development of

storage fields, it became relatively common for oil and gas leases in the Appalachian Basin to be

‘dual purpose’ leases permitting production or storage of gas.”). Along with the dual rights to

produce and store, the lessee under the 1952 Lease was granted the “concomitant right” to use the

premises as is necessary and convenient to carry out the purposes of the lease. Jacobs, 332 F.Supp.2d

at 765.3

The habendum clause defines the duration of the lease estate. See Mason, 120 F.Supp.3d at

440. “In virtually all contemporary leases, the habendum clause provides for a defined primary term

(typically one to ten years) and provides that the lease may continue into an indefinite secondary

term ‘so long thereafter’ as oil or gas (or other specified minerals) is produced in paying quantities.”

Id. (internal quotation marks omitted); accord Bohlen v. Anadarko E & P Onshore, L.L.C., 150 Ohio St.

3d 197, 200, 80 N.E.3d 468, 472 (Ohio 2017). In dual purpose leases, the secondary term continues

“based upon activities other than production of oil or gas in paying quantities.” Mason, 120

F.Supp.3d at 440. The 1952 Lease has a primary term of 20 years and an indefinite secondary term

3 In Jacobs, the court examined an oil and gas lease from 1956. The court’s decision includes an

excellent review of the development of oil and gas leases in the first half of the 20th century and the

typical features of leases in the 1950s. The same can be said of the Mason decision, dealing with a

lease from 1961.

which continues so long as oil or gas is produced in paying quantities or gas is being stored. See id. at

440–41 (noting that oil and gas leases in the Appalachian Basin commonly provide for the “storage

of non-native gas to extend the lease into the secondary term”).

Compensation under oil and gas leases can take several forms and may not appear in a single

clause. See id. at 441; Jacobs, 332 F.Supp.2d at 766. Compensation may include royalties, delay

rentals, storage rentals, and house gas. See id. at 766–67. Royalties are payments fixed on a

percentage of the value of oil and gas produced from the property. See Mason, 120 F.Supp.3d at 441.

“A delay rental is a payment to the lessor to maintain the lease during the primary term if the lessee

has not commenced operations on the property.” Id. (“The purpose of a delay rental is to relieve

the lessee from the duty of immediately developing the property, which was an implied requirement

in early oil and gas leases.”); accord Bohlen, 150 Ohio St. 3d at 200, 80 N.E.3d at 472. A storage rental

is payment for the use of the land to store gas. See Jacobs, 332 F.Supp.2d at 767.

The 1952 Lease has some variation of each of these forms of compensation. In addition to

the house gas privilege discussed in Section IV.A above, the lease requires the lessee to “deliver” to

the lessor one-eighth of the oil produced.4 The lease also provided for a delay rental of $84 for each

year during the primary term in which a well was not drilled for production or storage purposes, but

it is undisputed that Ohio Fuel drilled the first storage well within months of the execution of the

lease. The 1952 Lease provides for an annual per-well rental payment of $200 “for each gas well

from the time and while gas is being marketed, injected, stored or removed.” Doc. 57-4 at

PAGEID 1259. This last form of compensation cannot be called a pure storage rental because the

payment is not only for wells used for gas storage but also for any well while gas is being marketed.

B. Ways to Preclude the Implied Covenant

The implied covenant of reasonable development “arises only when the lease is silent on the

subject.” Harris, 57 Ohio St. at 128, 48 N.E. at 505. The Ohio Supreme Court has described two

ways in which parties can preclude the implied covenant from being imposed. See Claugus, 145 Ohio

St. 3d at 186, 47 N.E.3d at 843. One way is for parties to agree to an express disclaimer of implied

covenants. See id.; Alford v. Collins-McGregor Operating Co., 152 Ohio St. 3d 303, 306, 95 N.E.3d 382,

386 (Ohio 2018). The 1952 Lease did not contain an express disclaimer of implied covenants.

The second way to negate the implied covenant to develop is for the parties to agree that

development must commence within a certain time period. See Claugus, 145 Ohio St. 3d at 186, 47

4 The parties’ briefing appears to assume that the lessor’s right is to a one-eighth royalty payment,

rather than to the physical delivery of oil.

N.E.3d at 843 (stating that the covenant may be implied if “the lease fails to refer specifically to the

timeliness of development”); Alford., 152 Ohio St. 3d at 306, 95 N.E.3d at 386. In Ionno v. Glen–Gery

Corp., 2 Ohio St.3d at 132, 443 N.E.2d at 506, a coal lease provided for royalties and for an annual

payment of advance minimum royalties (similar in effect to a delay rental). The lease contained “no

time period” by which mining operations were to begin. Id. The lessee argued that “the payment of

an annual minimum rent or royalty relieve[d] them of their obligation to diligently mine the

premises.” Id., 2 Ohio St.3d at 133, 443 N.E.2d at 507. The Ohio Supreme Court disagreed,

holding that the parties’ basing of compensation on the payment of royalties manifested their intent

for the lessee to “work the land with ordinary diligence.” Id., 2 Ohio St.3d at 134, 443 N.E.2d at

507. The court reasoned:

The fact that the lessees have continued to make annual payments for a period of

over eighteen years does not alter their responsibility to develop the land within a

reasonable time. The questions of working diligently and of paying rent or royalties

are entirely separate matters. An annual advance payment which is credited against

future royalties cannot be viewed as a substitute for timely development. To hold

otherwise would be to reward mere speculation without development, effort, or

expenditure on the part of the lessees. It would allow a lessee to encumber a lessor’s

property in perpetuity merely by paying an annual sum. Such long-term leases under

which there is no development impede the mining of mineral lands and are thus

against public policy.

Id., 2 Ohio St. 3d at 134, 443 N.E.2d at 508.

The Ohio Supreme Court has made clear that the rule announced in Ionno applies with equal

force to oil and gas leases. See Claugus, 145 Ohio St. 3d at 186–87, 47 N.E.3d at 843. However, a

typical oil and gas lease contains terms which set forth a specific time period for development. Oil

and gas leases commonly contain “drill or pay” language which appears in the delay rental clause.

See Bohlen v. Anadarko E & P Onshore, LLC, 2014-Ohio-5819, ¶ 20, 26 N.E.3d 1176, 1183 (Ohio Ct.

App.) (“‘Traditional oil and gas leases in Ohio contain a “drill or pay clause,” which is also known as

a delay rental provision. This provision allows the lessee to defer drilling a well during the primary

term of an oil and gas lease by compensating the lessor for the delay’”) (quoting Ohio Real Estate

Law at Section 47:9). The drill-or-pay duty, combined with the statement of a definite time period

in the habendum clause’s primary term, supplies the “certain period” as to the timeliness of

development which is necessary to preclude imposing an implied covenant during the primary term.

See Claugus, 145 Ohio St. 3d at 185–87, 47 N.E.3d at 842–43.

The 1952 Lease contained a drill-or-pay provision requiring the lessee to “drill a well

producing oil or gas in paying quantity, or a well to be utilized for storage purposes on said premises

by Apr. 27, 1952 or pay to Lessor Eighty-four [dollars] ($84.00) each year thereafter until such well is

drilled or this lease surrendered.” Doc. 57-4 at PAGEID 1259. It also contained a 20-year primary

term. The lease thus precluded the imposition of an implied covenant to develop during the primary

term. See Claugus, 145 Ohio St. 3d at 187, 47 N.E.3d at 883.

C. Columbia’s Argument for a Broad Rule Precluding the Implied Covenant

The decision in Claugus dealt with a lease still in its primary term. The situation here is

different because the primary term of the 1952 Lease ended 53 years ago. The lease has not expired

because the habendum clause permits the lease to continue into the indefinite secondary term for so

long as one of the dual purposes of the lease is being accomplished. Columbia, and Ohio Fuel

before it, have maintained gas storage wells on the premises since 1952. So the issue becomes

whether an implied covenant to develop should arise during the secondary term. It does not appear

that this issue has been directly addressed by Ohio case law.

Columbia draws a connection between the conduct which holds the lease in the secondary

term and the type of agreement needed to preclude imposition of the implied covenant. Columbia

argues that its successful holding of the lease in the secondary term means that the implied covenant

does not arise so long as it continues to store gas on the premises. Columbia’s broader proposition

is that the “implied covenant does not apply to dual purpose leases.” Doc. 70 at PAGEID 3278.

According to Columbia, so long as it is doing one or the other of the dual purposes – production or

storage – it is satisfying the parties’ bargain. See Doc. 63 at PAGEID 3062 (noting that the

habendum clause uses the disjunctive “or” in stating that production or storage will hold the lease

during the secondary term). To put it another way, if mere storage of gas was good enough in the

contracting parties’ eyes to continue the lease into the secondary term, then it should also suffice to

preclude the imposition of an implied duty to develop. The intent of the parties was for one of the

dual purposes, and not necessarily both, to be served.

Columbia cites an unpublished Ohio Court of Appeals case which lends, at best, modest

support for Columbia’s position. See Mauger v. Positron Energy Res., Inc., 2014-Ohio-4613 (Ohio Ct.

App.). In Mauger, the parties were in the indefinite secondary term of a dual purpose oil and gas

lease entered into in 1971. The lease provided for a royalty payment on the gas which was marketed

from the premises and for a separate gas storage rental fee. The lessee at one point had operated a

gas production well (“Mellor Well No. 2”) on the premises but ceased production in 1995 during the

secondary term. The landowner brought suit to quiet title, alleging that the lease had expired based

on the lessee’s failure to produce. The landowner also alleged that the lessee had breached the

implied covenant to develop. The trial court granted summary judgment to the landowner on both

claims, but the court of appeals reversed. As to the first claim, the court of appeals held that the

lessee had submitted some evidence that it was storing gas on the premises and a genuine issue of

fact existed over whether the lease had expired. As to the claim for breach of the implied covenant,

the court held:

[T]he language of the Mellor Lease obviates the conclusion that reasonable minds

could only find that Appellants breached the implied covenants. The Mellor Lease

contemplates more than production of oil and gas on the Mauger property. The

Mellor Lease also encompasses the injection, storage, or withdrawal of gas in or from

the 125 acres of the Mauger property or other lands located in the same or any

adjoining township. During the period of inactivity from Mellor Well No. 2,

Appellants were withdrawing gas from the Lowe Unit and Putnam–Bragg Unit. The

language of the Mellor Lease creates a genuine issue of fact whether Appellants

breached the implied covenants.

2014-Ohio-4613, ¶ 68.

Mauger supports Columbia’s position insofar as the court considered the other purposes of

the lease and whether they were being accomplished in the court’s discussion of the claim for breach

of the implied covenant to develop. But the Mauger decision stopped short of holding that an

implied covenant cannot be imposed in a dual purpose lease. The Court is not inclined to read

further into Mauger, because it did not address the issue of the existence of an implied covenant

separately from the issue of breach. The decision made reference to what the parties intended the

purposes of the lease to be – which could bear on the legal issue of whether a court should impose

the implied covenant – but then shifted its focus to breach, concluding that there was a genuine

issue of fact whether the lessee had breached the implied covenant.

Columbia also cites Penneco Pipeline Corp. v. Dominion Transmission, Inc., No. CIVA 05-49, 2007

WL 1847391 (W.D. Pa. June 25, 2007). The court in Penneco considered dual purpose oil and gas

leases where the leases were in their secondary term and the lessee had stored gas but not produced

oil or gas. The leases provided that “Lessee may drill or not drill on the leased premises, as it may

elect, and that the consideration and rentals paid and to be paid constitute adequate compensation

for such privilege.” Id., 2007 WL 1847391, at *7. The leases further provided that the lessee would

pay annual gas storage rentals “in lieu of” royalties if there was no production. Id. The court found

as an initial matter that the leases were still in effect because the lessee was storing gas on the

premises. Id., 2007 WL 1847391, at *14 (“[T]he lessee need not be engaged in both production and

storage activities in order to extend the lease term.”). The court next held that the production rights

and storage rights were not severable because the compensation provisions (delay rentals, royalties,

and storage rentals) were “not distinctly allocated to production or storage rights, but rather, [were]

written in such a way that payment for one purpose interrelates and impacts on the payment for the

other.” Id., 2007 WL 1847391, at *16.

The court in Penneco next considered the implied covenant to develop. This was an issue on

which the Pennsylvania Supreme Court had directly spoken and held that the implied covenant

exists “where the only compensation to the landowner contemplated in the lease is royalty payments

resulting from the extraction of that underground resource.” Jacobs v. CNG Transmission Corp., 565

Pa. 228, 244, 772 A.2d 445, 455 (2001). If “the parties have expressly agreed that the landowner

shall be compensated if the lessee does not actively extract the resource, then the lessee has no

implied obligation to engage in extraction activities.” Id. In Penneco, the court applied this rule and

found that an implied covenant did not arise because the compensation paid under the leases was

not limited to royalties and was “not specifically apportioned to either production or storage rights.”

Penneco, 2007 WL 1847391, at *19.

The Court is not persuaded that the rationale and result in Penneco apply to this case. For

one, the Ohio Supreme Court has not announced a clear rule like the one in Jacobs that the existence

of the implied covenant to develop depends on the lease’s compensation structure. But perhaps

more importantly, the 1952 Lease does not contain “in lieu of” language providing that rental fees

are in place of, and not in addition to, royalties. Penneco, 2007 WL 1847391, at *18 (applying Jacobs

because the parties “agreed that storage rental fees or well storage fees are to be made in lieu of and

not in addition to royalties, delay rentals, or other sums otherwise due under the leases”).

The Court thus declines to adopt Columbia’s broad proposition that the implied covenant to

develop never arises under a dual purpose lease. The Court, however, agrees that it should consider

the language and express purposes of the lease in determining whether the implied covenant should

be imposed. Oil and gas leases are contracts and “are to be interpreted so as to carry out the intent

of the parties, as that intent is evidenced by the contractual language.” Alford, 152 Ohio St. 3d at

305, 95 N.E.3d at 385 (internal quotation marks omitted). The “rights and remedies of the parties to

an oil or gas lease must be determined by the terms of the written instrument.” Id. (internal

quotation marks omitted).

D. Divisibility

In their briefing, the parties assume that the implied covenant to develop either applies

across-the-board to oil and gas rights both (plaintiffs’ position) or that it does not (defendants’

position). The parties do not address whether the implied covenant could be imposed for oil rights

but not gas rights, or vice versa.5 A review of the 1952 Lease shows that the original contracting

parties treated the compensation of oil rights separately from the compensation of gas rights. This

leads the Court to believe that the issue of divisibility should be addressed. The Court’s analysis is

provisional for the purpose of resolving the current cross-motions and is without prejudice to

reconsideration.

Whether a contract “is entire or divisible depends generally upon the intention of the

parties.” Freeman Indus. Prods., L.L.C. v. Armor Metal Grp. Acquisitions, Inc., 193 Ohio App. 3d 438,

447, 952 N.E.2d 543, 550 (Ohio Ct. App. 2011) (internal quotation marks omitted). In determining

the parties’ intention, the court applies:

[T]he ordinary rules of construction, considering not only the language of the

contract, but also, in cases of uncertainty, the subject-matter, the situation of the

parties, and circumstances surrounding the transaction, and the construction placed

upon the contract by the parties themselves. If the part to be performed by one

party consists of several distinct and separate items, and the price is apportioned to

each item, payable at the time of delivery, the contract will generally be held

severable. . . . The primary criteria in determining whether a contract is entire or

divisible is the intention of the parties as determined by a fair consideration of the

terms and provision of the contract itself, by the subject matter to which it has

reference, and by the circumstances of the particular transaction giving rise to the

question. A factor in determining whether a contract is entire or severable is

whether the parties reached an agreement regarding the various items as a whole or

whether the agreement was reached by regarding each item as a unit.

Id. (internal quotation marks omitted).

The 1952 Lease was preceded by the 1950 Lease, which contained a grant of oil and gas

production rights. The 1952 Lease added gas storage rights, a modification which was common at

that time. See Penneco, 2007 WL 1847391, at **4, 6 (explaining that as “the natural gas in the rock

formations of Appalachia became depleted in the 1930s to 1940s, it became necessary to pipe gas

in” from other areas and store it, such that existing production leases were modified in the 1950s to

add storage rights). Though adding gas storage rights, the parties to the 1952 Lease kept in place an

important aspect of the prior lease – a separation of how the grants of oil rights and gas rights would

be compensated. The 1952 Lease, like the one before it, provides that the lessor will receive one-

eighth of the oil produced and saved from the premises. The 1950 Lease provided that the

landowner would receive a $200 annual rental payment for each well from which gas was marketed.

5 The Reeds do argue that gas production rights can be severed from gas storage rights. The Court

addresses this argument in Section V.E below.

The 1952 Lease expanded the rent to include wells for which gas is being injected, stored, or

removed. See Doc. 57-4 at PAGEID 1259.

The Court provisionally finds that the 1952 Lease is divisible between oil rights and gas

rights. The lease does not contain any language stating that it is entire and indivisible. Moreover,

the lease apportions the compensation due for oil production independently from the compensation

due for gas production or storage. The landowner receives one-eighth of the oil produced,

irrespective of the number of wells for which gas is produced or stored. The landowner receives

$200 a year for each gas well, irrespective of the amount of oil produced. Thus, a breach of the duty

to pay oil royalties can arise separately from the breach of the duty to pay gas well rentals. See Lutz v.

Chesapeake Appalachia, L.L.C., 717 F.3d 459, 467 (6th Cir. 2013) (in determining under Ohio law if a

contract was divisible, examining whether breaches of the contract’s various parts “‘give rise to

separate causes of action’”) (quoting 15 Williston on Contracts § 45.20 (4th ed. 2000)).

E. Whether an Implied Covenant Arises for Gas Production

Starting with gas production rights, the Court finds that no implied covenant to develop

exists. The 1952 Lease provides for no royalites at all on gas production. Rather, the landowner

receives an annual well rental. The parties expressly contemplated a possibility that gas would only

be stored and not produced. And they agreed that storage alone would not only hold the lease but

also provide a means of compensation for the landowner. Under Ohio law, the parties may

preclude an implied covenant to develop by describing “the development of the land sought by the

parties in the terms of the lease itself.” Alford, 152 Ohio St. 3d at 306, 95 N.E.3d at 386. The

development required by the 1952 Lease with respect to gas rights was to use the premises to either

produce or store gas. Because Columbia has stored gas on the premises and paid the annual well

rentals, the Court finds that it has developed the gas rights granted by the lease in a manner which

satisfies the parties’ purpose and gives the landowner the benefit of the bargain. Cf. Penneco, 2007

WL 1847391, at *19 (under Pennsylvania law, no implied covenant to develop arises if the

landowner receives compensation other than royalties).

The Reeds argue that the storage rights are divisible from the production rights because the

lease provides no compensation for gas production. They draw attention to the absence of the word

“produced” in the clause which states that the lessee “shall pay for each gas well from the time and

while gas is being marketed, injected, stored of removed an annual rental of Two Hundred Dollars

($200.00) payable quarterly.” Doc. 57-4 at PAGEID 1259. They argue that because the lease does

not compensate for gas production, the rights to gas production and gas storage are divisible.

As an initial matter, it is unclear how this argument, if accepted, would help the Reeds’ cause.

If the lease does not provide any compensation for gas production, then imposing an implied

covenant to develop would not lead to any benefit to the Reeds. Cf. Alford, 152 Ohio St. 3d at 307,

95 N.E.3d at 387 (holding that it is appropriate to impose the implied covenant when it would

protect the lessor’s interest in “production and, hence, profits”). Under the Reeds’ interpretation of

the lease, even if Columbia were producing gas, the Reeds would not be entitled to any

compensation.

In any event, the Court finds that the Reeds’ interpretation is not a fair reading of the lease.

The granting clause of the lease plainly gives to Columbia the right to produce gas. It is true that the

compensation clause uses the term “marketed” and not “produced.” In considering this possible

discrepancy, the Court must read the lease as a whole and harmonize its provisions to give effect to

each in a manner consistent with the parties’ expressed intent. See Reeder v. Reeder, 2023-Ohio-2678,

¶¶ 26-27, 222 N.E.3d 734, 739 (Ohio Ct. App.). The use of the word “marketed” instead of

“produced” makes sense in light of the house gas provision. If Columbia were operating only a

single production well which produced no more than the allotment of house gas (300,00 cubic feet),

then it would be something of a windfall for the landowner to also receive the $200 rental payment.

The contracting parties thus required the rental payment for a production well only if gas was

marketed from the well. Cf. Moore v. Adams, 2008-Ohio-5953, ¶ 38 (Ohio Ct. App.) (the duty to

market is the duty to sell the gas produced). This conclusion is reinforced by the lease’s repeated

references to production in a “paying quantity.” Doc. 57-4 at PAGEID 1258–59; see Kuster v. Ohio

Dep’t of Tax’n, 2021-Ohio-3721, ¶ 40 (Ohio Ct. App.) (holding that “domestic use of oil or gas is

insufficient” to constitute a paying quantity). In other words, the landowner receives the well rental

payment from a gas production well when there is enough gas to market and sell.

Accordingly, the gas production and storage rights are not divisible, and Court finds that an

implied covenant to develop the gas rights is not imposed under Ohio law.

F. Whether an Implied Covenant Arises for Oil Production

Turning now to oil production, the Court concludes that an implied covenant to develop

arises under Ohio law.6 As noted above, the 1952 Lease treats oil rights differently from gas rights.

The landowner receives no compensation if the oil rights are not developed. Production is the only

oil right granted and the compensation given to the landowner for that right is limited to one-eighth

6 This conclusion is premised upon the Court’s provisional finding that the oil rights are divisible

from the gas rights.

of the oil produced. This is unlike the gas rights, for which the parties agreed that either production

or storage would satisfy their intent as to how gas rights would developed and for which the parties

provided compensation other than royalites.

Columbia emphasizes that it can hold the oil rights for so long as gas is stored on the

premises. The Court believes that the issue of whether the lease continues to be valid into the

secondary term is a different issue from whether the implied covenant arises. The Court’s

conclusion is guided by the decision in Mosholder v. Briar Hill Stone Co., 2023-Ohio-1280, 213 N.E.3d

226 (Ohio Ct. App.).7 In Mosholder, the parties entered into a mineral rights lease to quarry stone in

exchange for a royalty payment. The lessee could hold the lease after the primary term so long as it

quarried stone, provided that it paid an annual delay rental if it did not quarry stone. The lessee did

not quarry stone during the 15-year primary term or 13 years into the secondary term, but it did pay

the delay rental each year. The landowner brought suit for breach of the implied covenant to

develop. Applying Claugus, the court held that delay rental payments precluded the implied covenant

only during the definite primary term. Id., 2023-Ohio-1280, ¶ 19, 213 N.E.3d at 230. The court

further held that during the secondary term, the lessee could not be allowed to indefinitely hold

rights by paying the delay rental:

Briar Hill argues it had no duty to develop, even in the secondary term, because it

was holding the lease in reserve. Briar Hill claimed its business needs require that it

have a ready reserve of stone in the event temporary demand exceeds current

capacity. This may be so, but Ohio has long required that mineral leases must have

development during the secondary term, otherwise the lease is against public policy.

[Claugus, 145 Ohio St. 3d at 184, 47 N.E.3d at 841]. Thus, we conclude Briar Hill is

in breach of its obligation to reasonably develop the property.

Id., 2023-Ohio-1280, ¶ 21, 213 N.E.3d at 230.

The Mosholder decision refutes Columbia’s argument that simply holding a lease during the

secondary term is sufficient to preclude the implied covenant from arising. The Court believes that

Ohio courts would consider the principles set forth by the Ohio Supreme Court in Claugus, Ionno,

and Alford in resolving the issue presented in this case. The 1952 Lease does not preclude the

implied covenant to develop by setting forth how development of oil rights should occur in the

secondary term. See Claugus, 145 Ohio St. 3d at 186–87, 47 N.E.3d at 843 (implied covenant will not

arise if the lease states how the rights are to be developed). The purpose of the implied covenant to

7 The Mosholder decision was issued by the same court, the Ohio Fifth District Court of Appeals,

that decided Mauger. The result in Mosholder supports this Court’s view that Mauger should not be

read as broadly precluding implied covenants.

develop is to protect the landowner’s interest in profits when royalties are the form of compensation

given for production. See Alford, 152 Ohio St. 3d at 307, 95 N.E.3d at 387. Here, the protection of

the implied covenant is needed because if Columbia merely holds the oil production rights, the

Reeds have no opportunity to receive compensation. And in this regard, Columbia could hold the

rights indefinitely (so long as it stores gas) without developing the oil interests, which is against

public policy. See Ionno, 2 Ohio St. 3d at 134, 443 N.E.2d at 508. See also 68 Ohio Jur. 3d Mines and

Minerals § 64 (“If the consideration for a mining lease is an agreement to pay a royalty on the

product extracted, it is the implied intention of the parties that the lease is executed for the mutual

profit of the lessor and the lessee and that the lessee will start operations, develop the premises

within a reasonable time, and will use ordinary diligence in removing the product covered by the

lease.”); 53A Am. Jur. 2d Mines and Minerals § 208 (“[W]here the principal consideration to the

lessor is the expectation of receiving royalties, there is an implied obligation on the part of the lessee

to explore and develop the premises diligently so that the lessor may obtain the expected income

that induced the lessor to grant the lease.”).

Accordingly, the Court finds that an implied covenant to the develop the oil rights arises

under the 1952 Lease.

G. Breach of the Implied Covenant to Develop Oil Production Rights

1. The Nature of the Duty

When an implied covenant to develop is imposed, the lessee owes a duty to engage in

“reasonable development” of the mineral interests. Alford, 152 Ohio St. 3d at 308, 95 N.E.3d at 387.

Lessees are to “‘work the land with ordinary diligence, not simply for their own advantage and

profit, but also so that lessors may secure the actual consideration for the lease, i.e., the production

of minerals and the payment of a royalty on the minerals mined.’” Id. (quoting Ionno, 2 Ohio St.3d at

134, 443 N.E.2d 504). The implied covenant is not “one-sided in favor of landowners,” as the law

recognizes “that lessees face various risks in any oil and gas lease, including substantial upfront

investments with an uncertain potential for returns.” Id. Lessees have “only the obligation to act as

a reasonably prudent operator would as it develops the land under the lease.” Id., 152 Ohio St. 3d at

308, 95 N.E.3d at 387–88 (citing Harris, 57 Ohio St. at 127, 48 N.E. at 502).

“Whether the lessee has breached the implied covenant of reasonable development should

be determined by the facts and circumstances of each particular case.” Alford, 152 Ohio St. 3d at

308, 95 N.E.3d at 388. The inquiry entails consideration of the “surrounding circumstances,”

including the likelihood of productivity, the associated costs of exploration and production, and the

market for the product. Ohio Fuel Supply Co. v. Shilling, 101 Ohio St. 106, 109, 127 N.E. 873, 874

(1920) (per curiam); accord Alford, 152 Ohio St. 3d at 308, 95 N.E.3d at 388. “The question is

whether a prudent operator would further develop the land upon considering the interest of both

the lessee and lessor and all factors relevant to development including: the costs of exploration; the

likelihood exploration will result in production at or above a particular level; the market conditions;

the geological environment; and any adjoining activity.” Pavsek v. Wade, 2019-Ohio-5250, ¶ 20, 136

N.E.3d 1283, 1289 (Ohio Ct. App.).

The burden is on “the plaintiff to establish failure of performance of the implied covenant

for reasonable development.” Updegraff v. United Fuel Gas Co., 67 F.2d 431, 432 (6th Cir. 1933).

Plaintiffs must put forth evidence tending to show that oil exists under their lands “in sufficient

quantity to warrant the expense of drilling and marketing.” Ohio Fuel Supply, 101 Ohio St. at 109,

127 N.E. at 874. In the context of a gas lease, the Ohio Supreme Court characterized the burden on

plaintiff as showing there is “productive gas, of sufficient quantity to warrant operations, under the

lands of the lessor.” Id., 101 Ohio St. at 108, 127 N.E. at 874; see also 68 Ohio Jur. 3d Mines and

Minerals § 70 (stating that “the burden to establish that there was productive gas of sufficient

quantity to warrant operations under the lands of the lessor” is on the party asserting a breach of the

implied covenant). Plaintiffs cannot sustain a claim for breach of the implied covenant to develop

based upon speculation. See Bucher v. Plymouth Oil & Gas Co., 107 Ohio St. 73, 74, 140 N.E. 940, 941

(1923) (per curiam).

2. Plaintiffs’ Motion for Summary Judgment

The Reeds have moved for summary judgment, but their motion is based on several flawed

assumptions and arguments. First, they mischaracterize the nature of Columbia’s duty. They call it

a covenant to “produce” and argue that Columbia has breached the covenant by failing to have any

production. Doc. 60 at PAGEID 2706. The case law makes clear that the covenant is one of

reasonable development, not production, and it is “not automatically breached by the passage of

time” without production. Pavsek, 2019-Ohio-5250, ¶ 20, 136 N.E.3d at 1289. The Reeds also

describe the covenant as one to “explore” and argue that Columbia has breached by failing to use

up-to-date technology to look for reserves below their land. Doc. 68 at PAGEID 3238. But the

Ohio Supreme Court in Alford expressly rejected the existence of an implied covenant to explore.

Alford, 152 Ohio St. 3d at 309, 95 N.E.3d at 388 (“We therefore hold that under Ohio law

concerning oil and gas leases, there is no implied covenant to explore further separate and apart

from the implied covenant of reasonable development.”).

The Reeds also misstate the burden of proof. They argue without support that Columbia

bears the burden of proving that the land is not producible. See Doc. 60 at PAGEID 2711; Doc. 68

at PAGEID 3236. The burden, however, is on plaintiffs to show that oil exists under their land in a

quantity sufficient to cause a reasonably prudent operator to drill and market. See Ohio Fuel Supply,

101 Ohio St. at 109, 127 N.E. at 874; 68 Ohio Jur. 3d Mines and Minerals § 70 (“The burden of

proof is not on the lessee to negate the existence of gas that would make development practicable.”)

(footnote omitted).

The Court finds that the Reeds’ motion for summary judgment must be denied. Not only

have they misapprehended the nature of the duty and the burden of proof, but they candidly admit

that they cannot “prove whether or not there are oil reserves below the Reeds’ Property, let alone

whether those reserves exist in payable quantities.” Doc. 66 at PAGEID 3205; see also Doc. 60 at

2711 (acknowledging that Columbia can create a dispute of fact over whether the land has

producible reserves).

The Reeds’ expert, petroleum engineer Wes Casto, offered testimony to the same effect. He

testified that he could not say that producible reserves actually exist under the Reeds’ property. See

Doc. 59-3, Casto Dep. at 69 (testifying that he was not claiming there are producible reserves); id. at

122 (not claiming there are commercially viable quantities). He stated that the likelihood of reserves

existing is “low,” but said that 3D seismic survey data would be needed before the exact likelihood

could be quantified. Id. at 70; id. at 123, 127 (cannot determine the likelihood of viable reserves

without more information). In both his deposition testimony and expert report, Casto ventured no

further than stating that the Reeds’ land has a “potential” for productivity and that “there is a

possibility that oil and/or gas may be present.” Id. at 69, 71–72; Doc. 59-3, Ex. 2, Casto Report at

pp. 4, 7. Based on the information currently available to him, Casto stated that he would not invest

money in drilling a well on the Reeds’ land. Id. at 72.

The Court finds that plaintiffs have fallen well short of meeting their burden at summary

judgment. They have failed to put forth evidence showing that oil exists under their land in

sufficient quantities to warrant the expense of drilling and marketing.

3. Columbia’s Motion for Summary Judgment

In contrast, Columbia has conclusively demonstrated that it took reasonable steps to develop

its interests, and the Court finds that its motion for summary judgment should be granted.

Columbia contracted with Columbia Natural Resources and an outside party, Murphy Oil, to

conduct oil and gas exploration from 1995 to 2001 in the region where the Reed’s property is

located. See Cable Dep. at 97–101. Columbia spent “millions and millions” of dollars to run

“extensive” 2D seismic surveys throughout Hocking County. Id. at 99–101. The surveys identified

areas of likely oil or gas reserves, and, based on the survey results, CNR drilled 48 wells in Hocking

County. See id. at 101, 106–107. The average cost for each well (counting the seismic survey and

drilling) was about $500,000. See id. at 110.

Seismic surveys were run specifically on the Reeds’ property. See id. at 101, 106; J. Reed Dep.

at 78–79, 158. Though some wells were drilled within a three-mile radius of their land, importantly,

no wells were drilled on the Reeds’ property. See Cable Dep. at 101, 106; J. Reed Dep. at 158.

According to Columbia’s expert, petroleum engineer and mineral assets manager Jeffrey Cable, the

fact that no wells were drilled on the Reeds’ land means that CNR “did not locate any viable

reserves beneath the property owned by [the Reeds].” Cable Decl., ¶ 8; accord J. Reed Dep. at 158

(testifying that he believed the seismic testing of his land did not locate any viable reserves). Had the

seismic surveys of the Reeds’ land located the presence of potentially viable reserves, CNR would

have drilled a well. See Cable Decl., ¶ 8 (explaining that CNR drilled a well only if seismic surveys

identified potentially viable reserves); Cable Dep. at 115 (“. . . CNR never drilled a Knox well

without seismic.”); id. at 122 (“If there was a location to drill on the Reed property, I believe that

CNR would have drilled it.”).

Moreover, Columbia has produced evidence that of the 48 wells which CNR drilled in

Hocking County, 26 were “dry holes” and another 15 wells “likely did not provide a return on

investment.” Cable Decl., ¶ 7. Three wells “may or may not have had a return on investment” and

4 wells “likely had a return on investment.” Id. According to Cable, these results – comparing the

41 dry and likely unproductive wells against the 4 likely productive wells – equated to a “high rate of

failure” for which it was not economically viable to pursue further development. Id.

In response to Columbia’s motion, the Reeds again incorrectly argue that Columbia bears

the burden to show the land cannot produce in “paying quantities.” Doc. 66 at PAGEID 3205.

The Reeds’ confusion over this issue stems from their reliance on cases evaluating a lessee’s decision

to cease operating a once-producing well. See, e.g., Kraynak v. Whitacre, 2018-Ohio-2784, ¶ 16 (Ohio

Ct. App.) (“The party who asserts the claim that the well is not producing in paying quantities carries

the burden of proof.”); Fox v. Positron Energy Res., Inc., 2017-Ohio-8700, ¶ 13, 101 N.E.3d 1, 5 (Ohio

Ct. App.).

The Reeds point out that there have been productive wells within a three-mile radius of their

property, and there is evidence to support this assertion. Casto’s expert report lists 13 wells within a

three-mile radius which have produced oil from the Knox formation. See Casto Report at p. 6.

However, the Reeds fail to explain how this fact would make it more likely than not that their

property has viable oil reserves. Casto testified that such an inference could not be drawn.

According to him, the nature of mineral reserves in the Knox formation is “highly variable” and it

cannot be said whether it is more likely than not that the Reeds’ land contains viable reserves. Id. at

p. 6. Productivity in the Knox formation can “drastically change” from one well to another nearby

because “the petrophysical properties are highly variable.” Casto Dep. at 41–42. “Small

differences” in a petrophysical property like porosity, permeability, or hydrocarbon saturation can

“dramatically change” the productive potential in “one well versus one nearby to it.” Id. Columbia’s

expert agreed. See Cable Dep. at 118–20 (testifying to the irregular nature of the Knox formation).

Casto stressed he could opine only that there is a possibility, not a probability, that oil or gas is

present under the Reeds’ land, and he viewed the likelihood of viable reserves actually existing as

low. Casto Dep. at 69–72, 123, 127.

The Reeds further argue that Columbia’s 2D surveys are obsolete and a reasonable operator

would run 3D seismic surveys to determine if reserves likely exist below their property.8 There is no

dispute that 3D surveys are of better quality than 2D surveys. See Cable Dep. at 99; Nat. Res. Def.

Council v. Nat’l Park Serv., 250 F. Supp. 3d 1260, 1275 (M.D. Fla. 2017). However, the Reeds have

not pointed to evidence showing that the 2D surveys conducted by Columbia are unreliable. Nor

does the testimony of Casto or Cable support a conclusion that a reasonably prudent operator in

Columbia’s position would now conduct 3D surveys of the Reeds’ land.

Casto testified that “if 2D seismic shoots are done strategically, they can be effective with

identifying Knox remnants.” Casto Dep. at 34. Casto did not opine on the reliability of the survey

results obtained by Columbia for the Reeds’ property and in Hocking County, as he stated that he

was not qualified to interpret seismic surveys. Id. at 38, 67–68. Cable testified that an operator

today would still rely on the results of the 2D seismic surveys conducted from 1995 to 2001. He

testified that because the Reeds’ land has “already been explored,” an operator would not explore it

currently. Cable Dep. at 101 (stating that “an operator is not going to try to go and explore an area

that’s already been explored. They’re looking for areas that have not been drilled, so that’s why I’m

saying there’s no market for that acreage . . . .”).

8 It should be clarified that 2D seismic surveys are still done today, see Casto Dep. at 60, and that 3D

seismic technology was in use by sometime in the mid-1990s, see id. at 64, at the time CNR was

conducting the 2D seismic surveys of the Reeds’ land and nearby areas in Hocking County.

Moreover, the Reeds have not put forth evidence to support an inference that a reasonably

prudent operator would incur the costs of conducting 3D surveys of the Reeds’ land in light of the

results of Columbia’s prior exploration. Again the testimony of plaintiffs’ own expert supports

Columbia’s position that a prudent operator would not run 3D surveys. Given the “significant

capital associated with shooting 3D seismic,” Casto testified that it “wouldn’t make economic sense”

to conduct 3D surveys “unless you had a reasonable expectation of being able to recoup that

expense through production.” Casto Dep. at 51; see also Cable Dep. at 62–63 (stating that the cost of

conducting and processing 3D surveys is “very expensive,” about $115,00 per square mile); Casto

Report at p. 6 (same). Casto also testified that he was unaware of 3D surveys being done for an area

as small as the Reeds’ land, which is about 80 acres. Casto Dep. at 60. Because of the cost, 3D

surveys are done in “increments of square miles.” Id. at 53; see also id. at 60–61 (testifying that one

square mile, or 640 acres, is the smallest 3D survey he is aware of). Casto noted that a 2D survey

could be done on a small property “for a much lower capital layout.” Id. at 60. Of course, a 2D

survey was run on the Reeds’ land and the results did not prompt Columbia to drill a well.

Finally, the Court notes a critical flaw in the Reeds’ request for relief. They state that they

are seeking only the forfeiture of Columbia’s production rights and do not seek monetary damages.

Under an oil and gas lease, the lessee’s “breach of the above implied covenant [to develop],

however, is not itself sufficient to work a forfeiture.” Beer v. Griffith, 61 Ohio St. 2d 119, 121, 399

N.E.2d 1227, 1230 (Ohio 1980). The “remedy for a breach of an implied covenant, without more, is

damages, and not forfeiture of the lease, in whole or in part.” Id., 61 Ohio St. 2d at 119, 399 N.E.2d

at 1229 (paragraph three of the syllabus) (citing Harris, 57 Ohio St. 118, 48 N.E 502). Forfeiture of

rights is an “extreme measure,” and “the lessor has the burden of proving damages are inadequate

before such forfeiture may be declared.” Ionno, 2 Ohio St. 3d at 135, 443 N.E.2d at 508; see also

Hartline v. Statoil USA Onshore Props., Inc., No. 2:16-CV-315, 2017 WL 1014377, at *4 (S.D. Ohio

Mar. 14, 2017) (“Under Ohio contract law, forfeitures are abhorred.”); 53A Am. Jur. 2d Mines and

Minerals § 215 (“[F]orfeiture is harsh, coercive, and disfavored.”).

The Reeds have not made a showing that damages would be an inadequate remedy. While

they claim that “damages would be near[ly] impossible to calculate,” Doc. 66 at PAGEID 3205, a

failure of proof on their part does equate to inadequacy. Courts look to whether a damages award

would “assure the development of the land and the protection of lessor’s interests.” Beer, 61 Ohio

St. 2d at 122, 399 N.E.2d at 1230; see also Ionno, 2 Ohio St. 3d at 135, 443 N.E.2d at 508 (forfeiture

can be appropriate when “necessary to do justice to the parties”); Jacobs v. Dye Oil, LLC, 2019-Ohio-

4085, ¶ 88, 147 N.E.3d 52, 72–73 (Ohio Ct. App.). For instance, in Beer damages were an

inadequate remedy because the lessee’s “financial and operating difficulties” meant that it lacked the

resources necessary to develop the unexploited acreage. Beer, 61 Ohio St. 2d at 122, 399 N.E.2d at

1230. Here, if Columbia were found to be in breach, there is no such concern about Columbia’s

financial wherewithal to pay a damages award or to conduct operations to develop the oil interests.

The Court thus finds that Columbia is entitled to summary judgment on plaintiffs’ claim for

breach of the implied covenant to develop the oil rights.

VI. Conclusion

For the reasons stated above, plaintiffs’ motion for partial summary judgment (Doc. 60) is

DENIED, and defendants’ motion for summary judgment (Doc. 61) is GRANTED. The Clerk of

Court shall enter judgment for the defendants.

James L. Graham

JAMES L. GRAHAM

United States District Judge

DATE: May 22, 2025