Last week, the United States Sixth Circuit Court of Appeals issued its decision in Eclipse Res.—Ohio, LLC v. Madzia, concerning a dispute between a landowner and a lessee regarding the latter’s drilling rights.  Among other things, the court found:

  • The lease, which conveyed to the lessee a broad grant of rights to use the landowner’s property for drilling—including the right to transport oil and gas through the property “from other lands”—authorized drilling a horizontal well through the landowner’s property from a well pad located thereon and producing from adjacent property not owned by the landowner;
  • A separate subsurface-easement agreement, which only pertained to drilling operations on the landowner’s property, did not modify the lease to restrict off-lease production, in the absence of any language in the easement evidencing an intent to modify the lease; and
  • The lessee did not breach a lease provision requiring the lessee to “comply with all applicable federal, state and local laws and regulations” by reusing an executed coal ownership affidavit when applying for permits from the Ohio Department of Natural Resources (ODNR). After the landowner refused to execute a coal ownership affidavit covering new wells that were to be drilled on adjacent lands from the landowner’s well pad, the lessee reused the landowner’s previous affidavit executed in connection with wells previously drilled on the landowner’s lands off of the same well pad. The court concluded that at the time, ODNR’s practice was to accept such affidavits. Additionally, the landowner breached the lease himself by refusing to execute a new coal ownership affidavit in contravention of a lease provision requiring the landowner to execute all documents “convenient” to carrying out the provisions of the lease.

Read the full decision here.