RICHMOND, Va. – A federal appeals court has ruled that an oil and gas lease is not terminated because the land is not producing natural gas.
The U.S. Court of Appeals for the Fourth Circuit ruled for Bobcat Oil & Gas on May 7 in a lawsuit brought against it by Martha and Charles Wellman of Wayne County. They wanted a lease first executed in 1933 terminated.
“Under longstanding West Virginia law, the quantity of production is irrelevant to the expiration of the secondary term of a mineral lease that provides for ‘flat-rate’ rental payments,” the per curium opinion says.
“Moreover, the Wellmans’ claim that Bobcat forfeited the lease by failing to tender certain rental payments fails on the grounds of ratification and principles of equity.”
The Fourth Circuit’s decision affirmed a decision by U.S. District Court Robert C. Chambers, of the Southern District of West Virginia.
The lease was first executed by the Chartiers Oil Company and Ida May Dean Purdue on May 17, 1933. The lease requires the lessee to pay to the lessors a flat-rate rental of $75 every three months for the gas from every well on the premises.
The Wellmans purchased the rights of the mineral estate from Purdue in 1978, and Chartiers sold its rights to PIP Petroleum, which sold the rights to Bobcat in 1993.
Bobcat began making the flat-rate rental payments in January 1994. The company has made 71 payments to the Wellmans.
Beginning in 2008, the Wellmans stopped cashing the checks. They say some quarterly rental payments that were supposed to be made before 2008 were late or missed.
They filed their lawsuit on Feb. 12, 2010.
The term clause of the lease provides: “It is agreed that this lease shall remain in full force for the term of 10 years from this date and as long thereafter as oil or gas, or either of them, is produced from the said land by the said party of the second part, its successors and assigns.”
The Fourth Circuit said that language, standing alone, appears to require production of oil or gas.
But the lease also provides for the flat-rate payments.
“Because the lease provides for the payment of a flat-rate rental to the Wellmans, the quantity of production – whether high, low or zero – is utterly irrelevant for determining whether the secondary term of the lease expired, again assuming the payments are, in fact, made,” the opinion said.
The Fourth Circuit also didn’t buy the Wellmans’ argument that some payments were late or missed. Chambers ruled that the Wellmans’ version of events had little support in the record.
The Wellmans' attorneys were Robert R. Waters and Jason A. Poling of Waters Law Group in Huntington.
From the West Virginia Record: Reach John O’Brien at email@example.com.