The Supreme Court of Ohio accepted an appeal in Hupp v. Beck Energy Corp, which concerns the viability of several typical oil and gas lease terms. The Court will consider the following propositions of law:
- An oil and gas lease which can be maintained indefinitely without development is a perpetual lease that is void as against public policy. That a lease purports to establish a fixed term is of no consequence if the duration of that term can be extended without development.
- Where the express terms of an oil and gas lease effectively allow the lessee to postpone development indefinitely, and any stated time limits can be unilaterally extended by the lessee in perpetuity without any development, the lease is subject to an implied covenant of reasonable development notwithstanding a general disclaimer of all implied covenants.
The Court consolidated Hupp with a related case, State ex rel. Claugus Family Farm, L.P. v. Seventh Dist. Court of Appeals. To learn more about Hupp, read our recent Client Alert.