cation with the Texas Railroad Commission to drill a well on tracts 2-4, DEA protested the application and a lawsuit ensued. King argued that the language “leased premises” in the Robison lease would mean that this lease would be kept in force (even though the Robisons did not own the execu- tive rights to tract 1); however the court did not agree. The court construed that identical words would not have
different meanings in different parts of the lease and did not see intent that “leased premises” was not to be used consistently throughout the lease. The court reasoned that the intent of the parties for the term “leased prem- ises” was to refer to the tracts of land that were covered by the Robison lease in which the Robisons actually owned and conveyed a leasehold interest and in the absence of executory rights could not grant rights to lands the lessor did not own.
Pooling in Bad Faith: Look to the Lease Terms for Clarity
Texas
This case illustrates the significance of broadly drafted pooling provisions that offer wide discretion to the Lessee. In Ischy v. Northwood Energy Corp , 1 the plaintiff (“Lessor”) had leased 297 acres in Monroe County, Ohio.About a year before the expiration of the lease’s primary term, the Lessee pooled 0.19 acres of the leased acreage into a unit. Production from that unit began about four months after the lease’s primary term expiry.While the lease contained a lease extension bonus provision, the need for the bonus was not triggered because the lease was pooled.The Lessor argued the Lessee pooled the lease in a bad faith attempt to avoid having to pay the extension bonus. The Lessor brought suit claiming the lease had expired by its terms and relied on the following four arguments in justifying its claim: 1. That Northwood violated the implied duty of good faith and fair dealing in pooling the lease; 2. That operations occurred off leased premises and therefore did not satisfy the terms for holding the lease; 3. That the advanced minimum royalty payment did not count; and 4. That the Lessor’s attempts at notice did satisfy the lease terms.
The main issue addressed by the appellate court was the issue of good faith and fair dealing. The Lessor argued that the Lessee acted in bad faith when it pooled 0.19 acres of the 297-acre lease for the sole purpose of holding the lease beyond its primary term.The Lessor stated that the Lessee did this to avoid paying the $5,000/acre lease extension bonus. In analyzing, the appellate court pointed to the lease terms, which stated that “it is expressly stipulated that no implied covenants or conditions whatsoever shall be read into this Lease 2 ….” The court further pointed out that the lease provided broad authority to pool acreage at the Lessee’s discretion.Thus, the court concluded that the Lessee did not act in bad faith because the Lessee did not violate the terms of the lease. 3 Touching on the remaining arguments, the appellate court went on to state that the lease’s definition for “operations” also offered a broad meaning.As such, the Lessee’s actions complied with the lease as it served to hold the lease into the secondary term without necessitating the extension bonus payment. 4 Although the court noted there could be some question concerning how effective
1 203 N.E.3d 1249 (Ohio Ct. App. 2022). 2 Id. at 1252. 3 Id. at 1254. 4 Id. at 1256.
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G rowth T hrough E ducat i on - A pr i l / M ay / J une 2023
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