[Cite as Gateway Royalty, L.L.C. v. EAP Ohio, L.L.C., 2025-Ohio-2961.]
IN THE COURT OF APPEALS OF OHIO SEVENTH APPELLATE DISTRICT CARROLL COUNTY
GATEWAY ROYALTY, LLC ET AL.,
Plaintiffs-Appellees,
v.
EAP OHIO, LLC, ET AL.,
Defendant-Appellant.
OPINION AND JUDGMENT ENTRY Case No. 24 CA 0980
Civil Appeal from the Court of Common Pleas of Carroll County, Ohio Case No. 20CVH29677
BEFORE: Cheryl L. Waite, Carol Ann Robb, Judges, and Eugene A. Lucci, Judge of the Eleventh District Court of Appeals, Sitting by Assignment.
JUDGMENT: Affirmed.
Atty. Molly K. Johnson, Johnson & Johnson Law Firm, and Atty. Robert C. Sanders, Law Office of Robert C. Sanders, for Gateway Royalty, LLC and Gateway Royalty II, LLC
Atty. Timothy B. McGranor and Atty. Ilya Batikov, Vorys, Sater, Seymour & Pease, LLP, for EAP Ohio, LLC –2–
Atty. Adam K. Vernau, Vernau Law LLC, for Gary Sitler, Retired Former President of Stocker & Sitler, Inc.
Atty. Scott M. Zurakowski, Krugliak, Wilkins, Griffiths & Dougherty Co., LPA, for Beck Oil and Gas, Inc. and TDX, LLC
Dated: August 15, 2025
WAITE, J.
{¶1} This case is another in a growing line of cases in Ohio involving overriding
royalty interests ("ORRI") arising from oil and gas drilling leases. This appeal challenges
the trial court's judgment disallowing the ability of Appellant EAP Ohio, LLC ("EAP Ohio")
to deduct costs from its ORRI payments to Appellees, and more specifically, from
deducting post-production costs. Appellees filed a complaint attempting to recover the
costs that Appellant deducted from their ORRI payments. Appellant concedes the
contracts reserving the ORRIs are silent regarding whether post-production costs may be
deducted from the royalties. The trial court granted summary judgment to Appellees
based primarily on our holding in the recent case of Gateway Royalty II, LLC v. Gulfport
Energy Corp., 2024-Ohio-4844 (7th Dist.), appeal not accepted 2025-Ohio-231
(hereinafter "Gulfport"). Appellant argues that, despite this Court's holding that in Ohio
an ORRI is to be paid without deducting any share of post-production costs, the standard
in the oil and gas industry is that post-production costs are deductible even when the
ORRI contract is silent on the matter. This is the identical issue in Gulfport, and Appellant
argues nothing that would cause us to question our reasoning or holdings in that case.
Case No. 24 CA 0980 –3–
We hereby affirm the trial court’s decision to grant summary judgment in favor of
Appellees.
Statement of the Facts and Case
{¶2} The plaintiffs in the underlying case, Appellees Gateway Royalty, LLC and
Gateway Royalty II, LLC (collectively "Gateway"), are Texas limited liability companies.
Appellant EAP Ohio, LLC ("EAP Ohio") is a Delaware limited liability company and is the
only remaining defendant in the case. Ohio is the proper jurisdiction for this matter and
neither party has raised any objection to jurisdiction or venue.
{¶3} Appellees own an ORRI in certain gas wells in Carroll and Columbiana
Counties. The original holder of the ORRI was Patriot Energy Partners, LLC ("PEP"), a
limited liability company formed in 2008 to enter into oil and gas leases with mineral
owners in Ohio. PEP had three members: PEP Leasing LLC ("PEP Leasing"); Bass
Energy Incorporated ("Bass"); and Buckeye Oil Producing Company ("Buckeye").
{¶4} In 2008 PEP acquired oil and gas leases pertaining to 40,000 acres in
southeast Ohio. In 2010 PEP sold 126 of its Ohio oil and gas leases to Chesapeake
Exploration, LLC ("Chesapeake"). In a 2010 Acquisition Agreement between PEP and
Chesapeake, PEP reserved an ORRI for itself. A Letter of Intent executed by both parties
prior to the sale stated that the assignment of the leases would provide for:
[A] reservation in favor of PEP an overriding royalty interest (the
"Retained ORR") equal to the difference between: (i) the royalty rate
provided for in each Identified Lease, plus any burdens on the net revenue
interest in existence as of the date of this Agreement as executed by PEP;
Case No. 24 CA 0980 –4–
and, (ii) 16.625%. It is the intent of the parties that CHK [Chesapeake] shall
be delivered no less than an 83.375% net revenue interest ("NRI") for all
such Leases.
(Acquisition Agreement, p. 4.)
{¶5} The Letter of Intent included a choice of law provision stating that Ohio law
applies. PEP then executed and recorded "Partial Assignment of Oil and Gas Leases"
addressing the leases in Carroll and Columbiana Counties. The partial assignments are
uniform in all aspects other than the description of the specific oil and gas leases subject
to assignment. The assignments were dated effective October 1, 2010.
{¶6} In 2012 PEP and Chesapeake executed and recorded corrected
assignments to correct the legal descriptions associated with some of the leases. The
corrected assignments did not alter any of the terms of the Partial Assignment of Oil and
Gas Leases. The original and corrected assignments will collectively be referred to as
the "Assignment."
{¶7} Neither the Acquisition Agreement nor the Assignment mentioned post-
production costs, nor do they state that the ORRI is subject to any portion of post-
production costs. The Assignment, drafted by Chesapeake, contains the following
language:
PEP in its capacity as assignor ("Assignor") specifically excepts from
this Assignment and reserves to itself the following ("Excluded Assets"): . . .
2.2 A reservation of an Overriding Royalty Interest equal to the difference
between: (i) the royalty rate provided for in each Assigned Lease, plus any
Case No. 24 CA 0980 –5–
other burdens on the net revenue interest in existence as of the date of the
Agreement and, (ii) 16.625%. It is the intent of the parties that Chesapeake
shall be delivered no less than an 83.375% net revenue interest ("NRI") for
all such Assigned Leases.
{¶8} On March 8, 2011, PEP decided to end its operations and distribute its
assets. Those assets included a 4.125% royalty interest override in the leases sold to
Chesapeake. The PEP members agreed to assign a portion of the 4.125% ORRI to
Sonata Investment Company, Ltd. ("Sonata") as compensation for consulting services
rendered to PEP in connection with PEP's sale of wells to Chesapeake and its retention
of an ORRI in those wells. In 2014 and 2015, Appellees acquired a portion of the the
original PEP ORRI from Buckeye and Sonata.
{¶9} In 2018 Chesapeake assigned its leases in Ohio to Appellant EAP Ohio. As
a result, EAP Ohio is the entity that now has the contractual obligation to pay Appellees
their ORRI pursuant to the Assignment.
{¶10} On November 18, 2020, Appellees filed a complaint for breach of contract
and sought an injunction against Appellant and four other defendants, alleging the
defendants wrongfully deducted post-production costs from every ORRI payment made
to them. During the course of the litigation, four of the defendants were dismissed from
the case. Only Appellant EAP Ohio remained as a defendant. The request for injunction
was also dismissed.
{¶11} On March 18, 2024, Appellant filed a motion for summary judgment, alleging
it was entitled to judgment as a matter of law because Ohio courts and the Ohio oil and
Case No. 24 CA 0980 –6–
gas industry recognize that ORRI payments are free from production costs, but not from
post-production costs.
{¶12} Appellees also filed a motion for summary judgment on March 18, 2024.
They contended that the language of the Assignment was unambiguous. The assignment
was silent as to post-production costs, and Ohio cases hold that such silence evidences
a lack of intent to deduct these costs.
{¶13} On October 7, 2024, the trial court granted Appellees’ motion for summary
judgment and denied Appellant’s motion. The court relied on our decision in Gulfport,
which was released after the summary judgment motions were briefed in this case. The
court held that the ORRI language in the Assignment was unambiguous, as it was silent
regarding the deduction of post-production costs. The court allowed extrinsic evidence
to be used to support each party's arguments regarding Ohio gas and industry custom
and usage. The court rejected the expert opinions of Appellant, because they
disregarded Ohio caselaw and contained no investigation of the custom and usage in
Ohio concerning payment of post-production costs when an ORRI assignment is silent.
Instead, the court relied on Appellees’ experts, citing their Ohio oil and gas experience.
Applying our Gulfport decision, the trial court held that Appellees were entitled to a refund
of all post-production costs deducted from the ORRI payments because the Assignment
creating the ORRI was silent regarding these deductions. The court ordered briefing on
damages.
{¶14} On October 9, 2024, Appellant filed objections to Appellees’ proposed
judgment entry to the court. Appellant also requested that the court decline to address
Case No. 24 CA 0980 –7–
industry custom and usage in its judgment entry, because the court found the ORRIs in
the Assignment were unambiguous and applied our decision in Gulfport.
{¶15} On October 30, 2024, the court denied Appellant’s objections in their
entirety.
{¶16} The parties then filed a joint motion for a consent judgment entry as to
damages and prejudgment interest, in the amount of $2,588,127.82. However, Appellant
reserved the right to appeal the summary judgment ruling as to liability, and Appellees
reserved the right to seek post-judgment interest following the conclusion of all appeals.
{¶17} On December 5, 2024, Appellant filed its notice of appeal and raises three
assignments of error.
{¶18} Amicus briefs were filed in support of Appellees’ position from Beck Oil and
Gas, Inc. and TDX, LLC; and from Gary Sitler, a retired former president of Stocker and
Sitler, Inc. Beck indicated that it has been drilling, operating and leasing minerals in Ohio
since 1983 and has been involved with the drilling and operations of numerous oil and
gas wells, with over 200 of them in Noble, Guernsey and Belmont counties. TDX
indicated that it is an Ohio company formed to take ownership of ORRI from deep well
production from producers, including Appellant. Beck and TDX represent that they own
ORRI in 150 leases and they will be impacted by the Court’s interpretation of the ORRI in
the instant case. Sitler indicated that he was the long-time president of Stocker & Sitler,
Inc., a major player in Ohio's oil and gas industry from the 1960s through the 1990s. He
asserted that Stocker & Sitler was responsible for operating over 1,000 wells throughout
the state, with leases covering in excess of 100,000 acres. Their positions will be
addressed as needed within our analysis of Appellant’s assignments of error.
Case No. 24 CA 0980 –8–
Standard or Review
{¶19} An appellate court conducts a de novo review of a trial court's decision to
grant summary judgment, using the same standards as the trial court set forth in Civ.R.
56(C). Grafton v. Ohio Edison Co., 77 Ohio St.3d 102, 105 (1996). Before summary
judgment can be granted, the trial court must determine that: (1) no genuine issue as to
any material fact remains to be litigated, (2) the moving party is entitled to judgment as a
matter of law, (3) it appears from the evidence that reasonable minds can come to but
one conclusion, and viewing the evidence most favorably in favor of the party against
whom the motion for summary judgment is made, the conclusion is adverse to that party.
Temple v. Wean United, Inc., 50 Ohio St.2d 317, 327 (1977). Whether a fact is “material”
depends on the substantive law of the claim being litigated. Hoyt, Inc. v. Gordon & Assoc.,
Inc., 104 Ohio App.3d 598, 603 (8th Dist. 1995).
{¶20} "[T]he moving party bears the initial responsibility of informing the trial court
of the basis for the motion, and identifying those portions of the record which demonstrate
the absence of a genuine issue of fact on a material element of the nonmoving party's
claim." (Emphasis deleted.) Dresher v. Burt, 75 Ohio St.3d 280, 296 (1996). If the
moving party carries its burden, the nonmoving party has a reciprocal burden of setting
forth specific facts showing that there is a genuine issue for trial. Id. at 293. In other
words, when presented with a properly supported motion for summary judgment, the
nonmoving party must produce some evidence to suggest that a reasonable factfinder
could rule in that party's favor. Brewer v. Cleveland Bd. of Edn., 122 Ohio App.3d 378,
386 (8th Dist. 1997).
Case No. 24 CA 0980 –9–
{¶21} The evidentiary materials to support a motion for summary judgment are
listed in Civ.R. 56(C) and include the pleadings, depositions, answers to interrogatories,
written admissions, affidavits, transcripts of evidence, and written stipulations of fact that
have been filed in the case. In resolving the motion, the court views the evidence in a
light most favorable to the nonmoving party. Temple, 50 Ohio St.2d at 327.
{¶22} In its first assignment of error, Appellant asserts:
ASSIGNMENT OF ERROR NO. 1
THE TRIAL COURT ERRED BY HOLDING THAT THE TERM
“OVERRIDING ROYALTY INTEREST” AS USED IN THE PARTIES’
AGREEMENT CREATED A ROYALTY INTEREST THAT WAS
CATEGORICALLY FREE OF ALL POST-PRODUCTION COSTS ABSENT
EXPRESS LANGUAGE TO THE CONTRARY. R. 1816, J. ENTRY at 10-
12.
{¶23} Before addressing Appellant's specific arguments, it is clear that the parties
agree on the basic legal principles governing this contract dispute action. The contracts
under review are assignments of rights arising out of oil and gas leases. An assignment
of an oil and gas lease is a contract, and principles of contract interpretation apply. Cadle
v. D'Amico, 2016-Ohio-4747, ¶ 21 (7th Dist.). "In the case of contracts, deeds, or other
written instruments, the construction of the writing is a matter of law, which is reviewed
de novo." Porterfield v. Bruner Land Co., Inc., 2017-Ohio-9045, ¶ 15 (7th Dist.). Written
instruments "are to be interpreted so as to carry out the intent of the parties, as that intent
is evidenced by the contractual language." Skivolocki v. East Ohio Gas Co., 38 Ohio
Case No. 24 CA 0980 – 10 –
St.2d 244 (1974), paragraph one of the syllabus. "When construing a deed, a court must
examine the language contained within the deed, the question being not what the parties
meant to say, but the meaning of what they did say, as courts cannot put words into an
instrument which the parties themselves failed to do." Johnson v. Consol. Coal Co., 2015-
Ohio-2246 (7th Dist.), ¶ 15. If the terms of the written instrument are clear and
unambiguous, courts must give the words their plain and ordinary meaning and may not
create a new contract by finding the parties intended something not set out in the contract.
Alexander v. Buckeye Pipe Line, 53 Ohio St.2d 241, 246 (1978).
{¶24} Appellant contends that we should overrule Gulfport, and hold that the term
“overriding royalty interest” creates an interest that is free from the costs of production,
but not inherently free of post-production costs. Appellant submits that we erred in
Gulfport by "defining an overriding royalty as cost free; that is, free from the post-
production costs.” Gulfport, at ¶ 29. Appellant urges that before Gulfport, no Ohio court
ever addressed whether ORRIs included post-production costs.
{¶25} Appellant asserts that an ORRI is a subcategory of a royalty interest. A
royalty is a "landowner’s share of production, free of the expenses of production." Kemp
v. Rice Drilling D, LLC, ¶ 29 (7th Dist.). Appellant explains that a royalty interest is
calculated from the point that the oil or gas is extracted from the earth, but is not
necessarily free of sharing in the expenses after the initial production. Appellant claims
that this principle is also true of ORRIs. Appellant cites to Lutz v. Chesapeake
Appalachia, L.L.C., 2016-Ohio-7549, from the Ohio Supreme Court in support, but as
later discussed, Lutz does not support Appellant’s position. Appellant relies heavily on
out-of-state cases and law review articles purportedly holding that ORRIs bear post-
Case No. 24 CA 0980 – 11 –
production costs unless parties specifically state otherwise. Appellant contends that this
view is virtually a universal principle in the oil and gas industry. Appellant also contends
that we adopted an ORRI definition in Gulfport that was rooted in a misstatement of
Oklahoma law in Meeker v. Ambassador Oil Co., 308 F.2d 875 (10th Cir. 1962), rev’d,
375 U.S. 160 (1963), reh’g denied, 375 U.S. 989 (1964) (reversal on procedural grounds).
Additionally, Appellant argues that our definition was based on dicta in another of our
decisions, Marquette ORRI Holdings, LLC v. Ascent Resources-Utica, LLC, 2022-Ohio-
3786, ¶ 17 (7th Dist.).
{¶26} Much of Appellant's argument, here, was considered and rejected in our
recent Gulfport opinion. We will first address Appellant's repeated assertion that our
Gulfport decision is an outlier among oil and gas cases in the United States. Appellant
argues that Gulfport places Ohio in a unique position by supporting a no-cost
interpretation (including no deduction of post-production costs) of an ORRI if the ORRI is
otherwise silent on the question of costs. Whether or not this is true is not particularly
relevant in this appeal, since there is no question that the parties and their contracts are
subject to Ohio jurisdiction and Ohio law, and Gulfport is one of a line of cases upholding
a cost-free interpretation of ORRIs in Ohio. Nevertheless, Appellant's assertion that,
outside Ohio, a silent ORRI always means post-production costs may be deducted is so
patently false that it must be addressed.
{¶27} In Gulfport we were faced with the same assertion now addressed by
Appellant, and we rejected it. We examined cases from North Dakota, Oklahoma, and
Texas, and found no blanket rule in favor of allowing for the deduction of post-production
expenses from an ORRI that is silent on the matter. Highline Expl., Inc. v. QEP Energy
Case No. 24 CA 0980 – 12 –
Co., 43 F.4th 813 (8th Cir. 2022) (applying North Dakota law); Claude C. Arnold Non-
Operated Royalty Interest Properties, L.L.C. v. Cabot Oil & Gas Corp., 2021 OK 4, 485
P.3d 817; Meeker v. Ambassador Oil Co., 308 F.2d 875, 878 (10th Cir. 1962) (applying
Oklahoma law); In re Mule Sky, No. 20-355561 (Bankr. S.D. Tex.).
{¶28} One Texas case not included in Gulfport held that an ORRI stating it was
cost-free meant it was free from both production and post-production costs. Chesapeake
Expl., L.L.C. v. Hyder, 483 S.W.3d 870 (Tex. 2016). A Colorado case also disallows post-
production deductions from ORRIs. Garman v. Conoco, Inc., 886 P.2d 652 (Colo. 1994);
reaffirmed in Rogers v. Westerman Farm Co., 29 P.3d 887, 902 (Colo. 2001). We have
found somewhat similar cases from Kansas and West Virginia. Gilmore v. Superior Oil
Co., 192 Kan. 388 (1964); Wellman v. Energy Resources, Inc., 210 W.Va. 200 (2001). It
appears that New Mexico also takes this position. Abraham v. WPX Prod. Productions,
LLC, 184 F.Supp.3d 1150, 1193 (D.N.M. 2016). A recent Pennsylvania case recognized
that various jurisdictions have taken different approaches to the question of whether post-
production costs may be deducted from royalties where the lease is silent or ambiguous
on the matter. Dressler Family, LP v. PennEnergy Resources, LLC, 2022 PA Super 77
(Pa. Super. Ct.).
{¶29} Some jurisdictions have enacted legislation or regulations to force the
lessee to bear all costs up to the sale of the oil and gas at market to prevent post-
production costs from being transferred to the royalty holders. "Wyoming has codified
the marketability approach. The Federal government also requires that a lessee place
gas in marketable condition at no cost to the Federal Government. . . .' 30 C.F.R. §
206.153(i) (1993)." Garman v. Conoco, Inc., 886 P.2d 652, 658 (Colo. 1994)
Case No. 24 CA 0980 – 13 –
{¶30} Hence, our holding in Gulfport, and Ohio's position generally on this issue,
is by no means unique or an outlier among the cases or jurisdictions that have considered
the question. Many jurisdictions have not yet ruled on this matter, and Appellant appears
correct that Oklahoma has changed its position on whether post-production costs may be
deducted based on a silent ORRI document. See XAE Corp. v. SMR Property
Management Co., 968 P.2d 1201 (Okla. 1998)). Interestingly, our examination of this
more recent Oklahoma case has led us to other jurisdictions that agree with Ohio's
position, instead of Oklahoma's. See, for example, Hanna Oil & Gas Co. v. Taylor, 297
Ark. 80, 759 S.W.2d 563, 565 (1988). Although we will not draft a treatise, here, the more
we examine other jurisdictions, the more it appears Ohio's position is actually the majority
in those states that have directly ruled on the matter.
{¶31} Appellant also believes that our Gulfport decision contradicts the Ohio
Supreme Court’s Lutz opinion. Appellant contends that we established a more stringent
definition than contained in Lutz, because we barred all post-production costs incurred
from the wellhead to sales points unless expressed in the contract, even if those sales
points are located thousands of miles away. Appellant contends that Lutz rejected a rule
that places the burden of marketing (and its costs) on the lessee rather than on the royalty
holder. Appellant argues that, under Lutz, costs of production of oil and gas end at the
wellhead, and costs incurred thereafter are post-production costs the parties share, even
if the contract is silent on the matter.
{¶32} However, Appellant misstates the impact of Lutz. Lutz did not involve any
substantive discussion of ORRIs, and the Court did not decide any issues regarding these
royalty cost deductions, much less the deduction of post-production costs. The Ohio
Case No. 24 CA 0980 – 14 –
Supreme Court initially accepted a certified question involving certain of those issues, but
it decertified the question and returned the case to federal court to determine whether
costs were deductible based on the language contained in the parties’ lease. Any mention
of post-production costs, the price of gas at the wellhead, the meaning of "free of cost,"
and any other matters related to the certified question, were discussed only in terms of
case background and are not part of the analysis and holding of the Supreme Court.
{¶33} Turning to the contractual language of the Assignment in this appeal, both
parties agree that the reservation of the ORRI in the Assignment is unambiguous.
However, Appellees assert that the reservation unambiguously does not allow the
deduction of post-production costs, while Appellant submits that the reservation
unambiguously allows the deduction of post-production costs. The ORRI reservation
language, Letter of Intent, and the Assignment Agreement are silent as to whether post-
production costs are deductible. There is no genuine issue of material fact regarding this
silence, and the ORRI unambiguously is silent on this matter. The question is: what does
this silence mean in applying Gulfport.
{¶34} The trial court in the Gulfport case held that Gulfport had improperly
deducted post-production costs from its ORRI payments to Gateway. Affirming the trial
court’s judgment, we reiterated the definition of an “overriding royalty” that we set forth in
Marquette ORRI Holdings, LLC, 2022-Ohio-3786, at ¶ 17 (7th Dist.). In Marquette, we
defined an ORRI as "a fractional interest in the gross production of oil and gas under a
lease in addition to usual royalties paid to the lessor, free of any expense for exploration,
drilling, development, operating, marketing and other costs incident to the production and
sale of oil and gas produced from the lease." Gulfport at ¶ 29, quoting Marquette at ¶ 17.
Case No. 24 CA 0980 – 15 –
We noted that at least seven Ohio cases had either relied on precedent that an ORRI is
free from costs or had expressly defined an ORRI to exclude operating costs. Gulfport at
¶ 29; Marquette at ¶ 17; Sound Energy Co., Inc. v. Ascent Resources - Utica, LLC, 2021
WL 1102483, *7 (S.D.Ohio Mar. 23, 2021); Talmage as Tr. of Ralph W. Talmage Tr. v.
Bradley, 377 F.Supp.3d 799, 809 (S.D.Ohio 2019); Holland v. Gas Ents. Co., 2015-Ohio-
2527 (4th Dist.); GM Gas Expl., Inc. v. McClain, 1991 WL 163644, *8 (4th Dist. Aug. 13,
1991); In re Future Energy Corp., 83 B.R. 470, 479 (Bankr. S.D. Ohio 1988); Jerry Moore,
Inc. v. Tr. Co. of Florida, 1981 WL 6268, *1 (5th Dist. June 2, 1981).
{¶35} Based on that definition, we determined that when an ORRI is silent
regarding whether a party may deduct post-production costs from royalty payments, there
is a presumption that no such costs should be deducted. Gulfport at ¶ 29. Gulfport, as
the appellant, sought to have us disregard this definition, claiming the definition was
based on dicta in Marquette. Id. at ¶ 30. However, we held our definition of an ORRI in
Marquette was not dicta, because this definition was central to the case, which concerned
the effect of ORRIs on oil and gas leases in counties within our district. Id.
{¶36} We also held that while the starting point in looking at the issue is that post-
production costs cannot generally be deducted from ORRI payments, contracting parties
may agree to language allowing such deductions. Id. at ¶ 37. We explained that the
operating costs Gulfport sought to deduct as post-production costs were prohibited by the
ORRI agreements between the parties, because the agreements expressly provided that
the ORRIs “shall be free and clear of all operating expenses.” Id. at ¶ 4, 28.
{¶37} Appellant in this matter would have us overrule the definition of ORRI
applied in Gulfport and set forth in Marquette. Appellant claims our definition was
Case No. 24 CA 0980 – 16 –
erroneously based on dicta and conflicts with the definition of ORRI found in other cases,
including Lutz. Again, as we stated in Gulfport, the definition of ORRI in Marquette was
not dicta, and remains valid. We reject Appellant’s argument once again on this basis.
{¶38} Further, our ORRI definition does not conflict with Lutz. In Lutz, the Ohio
Supreme Court declined to answer the question of law submitted from the United States
District Court for the Northern District of Ohio, Eastern Division. Lutz, 2016-Ohio-7549,
at ¶ 2. The dispute was between landowner-lessors and Chesapeake Appalachia, LLC,
the lessee. The district court asked the Ohio Supreme Court to answer the question of
whether Ohio followed the “at the well” rule, which presumably allows a lessee to deduct
post-production costs from the landowners' royalty; or whether Ohio follows the
“marketable product” rule, which limits the deduction of post-production costs. Id. at ¶ 1.
{¶39} The Supreme Court declined to answer the question. Instead, the Lutz
decision held that oil and gas leases are contracts subject to traditional contractual
construction rules, and the specific language of the parties’ contract controls. This was
neither a new, nor controversial, holding. While there was mention of post-production
cost deduction from royalty payments, this was merely raised as background information
in the case and was not a factor in the analysis or holding of Lutz.
{¶40} In Gulfport, we held that while ORRIs are generally cost-free, the
contracting parties are free to agree to include certain costs in their contracts. Thus, both
Lutz and Gulfport hold that traditional contract interpretation principles apply to oil and
gas leases, including ORRI assignments. These cases also hold that the specific
language expressed by the parties in their assignments and leases govern their rights
and remedies. Gulfport in no way contradicts the lessons of Lutz.
Case No. 24 CA 0980 – 17 –
{¶41} In sum, this Court has held that unless expressly provided otherwise in an
agreement between the parties, ORRI payments are not subject to post-production costs
where the ORRI is silent as to those costs. The contracts at issue in this case, particularly
the ORRI language in the Assignment Agreement, did not specifically provide that post-
production costs were deductible from ORRI payments. Consequently, post-production
costs are not deductible from these ORRIs.
{¶42} Appellees seek to bolster our Gulfport holding and would have us rely on
the rule of construction that "[s]ilence on a particular point or the total absence of a
provision from a contract or lease, is evidence of an intention of the parties to exclude this
item from the contract or lease, rather than evidence of an intention to include it." DN
Reynoldsburg, L.L.C. v. Maurices Inc., 2023-Ohio-3492, ¶ 31 (10th Dist.); see also
Buckeye Union Ins. Co. v. Consol. Stores Corp., 68 Ohio App.3d 19, 25 (10th Dist. 1990).
Although this is a valid rule of construction, it is rarely applied in Ohio. The rules of
construction, whether in interpreting statutes, rules of court, or contracts, are normally
only applied if the language being interpreted is ambiguous. State ex rel. Reynolds v.
Nix, 2024-Ohio-4669, ¶ 22; State ex rel. Potts v. Comm. on Continuing Legal Edn., 93
Ohio St.3d 452, 456 (2001). "Rules of construction are aids in ascertaining the intent of
the parties when the language used is ambiguous. They should never be invoked if the
language is clear. If the meaning is apparent, the terms of the agreement are to be
applied, not interpreted." Carroll Weir Funeral Home, Inc. v. Miller, In re Appropriation of
Easement for Hwy. Purposes, 2 Ohio St.2d 189, 192 (1965). The ORRI language in
Gulfport was unambiguous, just as the language in the Assignment is unambiguous, here.
There is no need to rely on the rule of construction proposed by Appellees.
Case No. 24 CA 0980 – 18 –
{¶43} Accordingly, we conclude that Appellant’s first assignment of error lacks
merit and is overruled.
{¶44} In its second assignment of error, Appellant asserts:
ASSIGNMENT OF ERROR NO. 2
THE TRIAL COURT ERRED BY INTERPRETING THE PARTIES’
AGREEMENT ACCORDING TO A PURPORTED LOCAL CUSTOM OR
USAGE CONCERNING POST-PRODUCTION COST DEDUCTIONS IN
THE ABSENCE OF ANY PROOF THAT THE PARTY TO BE CHARGED
KNEW OR HAD REASON TO KNOW OF THE PURPORTED LOCAL
CUSTOM OR USAGE WHEN IT SIGNED THE CONTRACT.
{¶45} Appellant contends that since the trial court found the agreement between
the parties is unambiguous, the trial court should have not determined that “it is the
industry custom and usage in Ohio not to deduct costs from overriding royalty when the
Assignment creating the ORRI is silent as to cost deductions.” Appellant submits that the
court also erred in weighing the evidence offered on the issue of custom or usage in
deciding the interpretation of the agreement between PEP and Chesapeake.
{¶46} Appellant claims the matter regarding custom and usage involves a
disputed issue of material fact that a jury should decide. Appellant contends that even if
an Ohio-specific custom and usage exists, it did not control the original agreement,
because undisputed evidence showed that Chesapeake did not know or have reason to
know about it when it executed its original agreement with PEP, Appellees’ predecessor.
Case No. 24 CA 0980 – 19 –
{¶47} Appellant cites the affidavit of one of Chesapeake's principals, Henry Hood,
regarding his understanding of the ORRI language. Hood oversaw Chesapeake's
negotiations with PEP and signed the Acquisition Agreement. Mr. Hood's understanding
was that Chesapeake intended for the ORRI to bear post-production costs based on the
company’s prior experience in the industry. Mr. Hood attested that at the time
Chesapeake executed the agreement with PEP, Chesapeake had no knowledge of any
Ohio custom, usage, or practice of excluding post-production costs from ORRI payments.
{¶48} Appellant contends the trial court erred in disregarding this evidence, even
though it was undisputed. Appellant argues the court erred in weighing Mr. Hood’s
credibility, and failed to credit this evidence in Appellant’s favor when deciding whether
summary judgment was appropriate. Appellant further asserts the court erred by
determining that Chesapeake should have known about specific industry custom or usage
in Ohio. It submits that the court should not have determined whether Chesapeake knew
or had reason to know of the usage when the agreement was signed.
{¶49} Evidence of industry custom is a type of extrinsic evidence typically used to
determine the parties’ intent in a contract when the contractual language is ambiguous.
EAP Ohio, LLC v. Sunnydale Farms, LLC., 2024-Ohio-4522, ¶ 47 (7th Dist.). However,
extrinsic evidence can also be used for the reason it was considered by the trial court in
this case. Industry custom evidence can be used to show that the terms in a contract
“have a special meaning within a certain geographic location or a particular trade or
industry, even though that meaning is not reflected on the face of the agreement.” Id. at
¶ 49.
Case No. 24 CA 0980 – 20 –
{¶50} The trial court relied on the Ohio Supreme Court’s Alexander decision and
our Sunnydale opinion to consider the extrinsic evidence of industry custom in the oil and
gas industry in Ohio. In Alexander, the Ohio Supreme Court held that:
It is well-settled that although extrinsic evidence of a general custom
or trade usage cannot vary the terms of an express contract, such evidence
is permissible to show that the parties to a written agreement employed
terms having a special meaning within a certain geographic location or a
particular trade or industry, not reflected on the face of the agreement. Steel
Works v. Dewey (1881), 37 Ohio St. 242, 249; State v. Redd (1930), 122
Ohio St. 162, 167, 171 N.E. 20.
53 Ohio St.2d 241, 248.
{¶51} This is the same reasoning we used in allowing extrinsic evidence to be
raised in Gulfport: "[P]arol evidence can be used to explain technical terms of art used in
a matter particular to a trade or industry [and] is admissible to provide special meaning
given by the industry to language employed in a contract." Gulfport at ¶ 17.
{¶52} Courts may rely on extrinsic evidence to ascertain the parties’ intent when:
(1) the contract language is ambiguous; or (2) when “the circumstances surrounding the
agreement invest the language of the contract with a special meaning.” (Citations
omitted.). Kenney v. Chesapeake, 2015-Ohio-1278, ¶ 44 (7th Dist.).
{¶53} We agree with the trial court the ORRI language is unambiguous to the
extent that it is silent regarding what costs, if any, may be deducted from the ORRI
payments. The legal definition of an ORRI in Ohio is also unambiguous: "An 'overriding
Case No. 24 CA 0980 – 21 –
royalty' is a fractional interest in the gross production of oil and gas under a lease in
addition to usual royalties paid to the lessor, free of any expense for exploration, drilling,
development, operating, marketing and other costs incident to the production and sale of
oil and gas produced from the lease." Gulfport at ¶ 29, quoting Marquette at ¶ 17. As we
explained in Gulfport, this is a cost-free definition that does not allow for the deduction of
post-production costs unless the contract language expressly provides otherwise.
{¶54} The ORRI language under review here is also silent as to post-production
costs. Appellees do not contend that there is any special meaning in the ORRI language
different from what is already stated in Ohio law. The parties have not raised any
objections about the application of Ohio law to this case. Appellant urges, however, that
Ohio law is wrong and should be changed, and that there is a special meaning in other
jurisdictions when contracts are silent about ORRIs. If, as Appellant contends, some
different meaning should be applied to the definition of ORRI in this case, it was up to
Appellant to prove it, or at least create a genuine issue of material fact on the issue.
{¶55} The trial court examined the testimony of the proffered experts as to the
Ohio oil and gas industry definition of ORRI to determine if some different definition should
be applied due to Ohio custom or practice. The record contains the affidavits of Ronald
Gibson, David Mansbery, and Thomas Wood, all of whom had extensive experience in
the oil and gas industry in Ohio. They concluded that the industry custom in Ohio prior to
the time these leases were acquired was that overriding royalties are not subject to any
post-production costs other than severance or ad valorum taxes. They also concluded
that most ORRI assignments are silent as to post-production costs, and that such silence
indicates that the costs cannot be deducted.
Case No. 24 CA 0980 – 22 –
{¶56} The record is undisputed that Appellant’s experts had no knowledge of Ohio
ORRI calculations and relied solely on their experience outside of Ohio. Two of
Appellant's experts failed to cite or acknowledge the Ohio cases defining ORRIs as cost-
free, while the third refused to give any weight to the Ohio cases even though the treatise
he cited actually referred to them. It is particularly harmful to Appellant's position that
their expert Bruce Kramer, editor of the Williams and Meyers treatise on oil and gas,
acknowledged that his definition of ORRI allowing for deduction of post-production costs
was not the only accepted definition, had never been cited in Ohio caselaw, and his own
treatise contained Ohio citations that contain the cost-free definition of an ORRI relied on
in Gulfport. Kramer was also aware that other jurisdictions had adopted a definition
contrary to the one in Williams and Meyers, thus confirming our conclusion that there is
no universally accepted definition that allows for post-production costs.
{¶57} The Beck and TDX amicus brief, as well as the Sitler brief, assert that
Chesapeake, as a member of the oil and gas industry, is held to a constructive knowledge
standard of the custom and usage in Ohio as to ORRIs. Mr. Sitler notes that Chesapeake
is the second largest producer of natural gas in the United States, yet feigns ignorance
as to the custom and usage of the term ORRI in Ohio. Appellees argue that parties who
operate in a trade or industry are required to know customs in the industry and are bound
by them. We agree. Knowledge of trade usages, customs, and practices are imputed to
those within the trade. Bosjnak v. Superior Sheet Steel Co., 145 Ohio St. 538, 539 (1945);
Yardmaster, Inc. v. Kish, 1998 WL 684831, *4 (11th Dist. Sept. 25, 1998). "A valid custom
is also a rule of the trade, and a person who deals in articles sold that come within the
Case No. 24 CA 0980 – 23 –
terms of the custom will not be protected by an assertion of ignorance of the usage." 92
Ohio Jur. 3d Usage and Custom § 16.
{¶58} Appellant contends that it could be bound by Ohio's definition of an ORRI
only if it knew or had reason to know of the usage, citing Jurgensen Co. v. Fairborn, 2015-
Ohio-5478, ¶ 29 (1st Dist.). Jurgensen also holds that "[t]he express terms of a contract
generally prevail over custom or 'usage of trade' ." Id. The custom or usage of trade only
enters into the discussion "to clarify disputed contract language." Id. The contract
language here is not in dispute. Appellant hoped, through its many out-of-state case
citations and presentation of expert testimony, to create a dispute about whether there
was a universal definition of ORRI that allowed for post-production cost deductions. Since
there was no such universal definition in 2010 when the Acquisition Agreement and
Assignment were executed, or at any other time relevant to this case, the express terms
of the contracts prevail, pursuant to Ohio law.
{¶59} Appellant's argument is actually that Chesapeake, as Appellant's
predecessor in interest, was ignorant with respect to Ohio's definition of ORRI when it
entered into the Assignment Agreement with PEP in 2010. Since 1991, the law in Ohio
has been that an ORRI is "free of any expense for exploration, drilling, development,
operating, marketing and other costs incident to the production and sale of oil and gas."
GM Gas Expl., Inc. v. McClain at *8. At the time Appellant began deducting post-
production expenses from Appellee's ORRI payments in 2019, at least five Ohio cases
had announced and relied on this consistent conclusion. As courts have stated in the
context of countless disputes: Ignorantia Juris neminem excusat (Ignorance of the law
Case No. 24 CA 0980 – 24 –
excuses no one). In re Adoption of H.N.R., 2015-Ohio-5476, ¶ 13; Sheehan v.
McRedmond, 1998 WL 774983, *3 (8th Dist. Nov. 5, 1998).
{¶60} In order to grant summary judgment there must be no genuine issue as to
any material fact. Although the parties’ experts offered separate opinions, the opinions
of Appellant's experts did not create any genuine issue of material fact regarding Ohio's
definition of an ORRI or Ohio's gas and oil industry custom and usage of the term ORRI
as a "cost-free" interest that does not allow for the deduction of post-production costs.
Accordingly, Appellant’s second assignment of error lacks merit and is overruled.
{¶61} In its third assignment of error, Appellant asserts:
ASSIGNMENT OF ERROR NO. 3
DID THE TRIAL COURT ERR BY WEIGHING CONFLICTING
TESTIMONY CONCERNING THE EXISTENCE OF AN OHIO-SPECIFIC
CUSTOM OR USAGE ON POST-PRODUCTION COST DEDUCTIONS
FROM ORRIS AND THE PARTIES’ MUTUAL INTENT OVER THE
ALLOCATION OF SUCH COSTS?
{¶62} Appellant claims the court erred in granting summary judgment in
Appellees’ favor because it improperly weighed the evidence when disputed material
facts existed concerning custom and usage and the parties’ intent regarding post-
production costs. Appellant contends that conflicting evidence was offered as to whether
Ohio follows a custom and usage in the oil and gas industry treating ORRIs as free of
post-production costs and whether the parties intended for this ORRI to be free of post-
production costs.
Case No. 24 CA 0980 – 25 –
{¶63} As we stated in addressing Appellant's second assignment of error, it was
Appellant's burden to establish a genuine issue of material fact regarding some special
meaning of ORRI that differs from the meaning established in Ohio law. As our review is
de novo, we must determine, as did the trial court, whether there are outstanding factual
matters in dispute, and whether these are material to this case. In addressing the
conflicting expert opinions here, it is readily apparent that the trial court was faced with
determining whether Appellant’s experts raised genuine issues of material fact sufficient
to overcome summary judgment. It is also readily apparent the trial court decided they
did not, and we reach the identical conclusion following our review.
{¶64} Appellant asserts that Appellees’ experts presented conflicting testimony
when they attested that Ohio custom is that silent ORRIs bear no post-production costs.
Appellees' expert Mr. Gibson testified that his company deducts marketing expenses from
ORRIs. Appellant contends that we recognized in Tera, LLC v. Rice Drilling D, LLC, 2023-
Ohio-273, ¶ 125 (7th Dist.) that a marketing fee is a post-production cost. Appellant
concludes this “conflicting” testimony requires a jury trial to determine the issue, as it
involves credibility, which may not be determined by a court in summary judgment.
{¶65} Appellant incorrectly interprets Mr. Gibson's testimony, however. Mr.
Gibson stated that his company pays overriding royalties based on what he called the
Appalachian Basin price, the price paid by East Ohio Gas. Gibson addressed a 45-cent
adjustment made to that price by East Ohio Gas to convert a price from Henry Hub
NYMEX to the Appalachian Basic price. This price adjustment does not contradict, or
create a material question of fact regarding, other statements made by Gibson as to
Ohio's oil and gas custom that post-production costs are not deducted from ORRIs.
Case No. 24 CA 0980 – 26 –
{¶66} Appellant also argues that Appellees' expert Mr. Mansbery, owner of Duck
Creek Energy, deducts a marketing fee before paying his royalty holders their share in
the sale of gas. In examining Mansbery's testimony, it is clear that there is another entity
involved prior to the time the gas is ultimately sold to the end user that may incur
expenses. Duck Creek Energy, however, pays royalties based on the proceeds it
receives for the gas without it making any deductions. Appellant acknowledges that Duck
Creek Energy does not show any deductions on its royalty statements.
{¶67} Appellant also questions whether Appellees’ experts had extensive
knowledge of Ohio ORRI contract provisions or personal knowledge of ORRI contracts
that were silent regarding post-production costs. Regardless of how extensive the
experts' personal experience was, Appellant agrees they had some knowledge of Ohio
oil and gas industry custom, whereas Appellant's experts admittedly had none.
Importantly, Appellees relied, first and foremost, on established Ohio law. It was up to
Appellant to establish there was some alternative in Ohio oil and gas industry practice to
challenge that law, or at least raise some question of material fact for trial. Appellant
failed in this effort.
{¶68} Appellant raises the fact that all of Appellees' experts agreed deductions
were made from ORRIs for taxes. Appellees do not dispute that even a silent ORRI
allows deductions for taxes. By all accounts, the taxes deducted from ORRI payments
are appropriate, and they were never at issue in this case.
{¶69} Finally, Appellant asserts that Appellees’ experts had no experience with
shale drillers like Appellant. This appears irrelevant to the matter. Regardless, Appellees'
expert provided some evidence regarding this type of drilling. Appellant cites to this
Case No. 24 CA 0980 – 27 –
expert testimony, discussing the recent systems their companies created and/or
upgraded due to shale drilling that caused them to incur post-production costs. The
record shows these experts testified that even though they incurred these new and/or
extra post-production costs, they did not deduct the costs from ORRI payments.
{¶70} Appellant has not shown any error in the trial court's review of the expert
evidence or the evidence regarding Chesapeake and PEP's prior knowledge of Ohio law
and custom regarding the definition of an ORRI. The trial court was required to review all
of the evidence offered, to determine whether any of it raised a question of material fact.
The court determined, and we agree, that any conflicting evidence offered by the parties
was not material to the legal issue, and we agree with the trial court. Appellant’s
challenges to Appellees' experts do not hold up under scrutiny, and there is no basis for
its contention that genuine issues of material fact exist regarding oil and gas industry
custom and usage. Appellant fails to prove facts that conflict with established caselaw
regarding ORRIs that are silent as to deductions for post-production costs.
{¶71} Accordingly, this assignment of error lacks merit and it is overruled.
Conclusion
{¶72} In this appeal of the trial court’s decision to grant summary judgment to
Appellees, the court determined Appellees were entitled to recover post-production costs
that had been deducted from ORRI payments. The issue on appeal is whether an ORRI
that is silent about post-production costs is presumed to prohibit such deductions. In our
recent Gulfport decision, we held that the definition of ORRI in Ohio prohibits post-
production cost deductions absent express provisions to the contrary, and the trial court
correctly applied Gulfport to the facts of this case. Appellant would like us to reverse
Case No. 24 CA 0980 – 28 –
Gulfport, claiming it is inconsistent with the interpretation of ORRI in other jurisdictions.
We disagree, and note that in reviewing Appellant's arguments, Ohio's definition is more
the norm than the exception in the oil and gas industry. Regardless, Gulfport remains the
law in Ohio. Appellant also argues that the trial court improperly weighed conflicting
evidence in summary judgment proceedings regarding local gas and oil industry customs,
and failed to consider that at least one of the parties to the original ORRIs did not know
of Ohio's local industry customs regarding silent ORRIs as cost-free. Appellees offered
evidence of the local industry custom in Ohio. Nothing in Appellant’s evidence served to
rebut Appellees’ experts, and the evidence offered by Appellant did not raise a question
of material fact in this matter. Additionally, we must note that parties who practice in a
trade are presumed to know industry customs and usages. Because there was no
question of material fact, the matter was appropriately decided as a matter of law. We
reaffirm our reasoning and holding in Gulfport, and the trial court properly granted
summary judgment to Appellees to recover the post-production charges that were
erroneously deducted. Appellant’s three assignments of error lack merit and are
overruled. The judgment of the trial court is affirmed.
Robb, P.J. concurs.
Lucci, J. concurs.
Case No. 24 CA 0980 [Cite as Gateway Royalty, L.L.C. v. EAP Ohio, L.L.C., 2025-Ohio-2961.]
For the reasons stated in the Opinion rendered herein, Appellant’s assignments of
error are overruled and it is the final judgment and order of this Court that the judgment
of the Court of Common Pleas of Carroll County, Ohio, is affirmed. Costs to be taxed
against Appellant.
A certified copy of this opinion and judgment entry shall constitute the mandate in
this case pursuant to Rule 27 of the Rules of Appellate Procedure. It is ordered that a
certified copy be sent by the clerk to the trial court to carry this judgment into execution.
NOTICE TO COUNSEL
This document constitutes a final judgment entry.