[Cite as Head v. Victor McKenzie Drilling, Inc., 2019-Ohio-4728.]
COURT OF APPEALS PERRY COUNTY, OHIO FIFTH APPELLATE DISTRICT
GARY HEAD, et al. JUDGES: Hon. W. Scott Gwin, P. J. Plaintiffs-Appellees Hon. John W. Wise, J. Hon. Patricia A. Delaney, J. -vs- Case No. 19-CA-00002 VICTOR MCKENZIE DRILLING, INC.
Defendant-Appellant OPINION
CHARACTER OF PROCEEDING: Civil Appeal from the Court of Common Pleas, Case No. 18-CV-00092
JUDGMENT: Reversed
DATE OF JUDGMENT ENTRY: November 18, 2019
APPEARANCES:
For Plaintiffs-Appellees For Defendant-Appellant
DERRICK E. MOOREHEAD SCOTT D. EICKELBERGER MOOREHEAD LAW OFFICE, LLC RYAN H. LINN 58 North Fifth Street KINCAID, TAYLOR & GEYER Zanesville, Ohio 43701 50 North Fourth Street, PO Box 1030 Zanesville, Ohio 43702-1030 Perry County, Case No. 19-CA-00002 2
Wise, J.
{¶1} Defendant-Appellant Victor McKenzie Drilling, Inc. appeals the February 5,
2019, decision of the Perry County Court of Common Pleas.
{¶2} Appellees have not filed a brief in this matter.
STATEMENT OF THE FACTS AND CASE
{¶3} The undisputed facts as set forth by the trial court in its February 5, 2019,
are as follows:
The Plaintiffs are owners of property in Perry County, which contain
oil and gas lease agreements. Through the years 2001 through 2010, with
the exception of three years, Mr. Head received payments from the oil and
gas well. He did not receive any further payments until October 29, 2018.
He did not return or cash the check. Mr. Dilts has owned his property since
1999 and has never received a payment. The lease provides that the
landowners receive $50.00 per year if the gas is not sold from the premises.
Those payments have not been received.
Mr. Gibson has changed the pump on the well three times. The pump
can be pulled out and put back within two (2) days if it is already built. In
order to fix the pump, it had to be pulled out of the well, rebuilt, and put back
in the well to see if it pumps. Mr. Gibson was able to get the pump working
on this well in April, 2018, which was the same month this lawsuit was filed.
Mr. Gibson has 60 wells he works on. During the years of 2010 through
2017, Mr. Gibson testified he was working on the well. Mr. Gibson has paid
the electric bill and insurance on the well each month. There was a period Perry County, Case No. 19-CA-00002 3
of time the well did not produce. He has never been ordered by the state to
plug the well. After the time and effort to get the well working again, it
produced 39 barrels in September, 2018. It has made another 11 barrels
since that time. The 39 barrels produced the amount of $2,397.34. Due to
the expenses of electric and insurance, the well will become profitable in a
year. As of the date of the hearing, there were 21 barrels in the tank.
According to the Defendant, the well is producing in paying quantities based
upon his work. Mr. Gibson has been in the oil and gas business for 44 years.
“Courts universally recognize the proposition that a mere temporary
cessation in the production of a gas or oil well will not terminate the lease
under a habendum clause of an oil and gas lease where the owner of the
lease exercises reasonable diligence and good faith in attempting to resume
production of the well.” Wagner v. Smith, 8 Ohio App.3d 90, 92, 456 N.E.2d
523 (Fourth Dist. 1982). "A critical factor in determining the reasonableness
of the operator's conduct is the length of time the well is out of production."
Id., citing Jath Oil Co. v. Durbin Branch (Okl. 1971), 490 P.2d 1086. In
addition to the length of time, the Court must consider all attendant
circumstances. Id., citing Barrett v. Dorr (1965), 140 Ind. App. 295, 212
N.E.2d 29. Courts have ruled that the lessees have not proceeded diligently
when the production ceases for two years or more. Id. The Appellate Court
affirmed a termination of a lease where the well had not produced for six
years, operations had not been maintained and shut-in royalties had not Perry County, Case No. 19-CA-00002 4
been paid per the terms of the lease. Moore v. Adams, 2008-0hio-5953, 177
Oil & Gas Rep. 170 (5th Dist.).
The Defendant did not exercise reasonable diligence and good faith
in the seven years the well was not producing in paying quantities. In the
course of seven years, he changed the pump three times. The pump began
working in April, 2018, which coincidentally was the same month and year
this case was filed. In addition, he did not pay the lessors $50.00 per year
during the years the well was not producing. Paying the electric and
insurance on the well is not sufficient to show reasonable diligence and
good faith in attempting to resume production of the well where it was not
producing for such a significant amount of time.
The lease agreement expired under its own terms due to lack of
production of oil and gas in paying quantities. The subject lease is void and
no longer binding upon the Plaintiffs, the real estate, and any future owners
of the real estate. A certified copy of this Order recorded of record shall act
as a release of the Lease Agreement filed in Volume 110, page 756 of the
Perry County Lease Records covering 47.5 acres.
{¶4} The trial court then made the following order:
Further, the Defendant is Ordered to remove and plug the oil and gas
well associated with this Lease Agreement and remove any associated lines
on the Plaintiffs' property.
{¶5} Appellant now appeals, assigning the following sole error for review: Perry County, Case No. 19-CA-00002 5
ASSIGNMENT OF ERROR
{¶6} “I. THE TRIAL COURT ERRED AS A MATTER OF LAW IN RULING THAT
THE OPERATOR PLUG THE SUBJECT OIL AND GAS WELL AS THAT AUTHORITY
RESTS SOLELY WITHIN THE EXCLUSIVE JURISDICTION OF THE CHIEF OF THE
DIVISION OF OIL AND GAS RESOURCES MANAGEMENT OF OHIO DEPARTMENT
OF NATURAL RESOURCES.”
I.
{¶7} Appellant, in its sole assignment of error, argues that the trial court did not
have jurisdiction to order that it plug the well. We agree.
{¶8} We review the issue of subject-matter jurisdiction de novo. State ex rel. Post
v. Speck, 185 Ohio App.3d 828, 2010–Ohio–105, 925 N.E.2d 1042, ¶ 10 (3d Dist.).
{¶9} This Court previously addressed this issue in Helms v. Whitney, Fifth Dist.
Holmes App. No. 13CA014, 2014-Ohio-2413, wherein we held:
R.C. 1509.02 states, in relevant part, as follows: “There is hereby
created in the department of natural resources the division of oil and gas
resources management, which shall be administered by the chief of the
division of oil and gas resources management. The division has sole and
exclusive authority to regulate the permitting, location, and spacing of oil
and gas wells and production operations within the state, ...” As noted by
the court in State, ex rel. Morrison v. Beck Energy Corp., 9th Dist. Summit
No. 2593, 2013–Ohio356, “R.C. Chapter 1509 thus provides a
comprehensive regulatory scheme for oil and gas wells operations in the
state.” Id at paragraph 17. Perry County, Case No. 19-CA-00002 6
R.C. 1509.062, which is cited by the trial court, states, in relevant
part, as follows: “(A)(1) The owner of a well that has not been completed, a
well that has not produced within one year after completion, an existing well
that is not a horizontal well and that has no reported production for two
Free access — add to your briefcase to read the full text and ask questions with AI
[Cite as Head v. Victor McKenzie Drilling, Inc., 2019-Ohio-4728.]
COURT OF APPEALS PERRY COUNTY, OHIO FIFTH APPELLATE DISTRICT
GARY HEAD, et al. JUDGES: Hon. W. Scott Gwin, P. J. Plaintiffs-Appellees Hon. John W. Wise, J. Hon. Patricia A. Delaney, J. -vs- Case No. 19-CA-00002 VICTOR MCKENZIE DRILLING, INC.
Defendant-Appellant OPINION
CHARACTER OF PROCEEDING: Civil Appeal from the Court of Common Pleas, Case No. 18-CV-00092
JUDGMENT: Reversed
DATE OF JUDGMENT ENTRY: November 18, 2019
APPEARANCES:
For Plaintiffs-Appellees For Defendant-Appellant
DERRICK E. MOOREHEAD SCOTT D. EICKELBERGER MOOREHEAD LAW OFFICE, LLC RYAN H. LINN 58 North Fifth Street KINCAID, TAYLOR & GEYER Zanesville, Ohio 43701 50 North Fourth Street, PO Box 1030 Zanesville, Ohio 43702-1030 Perry County, Case No. 19-CA-00002 2
Wise, J.
{¶1} Defendant-Appellant Victor McKenzie Drilling, Inc. appeals the February 5,
2019, decision of the Perry County Court of Common Pleas.
{¶2} Appellees have not filed a brief in this matter.
STATEMENT OF THE FACTS AND CASE
{¶3} The undisputed facts as set forth by the trial court in its February 5, 2019,
are as follows:
The Plaintiffs are owners of property in Perry County, which contain
oil and gas lease agreements. Through the years 2001 through 2010, with
the exception of three years, Mr. Head received payments from the oil and
gas well. He did not receive any further payments until October 29, 2018.
He did not return or cash the check. Mr. Dilts has owned his property since
1999 and has never received a payment. The lease provides that the
landowners receive $50.00 per year if the gas is not sold from the premises.
Those payments have not been received.
Mr. Gibson has changed the pump on the well three times. The pump
can be pulled out and put back within two (2) days if it is already built. In
order to fix the pump, it had to be pulled out of the well, rebuilt, and put back
in the well to see if it pumps. Mr. Gibson was able to get the pump working
on this well in April, 2018, which was the same month this lawsuit was filed.
Mr. Gibson has 60 wells he works on. During the years of 2010 through
2017, Mr. Gibson testified he was working on the well. Mr. Gibson has paid
the electric bill and insurance on the well each month. There was a period Perry County, Case No. 19-CA-00002 3
of time the well did not produce. He has never been ordered by the state to
plug the well. After the time and effort to get the well working again, it
produced 39 barrels in September, 2018. It has made another 11 barrels
since that time. The 39 barrels produced the amount of $2,397.34. Due to
the expenses of electric and insurance, the well will become profitable in a
year. As of the date of the hearing, there were 21 barrels in the tank.
According to the Defendant, the well is producing in paying quantities based
upon his work. Mr. Gibson has been in the oil and gas business for 44 years.
“Courts universally recognize the proposition that a mere temporary
cessation in the production of a gas or oil well will not terminate the lease
under a habendum clause of an oil and gas lease where the owner of the
lease exercises reasonable diligence and good faith in attempting to resume
production of the well.” Wagner v. Smith, 8 Ohio App.3d 90, 92, 456 N.E.2d
523 (Fourth Dist. 1982). "A critical factor in determining the reasonableness
of the operator's conduct is the length of time the well is out of production."
Id., citing Jath Oil Co. v. Durbin Branch (Okl. 1971), 490 P.2d 1086. In
addition to the length of time, the Court must consider all attendant
circumstances. Id., citing Barrett v. Dorr (1965), 140 Ind. App. 295, 212
N.E.2d 29. Courts have ruled that the lessees have not proceeded diligently
when the production ceases for two years or more. Id. The Appellate Court
affirmed a termination of a lease where the well had not produced for six
years, operations had not been maintained and shut-in royalties had not Perry County, Case No. 19-CA-00002 4
been paid per the terms of the lease. Moore v. Adams, 2008-0hio-5953, 177
Oil & Gas Rep. 170 (5th Dist.).
The Defendant did not exercise reasonable diligence and good faith
in the seven years the well was not producing in paying quantities. In the
course of seven years, he changed the pump three times. The pump began
working in April, 2018, which coincidentally was the same month and year
this case was filed. In addition, he did not pay the lessors $50.00 per year
during the years the well was not producing. Paying the electric and
insurance on the well is not sufficient to show reasonable diligence and
good faith in attempting to resume production of the well where it was not
producing for such a significant amount of time.
The lease agreement expired under its own terms due to lack of
production of oil and gas in paying quantities. The subject lease is void and
no longer binding upon the Plaintiffs, the real estate, and any future owners
of the real estate. A certified copy of this Order recorded of record shall act
as a release of the Lease Agreement filed in Volume 110, page 756 of the
Perry County Lease Records covering 47.5 acres.
{¶4} The trial court then made the following order:
Further, the Defendant is Ordered to remove and plug the oil and gas
well associated with this Lease Agreement and remove any associated lines
on the Plaintiffs' property.
{¶5} Appellant now appeals, assigning the following sole error for review: Perry County, Case No. 19-CA-00002 5
ASSIGNMENT OF ERROR
{¶6} “I. THE TRIAL COURT ERRED AS A MATTER OF LAW IN RULING THAT
THE OPERATOR PLUG THE SUBJECT OIL AND GAS WELL AS THAT AUTHORITY
RESTS SOLELY WITHIN THE EXCLUSIVE JURISDICTION OF THE CHIEF OF THE
DIVISION OF OIL AND GAS RESOURCES MANAGEMENT OF OHIO DEPARTMENT
OF NATURAL RESOURCES.”
I.
{¶7} Appellant, in its sole assignment of error, argues that the trial court did not
have jurisdiction to order that it plug the well. We agree.
{¶8} We review the issue of subject-matter jurisdiction de novo. State ex rel. Post
v. Speck, 185 Ohio App.3d 828, 2010–Ohio–105, 925 N.E.2d 1042, ¶ 10 (3d Dist.).
{¶9} This Court previously addressed this issue in Helms v. Whitney, Fifth Dist.
Holmes App. No. 13CA014, 2014-Ohio-2413, wherein we held:
R.C. 1509.02 states, in relevant part, as follows: “There is hereby
created in the department of natural resources the division of oil and gas
resources management, which shall be administered by the chief of the
division of oil and gas resources management. The division has sole and
exclusive authority to regulate the permitting, location, and spacing of oil
and gas wells and production operations within the state, ...” As noted by
the court in State, ex rel. Morrison v. Beck Energy Corp., 9th Dist. Summit
No. 2593, 2013–Ohio356, “R.C. Chapter 1509 thus provides a
comprehensive regulatory scheme for oil and gas wells operations in the
state.” Id at paragraph 17. Perry County, Case No. 19-CA-00002 6
R.C. 1509.062, which is cited by the trial court, states, in relevant
part, as follows: “(A)(1) The owner of a well that has not been completed, a
well that has not produced within one year after completion, an existing well
that is not a horizontal well and that has no reported production for two
consecutive reporting periods as reported in accordance with section
1509.11 of the Revised Code, or an existing horizontal well that has no
reported production for eight consecutive reporting periods as reported in
accordance with section 1509.11 of the Revised Code shall plug the well in
accordance with section 1509.12 of the Revised Code, obtain temporary
inactive well status for the well in accordance with this section, or perform
another activity regarding the well that is approved by the chief of the
division of oil and gas resources management.” (Emphasis added). In turn,
R.C. 1509.12 provides, in relevant part, as follows: “(B) When the chief finds
that a well should be plugged, the chief shall notify the owner to that effect
by order in writing and shall specify in the order a reasonable time within
which to comply. No owner shall fail or refuse to plug a well within the time
specified in the order. Each day on which such a well remains unplugged
thereafter constitutes a separate offense.” (Emphasis added).
Moreover, R.C. 1509.13(A) states that a person plugging and
abandoning a well must have a permit to do so issued by the chief.
When the meaning of the statute is “clear and unambiguous,” the
statute is to be applied “as written.” Boley v. Goodyear Tire & Rubber Co.,
125 Ohio St.3d 510, 2010–Ohio–2550, 929 N.E.2d 448, ¶ 20. As noted by Perry County, Case No. 19-CA-00002 7
appellants, the above statutes clearly and unambiguously “position the
Chief as the sole initial decider of all issues related to the plugging of Ohio
wells.” We find, therefore, that the trial court did not have jurisdiction to order
the well plugged.
{¶10} Based on the foregoing and a review of R.C. §1509.13, §1509.12 and
§1509.062, we find the trial court in this matter was without jurisdiction to order the well
plugged.
{¶11} Appellant’s sole assignment of error is sustained.
{¶12} Accordingly, the portion of the trial court's February 5, 2019, Judgment Entry
ordering Appellant to plug the well is hereby reversed.
By: Wise, J.
Gwin, P. J., and
Delaney, J., concur.
JWW/d 1022