Supreme Court Of Ohio Holds Lease Language On Lessee's Right To Develop Point Pleasant Interval To Be Ambiguous

Yesterday, in a 4-3 decision, the Supreme Court of Ohio reversed the decision of the Seventh District Court of Appeals in Tera, L.L.C. v. Rice Drilling D, L.L.C., 2024-Ohio-1945...
United States Energy and Natural Resources
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Yesterday, in a 4-3 decision, the Supreme Court of Ohio reversed the decision of the Seventh District Court of Appeals in Tera, L.L.C. v. Rice Drilling D, L.L.C., 2024-Ohio-1945, and held that there are triable issues of fact regarding (i) whether the oil and gas lease at issue included the right to drill wells into the “Point Pleasant” interval and, if not, (ii) whether the appellant Rice Drilling D, LLC engaged in a bad faith trespass by doing so.The case centered on the proper interpretation of an oil and gas lease that granted certain mineral rights “in the formations commonly known as the Marcellus Shale and the Utica Shale” and reserved all rights not specifically granted in the lease, including the rights in “all formations below the base of the Utica Shale.” After Rice drilled six wells into the Point Pleasant, its lessor, Tera, LLC, sued alleging bad-faith trespass and conversion. The trial court granted summary judgment in favor of Tera on liability and a jury found that Tera was entitled to over $40 million in damages. In a 2-1 decision, the appellate court affirmed after concluding that the lease language unambiguously reserved the Point Pleasant formation to the lessors.

The Supreme Court rejected the lower courts' interpretation of the lease, finding the lease language to be ambiguous on whether it granted Rice the right to drill into the Point Pleasant. First, the Court noted that the phrase “Point Pleasant” did not appear within the four corners of the lease and, as a result, the plain language of the lease did not answer the question whether the parties intended to include the Point Pleasant in what the lease referred to as “the[] formation commonly known as the *** Utica Shale.” Next, the Court concluded that the plain language of the lease was unclear regarding whether the phrase “Utica Shale” referred to its common meaning or its technical, stratigraphic meaning or whether the common meaning and the technical, stratigraphic meaning were the same. Because the plain language could not answer these questions, the Court then turned to the extrinsic evidence offered by the parties. But even then, the Court was unable to give the phrase “Utica Shale” a definite legal meaning. Thus, the Court held that the lease was ambiguous, creating an issue of fact issue could not be resolved on summary judgment.

The Court also reversed the judgment of the appellate court as to Tera's claim for bad-faith trespass, finding that the trial court and appellate court improperly relied upon the lease language instead of conducting a fact-driven analysis that considered all relevant material evidence. Based on these errors, the Court reversed and remanded the case for further proceedings.

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