Ohio Supreme Court refuses to recognize an implied covenant to explore further
On January 3, 2018, the Supreme Court of Ohio issued an opinion in Alford v. Collins-McGregor Operating Co., Slip Opinion No. 2018–Ohio–8, affirming the dismissal of the landowners’ complaint for failure to state a claim upon which relief can be granted. The landowners sought to have the common pleas court forfeit the mineral interests of the operator under a breach of implied covenant theory.
In the case, the landowners argued that because the oil and gas lease at issue did not disclaim implied covenants, the operator was subject to the implied covenant of reasonable development and the “implied covenant to explore further,” and because the operator breached these covenants, it had forfeited its rights to the minerals underlying the land. The implied covenant to explore further requires a lessee to conduct further exploration for minerals in different geologic formations than have been already explored to the extent a reasonably prudent operator would do so.
The Ohio Supreme Court refused to recognize that there exists an implied covenant to explore further under Ohio law; the Court partially relied on decisions from both the Oklahoma and Texas Supreme Court, which also refused to recognize such a covenant, in making its ruling. The Court, instead, held that the implied covenant of reasonable development adequately protected a landowner’s interests in an oil and gas lease, and it affirmed the dismissal of the landowners’ complaint. Click here for the Supreme Court of Ohio’s decision.