Oil and Gas Leases: Free Gas Clause Oil and Gas Leases: Surrender Clause

摘要

The Kramers purchase a fourteen-acre tract of land that was subject to an oil and gas lease that covered a total of 149 acres. At the time of the purchase the lessor and lessee amend their lease to allow the Kramers to use 250,000 cubic feet of gas/year free of cost. After using the lessor's gas line for several years, the Kramers run a new gas line directly from their fourteen acre tract to a wellhead. After a dispute arises between PAC, an assignee of the lessee, and the Kramers, PAC seeks to terminate its free gas obligation by surrendering the fourteen acre tract out of its 149-acre lease. An express provision of the lease authorizes the lessee to surrender "this lease or any part thereof!.]" The trial court determines that upon the surrender the free gas obligation terminates. Held: reversed. After noting that in Ohio an oil and gas lease acts as a severance of the surface and mineral estates through the creation of a fee simple determinable estate, the court determines that a free gas clause is a covenant running with the surface ownership and thus binding on subsequent parties. When the lease was amended to expand the free gas coverage from the lessor's surface estate to the Kramer's surface estate, a covenant benefiting the Kramer's surface estate was created. Since the leasehold surrender clause, if exercised, only excuses "all payments and liabilities hereunder," the court finds that the promise to provide free gas was not a payment or liability that was surrendered. The lessee's surrender would only excuse leasehold royalty and other payments such as delay rentals and not the free gas covenant that runs with the land.