In this case, the court examined who bears the burden of proof in a suit asserting an oil and gas lease has expired due to failure to produce in paying quantities. The appellate court held that the trial court placed the burden of proof on the wrong party and reversed the holding of the trial court.
Defendant-appellant, Antero Resources Corporation (“Antero”), along with defendant-appellant, Jeff Miley d.b.a. Miley Gas Company (“Miley”), appealed from a Monroe County Common Pleas Court judgment finding that an oil and gas lease terminated due to failure of the well at issue to produce in paying quantities.70 Plaintiff-appellee, Rosemary Burkhart, individually and as the representative of the estate of Cyril Burkhart, is the owner of the mineral rights to a 66-acre parcel of property located in Seneca Township in Monroe County.71 The 66-acre tract was leased in 1945 by the then landowners, Aloysius and Celia Burkhart, to Burns Drilling Company. The lease provided for a primary term of five years and so long thereafter as oil, gas, or their constituents were produced in paying quantities thereon.72 The Burkharts’ interest eventually passed to their child Cyril, and upon Cyril’s death, to their grandchild, Rosemary. In 2011, the lease was assigned to Miley, and the deep rights were subsequently assigned by Miley to Antero. In 2013, Rosemary Burkhart filed a complaint against Miley alleging that the primary term of the lease expired on December 6, 1949, and there was not sufficient production to continue the lease.73
On October 1, 2014, the case proceeded to a bench trial, and the court found that Miley had operated the well in good faith and that it was profitable per testimony provided by Miley.74 Burkhart filed a motion for new trial alleging that Miley knowingly misrepresented himself when discussing the profitability of the well. Specifically, Burkhart alleged that Miley lied about earning a profit in 2012 and 2013. The trial court found that Burkhart presented good cause to reopen the previous judgment and took additional testimony regarding Miley’s tax returns.75
After examination of Miley’s tax statements, the trial court found that Miley had declared a loss in 2012 and 2013, and that much of his revenue did not come from the sale of oil and gas. Additionally, it was discovered that Miley had not reported any production to the Ohio Department of Natural Resources (“ODNR”) until late 2013. The court also inferred that Miley had a financial incentive to claim the well was profitable. The court reasoned that the combination of these factors had cast real doubt on the actual profitability of the well. The court vacated its previous judgment and held the lease had terminated for lack of production.76
After his motion for new trial was denied, Miley appealed, and the Ohio Oil and Gas Association and the Southeastern Ohio Oil and Gas Association filed an amicus brief in support of Antero and Miley. The court of appeals found that the second assignment of error controls the outcome of this case.
The second assignment of error raised by Miley challenges the trial court’s ruling as a matter of law. Miley argued that the trial court erred in shifting the burden of proof to Miley and Antero to prove the well was producing in paying quantities. Additionally, Miley contended that the court should have determined profitability on a well-by-well basis, and not on overall profitability of a project. The appellate court agreed and reversed the holding of the trial court, explaining that the party who asserts a claim in an oil and gas case, just as in any other civil case, carries the burden of proof.77 In this case, the burden was on Burkhart, as the plaintiff and lessor, to prove that the well was not producing in paying quantities.78
Additionally, relying on the precedent established in a similar case, the appellate court found that the trial court erred in considering several factors in its determination of whether the well was producing in pay quantities. The court of appeals held that it was error by the trial court to rely on the fact that Miley declared losses on his 2012 and 2013 tax returns because the statements did not give any indication if the well had produced in paying quantities for those years. Furthermore, the court had previously held that “the failure to file production reports with ODNR does not add to the determination of whether a well is producing,” and for the trial court to rely on that fact was error. It was also error for the trial court to consider that Miley stood to profit by holding onto a lease because it was irrelevant to the issue of paying quantities.79 Lastly, the trial court failed to list in its findings the fact that Miley was paying consistent royalties to Burkhart, which can be evidence of production in paying quantities.
The appellate court reversed the decision of the trial court and entered a judgment in favor of Miley and Antero.80 This case is helpful to landmen and mineral owners when determining whether a well is producing in pay quantities.
69 Burkhart v. Miley, 7th Dist. No. 15 MO 0012 2017-Ohio-9006.
70 Id. at ¶ 1.
71 Id. at ¶ 2.
72 Id. at ¶ 4.
73 Id. at ¶ 8.
74 Id. at ¶ 9.
75 Id. at ¶ 13.
76 Id. at ¶ 16.
77 Id. at ¶ 56. Citing Burkhart Family Trust, 2016-Ohio-4817, at ¶ 13.
78 Id. at ¶ 31.
79 Id. at ¶ 37-42. Citing Burkhart Family Trust, 2016-Ohio-4817, at ¶ 21.
80 Id. at ¶ 56.