LEASE MAINTENANCE AND TITLE ISSUES ACROSS THE SHALE BASINS: MARCELLUS/UTICA
| Jurisdiction | United States |
(May 2014)
LEASE MAINTENANCE AND TITLE ISSUES ACROSS THE SHALE BASINS: MARCELLUS/UTICA
Partner
Kevin C. Abbott
Partner
Reed Smith LLP
Pittsburgh, Pennsylvania
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NICOLLE R. SNYDER BAGNELL is a partner at Reed Smith LLP in Pittsburgh, where she serves as the leader of the firm's Oil and Gas team within the Energy and Natural Resources Group. She represents energy clients in various matters/ including lease disputes, natural gas condemnations, encroachment cases, and various other contract disputes. Nicolle specializes in litigation and regulatory issues regarding natural gas production from Shales in Appalachia, counsels clients on permitting and permit disputes, represents oil and gas industry groups and natural gas producers in lease litigation, royalty disputes and Minimum Royalty Act litigation, performs due diligence and provides advice on shale transactions. In addition, Nicolle counsels clients in a variety of environmental matters, such as due diligence for real estate transactions, representing clients on environmental claims in bankruptcy, and advising clients on compliance with environmental regulations. Nicolle graduated from Harvard University, cum laude, in Environmental Science and Public Policy in 1998 and received her J.D. and Masters in Environmental Science from Duke University in 2001. In 2011, Nicolle served as the Oil and Gas Chair for the Energy and Mineral Law Foundation's Annual Institute and serves on the Board of Trustees for that organization. Nicolle has been selected as a "Pennsylvania Rising Star" by Pennsylvania Super Lawyers each year since 2005, has been named one of Law360's 10 energy attorneys under 40 to watch for three years, and was named one of the Most Powerful and Influential Women in Pennsylvania in 2011 by the National Diversity Council.
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Lease Maintenance and Title Issues Across the Shale Basins - Marcellus and Utica
Case law impacting leases and title to oil and gas is developing rapidly in the Marcellus Shale and now the Utica Shale as result of the increased natural gas development in the region. Like other basins before it, there has been a marked increase in litigation regarding leases- from how they are formed, to whether they are maintained or extended, to how payments are made and what those payments must include - in the Appalachian basin.
This paper discusses the recent cases we plan to discuss during the panel session, but is only a small subsection of the numerous decisions that have been made in state and federal courts in Pennsvylania and West Virginia (as well as a few in Ohio) addressing oil and gas development from shales.
A. Lease Formation Claims
The first question that arises in a lease dispute is whether the contract was properly formed. One interesting take on the lease-formation claim was recently addressed by the Pennsylvania Supreme Court in Butler v. Charles Powers Estate, 65 A.3d 885 (Pa. April 24, 2013), over which owner had the right to lease. The case arose over whether an 1881 deed reserved to the Charles Powers Estate which reserved "minerals and Petroleum Oils" included natural gas from the Marcellus Shale, as was claimed by the plaintiffs. The trial court dismissed the claim based on the "Dunham Rule" which holds that a reservation of "all minerals" does not constitute a reservation of oil or natural gas, but the Pennsylvania Superior Court reversed, questioning whether shale gas should be treated like coalbed gas, which generally belongs to the owner of the coal rights. The Pennsylvania Supreme Court, on appeal, reaffirmed the Dunham
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Rule and reinstated the trial court's order that a reservation in a deed of "minerals" did not include the oil and gas subsurface estate. The Court explained that natural gas must be explicitly contemplated in the reservation, grant, or other property conveyance or there must be clear and convincing parol evidence that the parties intended natural gas to be included within the "minerals."
B. Lease Termination Claims
A number of cases have addressed fact specific issues regarding the continuation of leases. In Hite v. Falcon Partners, 2011 WL 9632 (Pa. Super. Jan. 4, 2011), the Pennsylvania Superior court considered whether the payment of delay rentals could extend lease terms in the absence of a habendum clause. The defendant had been utilizing these leases with one year terms and delay rentals of $2 per acre to hold the lease by paying only the minimal delay rentals, and not drilling. When the plaintiffs received offers from other producers to drill on their land, they asked defendant, under the lease's right of renewal clause, to match the offers. When defendant failed to respond, plaintiffs terminated the lease and filed suit. In affirming the lower court's grant of summary judgment for the lessors, the Pennsylvania Superior Court cited the lower court in stating that leases are not to be "construed to create a perpetual term unless the intention is expressed in clear and. unequivocal terms." Hite at *5.
Two recent Pennsylvania cases analyzed what is required to commence operations prior to the end of the primary term of a lease. The first was Good Will Hunting Club, Inc. v. Range Resources-Appalachia, L.L.C., 2013 WL 2297170 (M.D.Pa. May 24, 2013)...
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