Wednesday, August 1, 2012

Heasley v. KSM Energy, Incorporated – The Superior Court of Pennsylvania affirmed the trial court’s decision, in an oil and gas lease dispute.

On July 27th, the Superior Court of Pennsylvania affirmed the trial court’s decision, granting judgment in favor of Heasley after he refused to accept payment from his flat-rate oil and gas leases. The two flat-rate leases, both from 1942, were effective “for the term of twenty years from this date, and as long thereafter as oil or gas … is produced.” Both parties agreed that neither oil nor gas was being produced. However, KSM argued that Heasley was estopped from denying the validity of the leases because he had negotiated and accepted payments of $100 until February 2009, and that acceptance of annual rental payments was sufficient to maintain the leases.  Heasley countered that he terminated the leases in 2009, when he stopped accepting payments. The court held that the leases were no longer in effect because the flat-rate leases ended when production ended.  The court reasoned that the secondary term of the leases were terminated because there was no longer any production of gas or oil. Once production had ended the leases were subject to an at-will tenancy and could be terminated by either party at any time.  A lessee cannot maintain a flat-rate lease by continuing to pay as though gas was being produced.

Written by Joseph Negaard, Research Assistant
Penn State Law, Agricultural Law Center
August 1, 2012

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