Monday, July 22, 2013

District Court adopts recommendation finding lease extension terms ambiguous, denies motion to dismiss.

On July 12, 2013, the United States District Court for the Middle District of Pennsylvania adopted a Magistrate Judge’s recommendation that a well operator’s motion to dismiss a dispute involving an ambiguous lease be denied. Butters Living Trust v. SWEPI, LP, 2013 WL 3676533 (M.D. Pa. July 12, 2012). In February 2007, the parties entered into a written oil and gas lease. While the lease provided for the extension of the lease of pooled lands, so long as production occurred, these provisions were “expressly deleted” by hand-written changes to the lease by the parties. Further, an addendum to the lease provided the lessee to extend non-pooled acreage “under the same terms of this lease.” The “same terms,” however, were stricken from the lease by the parties’ hand-written changes.

The magistrate recommended that defendant well operator’s motion to dismiss be denied because the lease was ambiguous. Pre-printed terms in a lease, under Pennsylvania law, are to yield to hand-written changes because a hand written change “presumably evidences the deliberate expression of the parties’ true intent.” Here, the handwritten changes to the lease created more than one reasonable interpretation of the lease. The lease of pooled property could either be extended under the pre-printed terms, or not under the hand-written changes; and the lease of non-pooled property could be extended under the addendum, or not because it references rights that were stricken from the lease. Therefore, according to the recommendation, the lease was ambiguous. The magistrate explained that at a minimum the ambiguities compelled the presentation of parol evidence in order to provide some degree of contractual coherence in interpreting the disputed lease.

To view the full opinion of this case, and other cases related to the Marcellus shale play, please visit the Penn State Agricultural Law Resource and Reference Center's Marcellus Shale Resource Area.

Written by: Garrett Lent, Research Assistant
Agricultural Law Resource and Reference Center
July 2013

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