Thursday, September 5, 2013

District Court finds well operator commenced operations sufficient to extend lease into secondary term

On August 13, 2013, the United States District Court for the Middle District of Pennsylvania held that well operator’s staking, surveying and movement of equipment onto a drilling unit extended a standard oil and gas lease on that unit. Roe v. Chief Exploration & Development, LLC, 2013 WL 4083326 (M.D. Pa. Aug. 13, 2013).

The plaintiffs, two landowner groups, had entered into standard oil and gas leases with Roe Exploration in October of 2005. The lease provided for a primary term of five years, and a secondary term held open by delay rentals, by operations to explore for the production of oil and gas, by production, or by storage. Further, the lease contained a pooling provision that stated drilling, or operations in preparation for drilling occurring anywhere in the unit would have the same effect on the lease as if it were located on the leasehold. Both leases were brought into a drilling unit before the primary terms expired.

Prior to the October 2010 end to the primary term of the disputed leases, the well operator had commenced surveying and staking a well site on the drilling unit, of which the leases were a part. The court held that the operator had commenced “operations” to satisfy extending the lease beyond its primary term because Pennsylvania law requires very little of operators to satisfy the commencement obligation prior to the expiration of the primary term. It explained that the low bar was satisfied by surveying and staking the well because the work was necessary and incidental to drilling the well. As a result, the Court granted the well operator’s motion for summary judgment that the “operations” language in the lease was satisfied. 

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

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