On October 18, 2013, a magistrate judge for the United States District Court for the Middle District of Pennsylvania issued a memorandum opinion that dismissed a well operator’s motion for summary judgment in an on-going action revolving around the status of an oil and gas lease. Butters Living Trust v. SWEPI, Inc., 2013 WL 5707787 (M.D. Pa. Oct. 18, 2013). At this juncture of the litigation, the trust and gas producer disputed whether operations had commenced sufficient to propel the lease beyond its primary term. The language of the May 27, 2001, lease contained a ten year primary term and a habendum clause, negotiated in 2009, that stated “any drilling or reworking operations on or production from a well on that unit shall continue this lease in full force and effect.” In the weeks before May 27, 2011, the gas producer initiated surveying, permitting, and site preparation activities. Actual drilling did not occur. On May 31st, counsel for the trust informed the operator that the lease expired. During the discussions, the trust conveyed a portion of the estate’s surface rights, and language in the conveying deed reserved “all past and future rents and royalties from the existing [emphasis added] oil and gas lease.” Additionally, during conversations between counsel for the trust and a representative of the producer, it was alleged the producer representative tacitly conceded the lease had expired.
The court held that the motion for summary judgment should be denied because the landowner’s “contested claims” and producer’s “disputed assertions” contained genuine issues of material fact. The court reasoned that each party’s allegations contained factual disputes because of the alleged treatment of the lease by the parties. While the landowner maintained the lease expired, it referenced an “existing lease” when deeding a portion of the surface estate. Conversely, while the operator maintains the lease remains in effect, a representative allegedly admitted to its expiration. Therefore, the court found summary judgment would be inappropriate because the interpretations of the habendum clause entailed legal and factual matters that were genuinely disputed.
Written by: Garrett Lent, Research Assistant
Agricultural Law Resource and Reference Center