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PA Superior Court - No Implied Duty to Drill the Marcellus Shale

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On June 21, 2013, in the non-precedential decision Caldwell v. Kriebel Resources, Co., LLC, No. 1305 WDA 2012, the Pennsylvania Superior Court affirmed the Clearfield County Court of Common Pleas’ granting of Lessees’ preliminary objections that the complaint failed to state a claim for which relief can be granted. The Lessors claimed that their 2001 Lease had terminated despite the fact that they admitted that the Lease had several producing shallow wells.

Lessors contended that the Lessees violated the implied covenant to develop the Lease by not drilling horizontal wells producing from the Marcellus Shale. The Court held that there was no implied duty to develop all strata, relying on a provision that rejected implied covenants under the Lease.

The Court further rejected Lessors’ claim that they be given the opportunity to present evidence of bad faith, noting that under the Pennsylvania Supreme Court’s decision in T.W. Phillips Gas and Oil Co. v. Jedlicka, 42 A.3d 261, 267 (Pa. 2012), if a well pays a profit, no matter how small, over operating expenses, it is producing in paying quantities.

This decision supports oil and gas operators fending off landowner challenges to leases held by shallow production.

To read the entire decision, click here.

 

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