Peacock Tales • Winter 2015

Pennsylvania Oil & Gas Law Update

By: Stephen Curry

In 2014, Pennsylvania courts decided a number of cases involving oil and gas leasing and development. Several of these issues may directly affect you. With that in mind, the following is a brief synopsis of three judicial decisions that may have an impact on your property, or your oil and gas lease.

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Following the enactment of Act 13 of 2012, a number of constitutional issues related to oil and gas development and local zoning were raised and settled in the Commonwealth Court decision Robinson Township v. Commonwealth of Pennsylvania. Some constitutional issues were upheld by the Pennsylvania Supreme Court; some were sent back down to the lower court for reconsideration.

One of the issues of particular importance to residents living in rural areas involves the requirement to notify only public drinking water systems following a spill resulting from drilling operations, but not private property owners who have wells or springs. The court held that the distinction between public water supplies and private water supplies is a reasonable classification because private water supplies are not regulated by the Department of Environmental Protection (DEP). The private suppliers are either omitted or specifically exempt from laws like the Safe Drinking Water Act, the Water Rights Act and applicable DEP regulations.

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The Oil and Gas Lease Act (OGLA), also known as Act 66 of 2013, amended certain provisions of the 1979 Guaranteed Minimum Royalty Act. One of the provisions of OGLA permits oil and gas operators to form oil and gas development units from contiguous leased properties generally ranging in size from 640 acres to 1,280 acres, as long as each lease does not contain an express prohibition against unitization.

In the 2014 case, EQT Production Company v. Opatkiewicz, the plaintiff filed a declaratory judgment action seeking court approval to exercise the rights granted to natural gas producers by OGLA. The court determined that OGLA does not violate any constitutionally guaranteed rights. Rather than changing the law in an ex post facto (after the fact) manner, OGLA merely clarifies the existing rights of the operator because the oil and gas lessee already has broad powers to develop the oil and gas as it sees fit. Additionally, OGLA does not inhibit prospective lessors and lessees from negotiating the terms of a new lease, including the right to unitize, or not to unitize.

The court was not persuaded by the landowners’ argument that OGLA permits a taking of their property without compensation, finding the lease, not OGLA, transferred the landowners’ right.

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In Nolt v. TS Calkins (2014), the Pennsylvania Superior Court upheld the well-settled provision in Pennsylvania law that an oil and gas lease is equivalent to a conveyance with the lessor retaining a possibility of reverter if the lease ends.

If the operator fails to successfully explore for and develop the oil and gas during the primary term, then title reverts to the lessor. If, however, oil and gas is produced before the expiration of the primary term, the lessee’s right to develop the oil and gas becomes vested in the lessee generally for so long as oil and/or gas are produced in paying quantities.

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If you have questions about your oil and gas property, or an oil and gas lease, we may be able to assist you.


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