A Pennsylvania judge ruled in 2013 that a lessee has no obligation or implied duty to develop every viable area of their oil and natural gas leases.
Caldwell v. Kriebel Resources Co.
In Caldwell v. Kriebel Resources Co., LLC, 72 A.3d 611 (Pa. Super. Ct. 2013), landowners Terry L. Caldwell and Carol A. Caldwell claimed that Kriebel Resources Co. and others, which had leased their property, failed to exploit the true value of the land, particularly the portion located within the Marcellus Shale. The Caldwells further argued that while the company did drill some shallow wells on the land, it did not develop the property to its fullest, such that the production did not amount to paying quantities, as required by the lease.
The plaintiffs argued that since there was no direct legal precedent in Pennsylvania on which to base a decision, the courts should consider a similar Louisiana case, Goodrich v. Exxon Co., 608 So.2d 1019 (La. App. 1992), in which it was held that an operator owed a duty to the lessor to develop valuable, viable areas under its oil and natural gas leases. This argument failed, with the trial court finding for the defendants and the Superior Court of Pennsylvania affirming.
According to the ruling, the defendants were in compliance with the lease, as it had built various wells throughout the property. Operators are under no obligation to develop every “economically exploitable strata” of the land. The judge also ruled that “payout quantities” is not based on all potential strata underlying the land, but rather is satisfied by a mere profit.
If you want to learn more about cases regarding oil and natural gas leases or are interested in your own oil and gas developments, contact MAH Energy Law today.