Judgment issued for oil and gas well operator

On September 6, 2018, the Monroe County Court of Common Pleas issued a decision in Theresa Jacobs, et al. v. Dye Oil, LLC, et al., C.P. Monroe No. 2017-189 (September 6, 2018), granting summary judgment for the operator of an oil and gas well on the grounds that (1) the subject lease had produced in paying quantities during the requisite state of limitations period; (2) that the operator had timely paid royalties under the lease; (3) that a well was commenced before the expiration of the primary term; and (4) that the producer had not breached any implied covenants. In 1979, the plaintiffs’ predecessor-in-interest leased over 73 acres to the defendants’ predecessors, Walter and Victor Dye. The subject lease contained the following language in the habendum clause: “Lessor does hereby grant unto the Lessee for the Term of two years (and so long thereafter as oil and gas is produced from the land leased and royalty or rentals paid by Lessee therefor) the exclusive right to mine for and produce petroleum and natural gas” from the property at issue.

The plaintiffs purchased 10 acres of the leased premises in 2010. In 2014, the plaintiffs sent the defendants a letter indicating that they were entitled to royalties for any oil and gas produced from their property. The defendants responded to the letter, agreeing to tender landowner royalty upon the receipt of a signed W-9. In lieu of executing the requisite tax documents, the plaintiffs brought suit alleging, in part, that the lease had expired by its own terms. This claim was based both on a claim for lack of production in paying quantities and the fact that the defendants had continued to pay royalties to the heirs of the plaintiff’s predecessor-in-interest after the plaintiffs’ acquisition of the subject property in 2010. The court granted summary judgment to the operator, however, finding that the evidence showed that the well had been producing oil and gas in paying quantities since 2002, the defendants had fulfilled their obligations under the lease by timely paying royalties to the heirs of the plaintiff’s predecessor-in-interest since that time, that the well was drilled timely and that no implied covenants were breached.