Pennsylvania Appellate Court Finds That Lease Contains No Implied Duty To Drill In All Strata

The Superior Court of Pennsylvania recently rejected an argument that an oil and gas lease contains an implied duty to develop all strata, and not simply to extract shallow gas. In Caldwell v. Kriebel Resources Co. and Range-Resources-Appalachia, LLC, the plaintiffs sought termination of an eleven-year old oil and gas lease largely because the defendants had not “initiated any drilling activities for natural gas locked in the Marcellus Shale formation” and the drilling activities to date only involved shallow gas drilling.  However, the lease agreement contained a clause stating, “[n]o inference or covenant shall be implied as to either party hereto since the full contractual obligations and covenants of each party is [are] herein fully and expressly set forth.” Hence, the Court found it was not authorized to impose an implied duty on the lessee to develop the various strata in light of the language contained in the contract. The plaintiffs also argued that there is an implied duty to develop in paying quantities in “good faith” and that the trial court should not have dismissed their case without affording them an opportunity to present evidence of the defendants’ bad faith. But the Superior Court concluded the defendants had indeed produced a paying quantity, and that the “good faith” standard referred to in T.W. Phillips Gas & Oil Co. v. Jedlicka, did not expand to “all aspects of the [gas] industry that affect production of lessors’ natural gas.”

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