Lessees of oil and gas leases in Pennsylvania who have been assigned or are assigning less than all of the geologic strata under lease should give careful attention to whether those leases have been severed vertically by unilateral actions. A lease may not be held by production if that production is in a geologic strata not included in the assignment of rights. This article explains a recent decision on the issue.
By its 2-to-1 non-precedential decision that an oil and gas lease unilaterally can be severed horizontally and vertically, the Superior Court of Pennsylvania appears to have split from its own published precedent and created new law in Pennsylvania—leaving lessees in limbo, possibly giving unscrupulous lessors a unilateral tool to terminate oil and gas leases, and ultimately harming both lessors and lessees in the process.
The Superior Court decided the case Montgomery v. R. Oil & Gas Enterprises, Inc., earlier this year. Judges Shogan and Strassburger, over a well-reasoned dissent, concluded that the subject oil and gas could be severed vertically and horizontally by unilateral actions of the lessee and the lessor respectively. In that case, the Superior Court upheld the trial court’s decision that the severed oil and gas lease had expired as to the shallow rights for the portion of the lease sold to the new lessors. No application for reargument was filed, and no petition for allowance of appeal was filed with the Supreme Court.
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“Under Scrutiny: PA Superior Court Splits from Own Precedent and Allows Unilateral Oil & Gas Lease Severance in Montgomery,” by Jeremy A. Mercer was published in the September 2017 edition of Pratt’s Energy Law Report (Vol. 17-8), an A.S. Pratt Publication, LexisNexis. Reprinted with permission.