1. Oil and Gas Case Law Update: Recent
Decisions Impacting Oil and Gas Practice
Lisa C. McManus, Pennsylvania General Energy Company, LLC
Grant H. Hackley, Babst Calland Clements and Zomnir, P.C.
Jessica E. Songster, Lindhome & Songster, P.C.

2. Agenda
• Harrison v. Cabot Oil & Gas
• Nolt v. TS Calkins & Associates, LP
• Suessenbach Family Ltd. Partnership v. Access Midstream
Partners, L.P.
• Herder Spring Hunting Club v. Keller
• Northern Forests II, Inc. v. Keta Realty Co.
• Danko Holdings LP v. EXCO Resources (PA) LLC
• Sabella v. Appalachian Dev. Corp.
• Pennsylvania Game Commission v. Seneca Resources
• Sisson v. Stanley
• Chesapeake Appalachia, LLC v. Powell (In re Powell)

3. Harrison v. Cabot Oil & Gas, 110 A.3d 178 (Pa. 2015)
Certified question to Pa. S.C. from Third Circuit Court of Appeals:
When an oil and gas lessor files an unsuccessful lawsuit to invalidate a lease,
is the lessee entitled to an equitable extension of the primary lease term equal
to the length of time the lawsuit was pending?

4. Cabot’s Grounds for Equitable Tolling
1) A lessor’s commencement of a lease-validity challenge constitutes an
effective repudiation of the agreement;
2) The lawsuit and attending uncertainty renders it economically impractical for
the lessee to proceed with the costly development of production
infrastructure on the property; and,
3) It would be unfair to permit a meritless lease challenge to deprive the lessee
of the benefit of its bargain.
Courts should therefore award an extension of the primary lease term, measured
according to the length of time the unsuccessful lawsuit was pending.

5. Supreme Court’s Opinion
• Commencement of declaratory judgment action as to oil and gas
lease’s validity is not a “repudiation of the lease” because
repudiation requires an “absolute and unequivocal refusal to
perform” the contract.
• Oil and gas lessees have superior bargaining power and can draft
leases to include a tolling provision.
• Recognition of special tolling rule for oil and gas leases would
chill lease challenges with merit.
• Ruling is limited to cases in which actual repudiation has not
occurred.

6. What’s a Lessee to Do?
1. Proceed with development plans and hope for either:
a) a favorable ruling on the lease’s validity or
b) interference from the lessor that establishes a complete
repudiation of the lease.
2. Ensure inclusion of a tolling provision in each oil and gas lease
that provides for tolling.
Title Advice
Advise a client that pending litigation does not serve to toll the
primary term of a lease and that operations must be conducted
pursuant to the lease terms so as not to forfeit the lease.

7. Nolt v. TS Calkins & Associates, LP, 96 A.3d 1042 (Pa. Super. Ct. 2014)
JC conveyed tract to PC and recorded deed in wrong county. JC
then entered oil & gas lease with operator, which did not sign
the lease. JC & PC conveyed to N. N filed quiet title action
against operator.
Was an oil and gas lease valid when not executed by lessee? Did
lessee exercise due diligence in entering lease where lessor had
previously conveyed title and, despite misindexing, certain
facts should have caused lessee to conduct additional
investigation?

8. Purchaser of Property Is Bound by Lease
• Oil and gas leases are conveyances of real property governed not by
the Landlord and Tenant Act but by the general statute of frauds
• Only signature of grantor/lessor is required
• Lessee exercise proper due diligence by searching records of the
county where the land was located and speaking with the owner of
record and possessor
• Issue of invalidity of lease based on Lessor’s non-ownership was
first raised in argument, so the issue was waived
Title Advice
General Statute of Frauds applies to oil and gas leases and ONLY the
signature of the lessor is required. If documents relied upon in the
chain of title are recorded in foreign counties and not in the county
in which the real property is located, curative action is required to
record the instruments in the proper county.

9. Suessenbach Family Ltd. Partnership v. Access Midstream Partners, L.P.,
2015 WL 1470863 (M.D. Pa. March 31, 2015)
• Claim was that Chesapeake and others were improperly manipulating
and deducting from royalty payments inflated costs of marketing,
gathering and transporting natural gas.
• RICO claims, and claims for unjust enrichment, conversion and civil
conspiracy.
• Foundation was that Chesapeake and midstream operation spin-offs
entered into agreements to pay above-market fees for gathering and
transportation of natural gas in exchange for loans from the midstream
entities and deductions were passed on to lessors

10. Royalty Deductions Are a Hot Button Issue
• Plaintiffs sufficiently stated a claim that Defendants had received a
substantial monetary benefit derived from inflated gathering costs
Title Advice
In the event a parcel of interest is subject to an oil and gas lease that
contains a provision allowing or disallowing certain royalty
deductions, the diligent title attorney should pay special attention to
the terms of the lease and advise the client accordingly. Myriad cases
are pending related to leasehold royalty deductions.

11. Herder Spring Hunting Club v. Keller, 93 A.3d 465 (Pa.Super.Ct. 2014)
 Kellers reserved subsurface estate in unseated land in 1899
 No evidence that subsurface was separately assessed
 Assessed surface tract was sold at treasurer’s sale to the county
for delinquent taxes in 1935
 Herder Spring Hunting Club’s predecessor purchased the
property from the county in 1941
 Keller heirs and Club both claimed rights to OGMs

12. Title Was Washed
 § 1 of Act of 1806 requires reporting of change in interest so
that tax could be properly assessed – no report of severance
means surface and subsurface continue assessment as whole
 Presumption that officials discharged duties correctly absent
challenge within two years. Lack of assessment assumes lack of
reporting
 Court rejected claim that four-fold penalty was only remedy on
the basis that the penalty was to be imposed only where no tax
sale had taken place
 Due process arguments v. stability of title based on long-
standing practice/statutory law & circumstances at the time
Title Advice
Stay tuned! Supreme court will likely affirm based on long-
standing precedent and well-reasoned opinion of superior
court.

13. Northern Forests II, Inc. v. Keta Realty Co., 2015 Pa Super 253
• 1987 - NF 3,665 acquired acres
• 1988 - NF filed QTA to oil and gas based on adverse possession and tacking.
• 1989 - Default judgment granted
 Affidavit in support of motion to obtain service by advertisement said only attorney
did not know whereabouts of defendants, principals of corporate entities are
unknown, and successors or assigns were unknown.
 Affidavit failed to include whether investigation was performed
 Named defendants did not have record title to oil and gas at the time of QTA filing.
• Issue was whether trial court properly struck default judgment

14. QT Without Valid Service = No Judgment
• Two jurisdictional defects were evident from the record:
1) NF had failed to join indispensable parties to QTA, and
2) NF failed to make proper service on any named defendant to QTA.
• NF failed to join record title owners
• Attorney’s affidavit was woefully deficient
• “Unlike fine wine, void judgments in Pennsylvania do not improve with age; void ab initio, void
for all time.”
Title Advice
Be afraid. Be very afraid. A title examiner should review any court proceedings related to default
judgment for defects apparent on the face of the record, including missing named defendants
and the sufficiency and detail of the attorney’s affidavit for service by publication. Query
whether any chain with a QTA can be marketable?

15. Danko Holdings LP v. EXCO Resources (PA) LLC, 57 F.Supp.3d 389 (M.D. Pa.,
Sept. 29, 2014)
 OG lease provided primary term & five-year extension option
 Lease provision stated that lessee was not bound by change of fee
ownership unless notified by lessor.
 Lessor sold interest without notifying lessee.
 Lessee tendered extension payment to lessor.
 Lessor’s successor brought action in ejectment, trespass and conversion
• Was extension payment to original lessor sufficient to extend the lease?

16. Provisions of Lease Dictate Outcome
• Lease terms were dispositive, regardless of whether lessee had actual or
constructive notice of change in ownership.
• Lessee should not be subject to liability for failing to investigate
ownership prior to every payment.
Title Advice
A buyer of a fee interest under lease may have an obligation under the
express terms of the lease to notify the lessee prior to expecting to
receive payment or notices under the lease.

17. Sabella v. Appalachian Dev. Corp., 103 A.3d 83,
2014 PA Super 237 (Pa. Super. Ct. 2014)
 Surface owners leased oil & gas that they did not own.
 Assignee of oil and gas lease failed to perform a full title search prior to
drilling.
 Even after learning of title failure, assignee continued to develop.
 True OGM owner did not file suit for 6 years after drilling began.
• What standard should be applied to OGM owner’s diligence and did he meet
standard so that SOL was tolled until he discovered the trespass?
• Was the assignee a good faith trespasser?

18. Trespassers Beware!
Trespass and conversion claims were not barred by statute of
limitations; time period was tolled by discovery rule based on OGM
owner's diligence relative to an essentially objective standard
Failure to conduct full title search deprived operators of bona fide
purchaser status
Operators were not good faith trespassers at any point in time
because they were on statutory constructive notice of the true owner's
interest based on owner’s recorded instrument
Because operators were not GFP, they were entitled to no offsets
whatsoever; rather, OGM owner was entitled to recover entirety of
revenues derived from production!!!
Title Implications
Conduct a full title search!

19. Pennsylvania Game Commission v. Seneca Resources, 89 MD 2013
(Pa.Cmwlth.Ct. Oct. 6, 2014).
• 1928 - Lumber Co. conveyed tracts to PGC, E/R oil and gas “in or under the herein-
described lands, with the right to operate for same by ordinary means now in use.”
• 1932 – Lumber Co. transferred four additional adjacent tracts with standard E/R
• Lumber Co.’s successor Seneca Resources drilled vertical test well on 1928 property
& permitted horizontal well to target Marcellus
• PGC sued Seneca claiming that Lumber Co. could not have contemplated nor intended
to burden surface with wells, well pads, water impoundments and water usage
necessary for unconventional development
Issue: Could the 1928 deed language limit Seneca’s ability to develop oil and gas via
modern hydraulic fracturing techniques?

20. Limitations on Methods of Development May Prevent Drilling
• Seneca was entitled to S/J as to right to access O/G from adjacent parcel through
horizontal drilling
• OGM owner has the right to enter onto surface to extent necessary to exploit his
subsurface estate
• S/J was denied on the issue of whether Seneca would be permitted to use the surface
of 1928 tracts for horizontal drilling techniques that were not in use in 1928
Title Advice
Any severance of the subsurface estate from the surface should be carefully examined to
determine whether surface use limitations exist as an encumbrance or restriction on
the right of the subsurface owner to use the surface, as the issue has yet to be
resolved in litigation.

21. Chesapeake Appalachia, LLC v. Powell (In re Powell), 2015 BL 370462,
No. 3:13-cv-00035-RDM (M.D. Pa. Nov. 10, 2015).
• Powell entered OG lease with Anadarko
• Partial interest was assigned to Chesapeake, who became creditor in BR
• Bankruptcy Code permits trustees or debtors in possession, subject to
court approval, to assume or reject executory contract or lease of
residential real property or personal property
• Powell’s attempt to reject lease was permitted by Bankruptcy Court, and
Chesapeake and Statoil appealed.
Is a Pennsylvania oil and gas lease an executory contract or a lease of real
property subject to rejection under Section 365?

22. Chesapeake Appalachia, LLC v. Powell (In re Powell), 2015 BL 370462,
No. 3:13-cv-00035-RDM (M.D. Pa. Nov. 10, 2015).
• Lease is a contract governed contract law BUT these are principles of
interpretation
• Oil and gas lease reflects conveyance of property rights within highly
technical and well-developed industry, so property law is in play
• In PA, oil and gas leases are interests in real property and not executory
contracts or unexpired leases of residential real property
• Simply because lease had not ripened into a fee simple determinable that
vested did not mean that lease was not a property transfer
• Oil and gas rights have long been considered sale of estate in land
• District Court vacated Bankruptcy Court’s ruling
Title Advice
Oil and gas leases covering real property owned by bankruptcy trustees
cannot be rejected by debtors in possession or bankruptcy trustees.

23. Sisson v. Stanley, 2015 PA Super 18 (Pa. Super. Ct. 2015)
• 1953, OGMs were severed from surface and reserved by grantor
• Many years later, surface owner filed QTA to “acquire” OGMs
• Trial court granted motion for “alternative service” under Pa.R.C.P.
430(a), and surface owner published notice of suit in local newspaper
• Underlying affidavit had set forth diligence as checking public records
in Recorder of Deeds Office; searching local telephone directories for
individuals with similar names; and checking various Internet sites for
names and possible locations of OGM owner and/or his heirs, executors
and assignees
• Default judgment entered August 2, 2010
• November 2010, OGM owner’s heir filed petition to open default
judgment, which was granted
• Trial court granted motion for judgment on the pleadings and entered
judgment in favor of surviving heir

24. Standard for Diligence Is Very High
• Affirming, court held that affidavit was insufficient under Rule 430(a)
• Rule 430(a) provides that a motion for alternative service must be
“accompanied by an affidavit stating the nature and extent of the
investigation which has been made to determine the whereabouts of the
defendant and the reasons why service cannot be made.”
• Surface owner failed to
 Search public records in the Register of Wills Office, which would
have revealed OGM owner’s will and beneficiaries;
 Perform a search of local death records or newspaper archives
for OGM owner’s obituary, which identified his surviving
relatives; and
 Set forth in detail efforts taken on Internet to identify heirs.
Title Advice
Relying on default judgments entered after service by publication to
establish title is fraught. Title practitioners should closely examine
documentation underlying QTA, and even then should couch title
opinions with sufficient information to advise client of perils of default
judgments.

25. Questions?