Habendum Clause: Indivisible Oil and Gas Leases: Delay Rentals Implied Covenant to Develop: Elements

摘要

In 1962. plaintiffs predecessor-in-interest leased some 25,000 acres with a primary term of 40 years and so long thereafter as oil or gas was stored, produced or withdrawn from any part of the leased premises. At the time Seneca acquired its interest in the lease, there were more than 100 producing wells on the lease. In 2008, plaintiff contacts Seneca asking about its development plans and how much of the original 25,000 acres it claimed were still held. Shortly thereafter, plaintiff executes a top lease to a third party, Open Flow Oil & Gas. Seneca then files this declaratory judgment action against both S & T and Open Flow. Open Flow is eventually dismissed and the trial court granted Seneca's summary judgment motion finding that the entire 25,000 acres were held as to all depths. Held: affirmed. Plaintiff challenges the trial court's conclusion that the habendum clause, of the lease was "entire" or indivisible. Treating the habendum clause and the lease as a contract, the court places the burden of proof on S & T to show that the contract has been breached. The court applies the test announced in Jacobs v. CNG Transmission Corp., 565 Pa. 228, 772 A.2d 445, 151 O.&G.R. 453 (2001), to determine whether or not the habendum clause is divisible either horizontally or vertically. The Jacobs test looks to the language of the lease as a whole in order to determine the parties' intent as to treat the habendum clause as being divisible or indivisible. There is language in the lease that differentiates between "operated" and "non-operated" acreage with delay rental payments being required for the non-operated acreage. But the habendum clause of the lease also refers to the entire 25,000 acres as being part of the leased premises and does not distinguish between operated and non-operated acreage. The court interprets the habendum clause, the royalty clause and the fact that acreage can move freely from operated to non-operated, or non-operated to operated, as evincing an intent that the habendum clause is indivisible as to its duration. Thus, the entire 25,000 acres was held by production as to all depths by the existing produetioni. The court also rejects the plaintiffs' argument that the lessee has breached the implied covenant to develop by virtue of having no wells that were producing from the deeper formations, including the Marcellus Shale Formation. But the implied covenant to develop only exists in the absence of express covenants dealing with the same subject. In this case, the delay rental payments for non-operated acreage deal with the development obligations of the lessee. As such, there can be no implied covenant to develop.