Hite v. Falcon Partners
13 A.3d 942
| Pa. Super. Ct. | 2011Background
- Plaintiffs are numerous landowners (the Hite families, widows, and others) who hold oil and gas interests in land formerly leased to Buffalo Valley, Ltd., then MSB Leasing, and finally Falcon Partners and XTO Energy, Inc. (appellants).
- The leases grant the lessee all oil, gas, surface and drilling rights and set a one-year primary term with a delay rental of $2 per acre per year, continuing as long as oil or gas are produced, as long as operations continue, or until all oil and gas are removed or delay rentals are paid, whichever occurs last.
- Falcon did not commence drilling for years; instead it paid the $2 per acre per year delay rental, effectively extending only the time to drill within the one-year primary term.
- In 2008, Plaintiffs sent certified letters asking Falcon to match third-party offers to drill; Falcon did not respond; Plaintiffs then declared termination of the leases and demanded release documentation, which Falcon refused.
- The trial court granted Plaintiffs’ motions for summary judgment in January 2010, determining the leases had expired after the one-year primary term since Falcon had not begun production, and Falcon appealed.
- The Superior Court affirmed, holding that delay rentals do not create a perpetual term and that productive development must occur within the primary term to extend the lease.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do delay rentals extend the lease beyond the primary term? | Delay rentals do not create a perpetual extension; only production within the term preserves the lease. | Delay rental payments indefinitely extend the lease and preserve rights to production beyond the initial term. | Delay rentals do not extend beyond the one-year primary term. |
| Can plaintiffs terminate or re-lease the land after Falcon's inaction in the primary term? | Once Falcon failed to commence production, plaintiffs may seek offers and entertain other drilling opportunities. | Falcon retains drilling rights by paying delay rentals and should be granted additional time. | Plaintiffs were entitled to pursue third-party offers and terminate the leases. |
| Do delay rentals paid after the primary term vest any rights or create a perpetual estate? | No vesting or perpetual estate results from post-term delay rentals. | Post-term delay rentals could extend or vest production rights indefinitely. | Delay rentals after the primary term do not vest rights or create a perpetual term. |
Key Cases Cited
- Jacobs v. CNG Transmission Corp., 332 F.Supp.2d 759 (W.D. Pa. 2004) (delay rentals limit to initial term; no indefinite extension)
- Calhoon v. Neely, 201 Pa. 97 (Pa. 1902) (oil and gas title inchoate; production vests rights)
- Brown v. Haight, 435 Pa. 12 (Pa. 1969) (habendum clause and vesting upon production in paying quantities)
- Western Penn. Gas Co. v. George, 161 Pa. 47 (Pa. 1894) (no-term leases; limited to primary term)
- Penrose v. Penn Forest Coal Co., 289 Pa. 519 (Pa. 1927) (delay rentals as consideration for postponement of development)
- Marshall v. Forest Oil Co., 198 Pa. 83 (Pa. 1901) (duty to develop and consequences of delay)
- Hill v. Joy, 149 Pa. 243 (Pa. 1892) (dormant development and contractual duties in oil and gas leases)
- Ray v. Western Pennsylvania Nat'l Gas Co., 138 Pa. 576 (Pa. 1891) (early limitations on perpetual extensions in gas leases)
- Snyder Brothers, Inc. v. Peoples Natural Gas Co., 450 Pa. Super. 371 (Pa. Super. 1996) (distinguishes vested interests from no-term lease concerns)