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T.W. Phillips Gas & Oil Co. v. Jedlicka

Supreme Court of Pennsylvania

April 13, 2010, Argued; March 26, 2012, Decided

No. 19 WAP 2009

Opinion

 [*203]  [**263]   MADAME JUSTICE TODD

This Court granted allowance of appeal in the instant case to determine the proper test for evaluating whether an oil or gas lease has produced "in paying quantities," as first discussed by this Court in Young v. Forest Oil Co., 194 Pa. 243, 45 A. 121, 47 Pitts. Leg. J. 221 (1899). After careful consideration, we hold that, where, as here, production on a well has been marginal or sporadic, such that for some period profits did not exceed operating costs, the phrase "in paying quantities" must be construed with reference to an operator's good faith judgment. Furthermore, as we find  [***2] the lower courts considered the operator's good faith judgment in concluding the oil and gas lease at issue in the instant case has produced in paying quantities, we affirm the order of the Superior Court affirming the judgment entered by the trial court in favor of T.W. Phillips Gas and Oil Co. and PC Exploration, Inc. (collectively, "Appellees").

Appellant, Ann Jedlicka, is the owner of a parcel of land consisting of approximately 70 acres located in North Mahoning  [**264]  Township (the "Jedlicka tract"). Title to the Jedlicka tract was conveyed from James and Anna Jedlicka, husband and wife, to Anna Jedlicka and Ann Jedlicka, mother and daughter, in October 1979. The Jedlicka tract is part of a larger tract of land consisting of approximately 163 acres, which was conveyed to Samuel Findley and David Findley by deed dated February 24, 1925 (the "Findley property"). In 1928, Samuel Findley and David Findley conveyed to T.W. Phillips Gas and Oil Co. ("T.W. Phillips") an oil and gas lease covering all 163 acres of the Findley property (the "Findley lease"), which included the Jedlicka tract. The Findley lease, characterized as a pressure lease, established royalty payments to the lessor based  [***3] upon the pressure of the well. The lease also contains a habendum clause, which provides:

To have and to hold the above-described premises for the sole and only purpose of drilling and operating for oil and gas with the exclusive right to operate for same for the term  [*204]  of two years, and as long thereafter as oil or gas is produced in paying quantities, or operations for oil or gas are being conducted thereon, including the right to drill other wells.

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615 Pa. 199 *; 42 A.3d 261 **; 2012 Pa. LEXIS 627 ***; 176 Oil & Gas Rep. 430; 2012 WL 1033691

T.W. PHILLIPS GAS AND OIL CO. AND PC EXPLORATION, INC., Appellees v. ANN JEDLICKA, Appellant

Prior History:  [***1] Appeal from the Order of the Superior Court entered November 26, 2008 at No. 1918 WDA 2007, affirming the Order of the Court of Common Pleas of Indiana County entered October 19, 2007 at No. 10362 CD 2005. 2008 PA Super 293, 964 A.2d 13 (Pa. Super. 2008). Trial Court Judge: William J. Martin, President Judge. Intermediate Court Judges: Kate Elliott Ford, President Judge., Joan Melvin Orie; Jacqueline O. Shogan, JJ's.

T.W. Phillips Gas & Oil Co. v. Jedlicka, 2008 PA Super 293, 964 A.2d 13, 2008 Pa. Super. LEXIS 4348 (Pa. Super. Ct., 2008)

Disposition: Order affirmed.

CORE TERMS

lease, paying quantities, lessee, good faith, oil, producing, operating expenses, profits, trial court, good-faith, lessor, expenses, marginal, habendum clause, courts, reasonably prudent, oil and gas lease, termination, drilling, parties, pays, Exploration, purposes, tract, circumstances, speculation, time period, slip opinion, unprofitable, reasonable time period

Civil Procedure, Appeals, Standards of Review, Abuse of Discretion, Preliminary Considerations, Equity, General Overview, De Novo Review, Questions of Fact & Law, Substantial Evidence, Sufficiency of Evidence, Contracts Law, Contract Interpretation, Energy & Utilities Law, Oil, Gas & Mineral Interests, Federal Oil & Gas Leases, Extensions & Terminations, Abandonment & Termination, Evidence, Burdens of Proof, Allocation, Leases & Licenses, Habendum Clauses