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Energy company wins gas lease dispute



An oil and gas company, Exco Resources, has won summary judgment in a case brought by landowners seeking to have its lease of 130 acres in Northwest Pennsylvania declared invalid.

The plaintiffs had bought land in Jefferson County in 2009, including a 180-acre parcel that came with a lease that was originally entered into in 1916. Exco took over the rights to that lease in 2011.

The plaintiffs filed suit that year, arguing that Exco had breached its duty to surrender the majority of the acreage since the terms of the original lease dictate that undeveloped land is to be relinquished, and breached its duty to develop the entirety of the property.

The undeveloped portion accounts for 130 of the 180 acres.

U.S. District Judge Mark R. Hornak of the Western District of Pennsylvania granted summary judgment to Exco on both counts in Burkett v. Exco Resources.

The primary term of the lease stretched to 1926, at which point two wells had been drilled on the property. From that point, the lease was extended for an indefinite secondary term, according to the opinion.

In 1959, the property owner and the lessee amended the lease while there were two abandoned wells and three negligible wells on the property. Two of those wells are currently producing. Nothing was drilled after 1927, according to the opinion.

The original lease specifies that if the lessee decides that the land doesn't warrant further development, then the lessee is obligated to drop the lease, according to the opinion.

The plaintiffs argue that Exco violated that part of the lease since it hasn't developed its natural gas exploration on the land and it hasn't given up the lease.

"Inherent in plaintiffs' argument is a contention that by inaction as to further drilling, defendant had, in reality, 'surrendered' its interest in a rather amorphously defined 130 acres of the involved parcel," Judge Hornak said.

However, the judge later said, "There is no indication in the record, as plaintiffs concede, that Exco or its predecessors 'ever formally announced its affirmative decision that all or part of the premises did not warrant further investigation or development.'"

Saranac Hale Spencer: sspencer@alm.com or 215-557-2449. Read more stories like this at www.thelegalintelligencer.com.

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