Allison v. Rice Drilling B., LLC

270 A.3d 1167 (Table)

Donna L. ALLISON and Steven M. Allison, Wife and Husband, and David A. Allen and Lucinda R. Allen, Husband and Wife, Appellants

v.RICE DRILLING B., LLC and EQT Production Company

No. 537 WDA 2021

Superior Court of Pennsylvania.

Filed: December 30, 2021

MEMORANDUM BY KUNSELMAN, J.:

This case concerns three oil-and-natural-gas leases on a tract of land in Greene County. David Allen and Donna Allison, who inherited that land from their father (Jesse Allen), appeal from an order denying them partial summary judgment and granting summary judgment to Rice Drilling B., LLC and EQT Production Company.¹ Because the trial court misapplied the law of tenancies-at-will and there is a genuine issue of material fact, we affirm the denial of partial summary judgment to the Allens, reverse the grant of summary judgement to the Companies, and remand for trial.

Based on discovery, the parties agree that, in the early 1900s, the Sayers Family owned the Allens’ land. On June 14, 1913, the Sayers executed an oil-and-natural-gas lease with Carnegie Natural Gas Company ("CNG"). The 1913 Lease would run for "as long ... as oil or gas, or either of them is produced from the said land by [CNG], its successors and assigns." Trial Court Opinion, 4/14/21, at 3. In exchange, CNG agreed to provide free gas to a home on the property and to pay the Sayers $125, per well drilled, every three months. The parties later reduced the payment to $100, per well, annually.

CNG drilled one well on the property and connected it to a transmission pipeline that runs through and off the property. It also ran a gas line from the transmission pipeline to the Sayers’ home.

The Allens’ parents purchased the property on June 27, 1957. The parties agree CNG continued providing free gas and paying Jesse Allen $100 annually. They also agree that the well continued producing until 1991, but they disagree about whether it produced gas thereafter.

According to an industry database, CNG last entered a production record for the well on September 30, 1991. Thereafter, CNG no longer reported the well as producing gas to the Pennsylvania Department of Environmental Protection ("DEP") or in industry databases.

However, no one plugged the well. This omission prompted one of the Companies’ witnesses to testify at his deposition that "old wells are always [in] that gray area ... and unless [the database] specifically states that a well is basically plugged [with] cement filled in, then there is always a possibility that that well could be producing, in some way, shape, or form." Depo. of Eakin, 11/7/19, at 25. Based on his history and experience with old wells in Greene County and West Virginia, the witness said, "these wells were Carnegie Natural Gas, and a lot of these wells around here haven't been plugged, so, they really still are producing." Id. at 26 (some punctuation omitted).

Another witness for the Companies agreed. He said, "If they are old wells, without any meters on them, they can just be open into pipeline, sales line, and ... they could be flowing gas, that is, going down the pipeline, but we are not measuring it, or recording it in any of our databases." Depo. of Lamm, 3/3/20, at 104. Thus, the well may or may not have ceased production of natural gas in 1991.

On May 27, 1999, EQT Corporation acquired CNG, and the Companies succeeded to CNG's rights under the 1913 Lease. They continued giving Jesse Allen free natural gas and making $100 payments throughout his life.

In May of 2016, the Companies began hydraulicly fracturing and extracting natural gas from the section of the Marcellus Shell Formation beneath the property. Three months later, Jesse Allen died, and his children jointly inherited the land. The Allens did not inform the Companies of their father's death. Instead, they refused to cash any of the $100 checks that kept arriving in Jesse Allen's name.

Eventually, the Allens entered two, identical oil-and-natural-gas leases with Rice Drilling for the property. Unlike the 1913 Lease (that provided $100 and free gas to one home), the 2017 Leases granted the Allens 18.5% gross royalties for all gas produced from their land. Rice Drilling also paid the Allens two signing-bonuses of $384,963.75, one for each of the 2017 Leases.

That autumn, EQT and Rice Drilling merged, and several hydraulic-fracturing wells began producing natural gas from the Allens’ property. The Companies began paying the Allens $100, per well, based on the 1913 Lease, rather than the 18.5% gross royalties under their 2017 Leases with Rice Drilling.

On March 18, 2019, the Allens sued the Companies for breach of the 2017 Leases. The Companies filed an Answer and asserted a counterclaim for declaratory judgment that the 1913 Lease remains in full force and effect.

After discovery closed, the parties moved for summary judgment. The trial court denied the Allens’ request for partial summary judgment on the counterclaim and granted summary judgment in favor of the Companies. This timely appeal followed.

The Allens raise eight appellate issues. All of those issues are actually sub-issues of the main question on appeal: Did the trial court properly deny the Allens partial summary judgment on the Companies’ counterclaim and properly grant summary judgment to the Companies?

The eight sub-issues challenging the summary-judgment order are as follows:

1. Did the 1913 Lease automatically terminate under Pennsylvania law when oil and gas production from the [CNG-drilled] well ceased in 1991?

2. Did the cessation of production from the well in 1991 and the resulting automatic termination of the 1913 Lease entitle the [Allens] to their requested partial summary judgment?

3. Were the Companies entitled to summary judgment on their counterclaim ... even though ... the Companies conceded at summary judgment that they held rights under a tenancy-at-will?

4. [D]id subsequent oil and gas production attributed to the property ... in 2016 [reinstate] the 1913 Lease?

5. [D]oes the [2016] commencement of oil and gas production prevent [the Allens] from terminating the tenancy-at-will?

6. [D]id the record support a finding that a tenancy-at-will arose?

7. Were the 2017 Leases inoperative "top leases" [that the 1913 Lease superseded]?

8. Was there a question of fact about whether the 2017 Leases were intended as "top leases?"

The Allens’ Brief at 11-14.

Our analysis addresses sub-issues one through six, which fully dispose of this appeal. As we explain, a critical issue of fact (whether the CNG-drilled well ceased production in or after 1991) remains unresolved. Thus, no party is entitled to summary judgment.

When a trial court rules upon a motion for summary judgment, it awards or denies judgment as a matter of law. Accordingly, the "question of whether summary judgment is warranted is one of law, and thus our standard of review is de novo , and our scope of review is plenary." City of Philadelphia v. Cumberland Cty. Bd. of Assessment Appeals , 81 A.3d 24, 44 (Pa. 2013).

"Summary judgment may be entered only where the record demonstrates that there remain no genuine issues of material fact, and it is apparent that the moving party is entitled to judgment as a matter of law." Id. , citing Chepkevich v. Hidden Valley Resort, L.P. , 2 A.3d 1174, 1182 (Pa. 2010). "We must view the record in the light most favorable to the nonmoving party, and all doubts as to the existence of a genuine issue of material fact must be resolved against the moving party." Carlino E. Brandywine, L.P. v. Brandywine Vill. Ass'n , 197 A.3d 1189, 1199 (Pa. Super. 2018).

1. The Allens’ Motion for Partial Summary Judgment

We address sub-issues one and two together, because they essentially ask the same question. The Allens assert the 1913 Lease expired, because they claim the CNG-drilled well stopped producing gas. They believe that they are entitled to judgment, as a matter of law, on the Companies’ counterclaim, which seeks a declaration that the 1913 Lease remains in full force and effect. We disagree with the Allens.

An oil-and-natural-gas lease is simply a lease. Like any other lease, the law of contracts governs. See, e.g., Amoco Oil Co. v. Snyder, 478 A.2d 795, 798 (Pa. 1984). Thus, we interpret the lease pursuant to its terms. See Id.

"The accepted and plain meaning of the language used, rather than the silent intentions of the contracting parties, determines the construction to be given the agreement." Willison v. Consolidation Coal Co. , 637 A.2d 979, 982 (Pa. 1994). "It is well established that the intent of the parties to a written contract is to be regarded as being embodied in the writing itself, and when the words are clear and unambiguous the intent is to be discovered only from the express language of the agreement." Id. (quoting Steuart v. McChesney, 444 A.2d 659, 661 (Pa. 1982) ).

Here, the 1913 Lease endures "as long ... as oil or gas, or either of them is produced from the said land by [CNG], its successors and assigns." Trial Court Opinion, 4/14/21, at 3. By that language, the duration of the 1913 Lease is tied to the ability of CNG and its successors to continue producing oil or natural gas from the property. Thus, the clause is not limited to the CNG-drilled well from 1913. If CNG or its successors commenced oil or natural-gas production at other wells on the property while the CNG-drilled well continued to produce, the duration clause would extend to those additional wells. On the other hand, if the CNG-drilled well ceased to produce before another well went into production, then the 1913 Lease expired.

The parties agree that the only extraction point for oil or natural gas on the property was the CNG-drilled well until the Companies began natural-gas production from the Marcellus Shell Formation in May of 2016. Accordingly, if the CNG-drilled well ceased production anytime between September of 1991 and May of 2016, then the 1913 Lease expired. However, if the CNG-drilled well continually produced natural gas through May of ...