PA Court Says Leaseholder Can Sublease Production Rights

We’re not sure how many landowners this may potentially affect, but we found a recent court decision by Pennsylvania Superior Court to be interesting. Landowners who had inherited property (and a lease) in Greene County, PA asked the court to “sever” the lease into two parts. The lease is with EQT and its affiliates and is 50 years old–long before Marcellus drilling. The landowner makes the case that because EQT had assigned the production rights to a third party and had never themselves drilled, the lease is terminated. There are two parts to the lease: one which said EQT had up to 10 years to extract oil and gas, the other that EQT can store natgas underground. The landowners were looking to end that portion of the lease that allows drilling because EQT never drilled on or under the property–and by assigning those rights to someone else, they have abrogated their rights under the lease. The court disagreed and said you can’t “sever” production rights from storage rights. If one OR the other happened, under the original lease, that is enough to make all parts of the lease ongoing and enforceable. Our description is likely not very good. Here’s what the legal beagles at Vorys say about the case, along with a copy of the decision…

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