The latest attempt to terminate a production/storage lease has been thwarted by the Pennsylvania Superior Court in the case of Loughman v. Equitable Gas Co., LLC. The Court found that the 1966 lease, which granted Equitable Gas the right to produce gas or to store gas, should be construed as a whole unless there is express language that a contract is entire.  The Court found clarity in the habendum clause that the parties intended the term of the lease to continue:

as long after commencement of operations as said land is operated for the exploration or production of gas or oil, or as gas or oil is found in paying quantities thereon, or stored thereunder or as long as said land is used for the storage of gas or the protection of gas storage on lands in the general vicinity ….

The Superior Court relied on the Pennsylvania Supreme Court’s finding in Jacobs v. CNG Transmission Corp. that if severability of production and storage rights is not clear, a court may look at the contract as a whole to determine intent.  The Court affirmed summary judgment for the lessee, finding that the durational provisions of the lease were “clearly and unambiguously written in the disjunctive," providing that the lease “shall continue during either production or storage.”

The Lessors argued that because the lessee subleased the production rights to the oil and gas in 2011, the production rights and storage rights were severable, and because no oil or gas well was ever drilled on the property, the production rights were terminated.  Except for the sublease, the lower court found that the lease was “virtually identical” to the lease in the case of Warren v. Equitable Gas Co.  The court determined that the sublease (which expressly stated that there was no intent by the parties to sever the production and storage rights) had no impact on the intent of the parties to the 1966 lease, and thus denied the lessors’ attempt to terminate the production rights.   

Lessors’ argument to the Superior Court that it should follow an opinion of a West Virginia federal court did not fare well, since the Court noted that the finding of severability by the District Court had since been overturned by the Fourth Circuit Court of Appeals in the K & D Holdings, LLC v. Equitrans, L. P. case. 

Operators may want to consider an express provision that their leases should be construed as a whole.