Pennsylvania Superior Court: Separate Consideration for Operated and Unoperated Acres Does Not Render an Oil and Gas Lease Severable

by McGuireWoods LLP

The recent boom in natural gas production in the Appalachian Basin has led to a concomitant boom in litigation, as landowners who are lessors in long-standing oil and gas leases seek declarations that the leases are no longer operative so that they may attempt to negotiate new leases with production companies. One particular ground for landowner challenges is the contention that a lease is “severable,” such that it can be held to have partially lapsed (thus freeing up the “severed” estate or portion thereof for re-leasing). To date, those efforts have been largely unsuccessful. The Pennsylvania Superior Court’s decision in Seneca Resources Corporation v. S&T Bank, No. 2057 WDA 2014 (Pa. Superior Ct. Aug. 31, 2015), is the latest in a string of Pennsylvania cases in which courts apply these leases’ express terms and refuse to hold that the operative lease is severable, such that the landowner may enter into a new lease conveying production rights.

At issue in Seneca Resources was a 1962 lease involving storage and production rights over leased premises totaling 25,000 acres. At the inception of the lease, approximately 15,000 acres of the leased premises were developed, and the remaining 10,000 acres were undeveloped. The lease outlined separate consideration for the developed and undeveloped acreage, with the lessee paying royalties for any oil or gas produced from the operated acreage and a rental payment for the unoperated acreage. The landowners argued that, as a result of this language, the lease was severable and they had the right to terminate the lease with respect to the unoperated acreage after the 40-year primary term of the lease expired.

Following summary judgment in favor of Seneca Resources at the trial court, the Superior Court considered two questions. First, the Court addressed the landowners’ contention that the lease was severable as to the operated and unoperated acreage. Following the Pennsylvania Supreme Court’s holding in Jacobs v. CNG Transmission Corporation, 772 A.2d 445 (Pa. 2001), the Court reasoned that determination of whether a lease is severable depends upon examination of the language of the lease, the character of the consideration, the circumstances surrounding the lease’s execution, the conduct of the parties, and any discernible intent of the original contracting parties that could be derived from the lease. In considering the language of the lease, the Court noted that the lease clearly and unambiguously defined the leased premises to encompass 25,000 acres for a primary term of 40 years and a secondary term that would continue indefinitely as long as oil or gas was produced or withdrawn from any portion of the leased premises. The Court also noted that neither the leasing clause nor the habendum clause made any distinction between operated and unoperated acreage and thus “the clear and unambiguous language of the Lease grants Seneca a fee simple determinable of the entire leasehold so long as the lessee stores, produces, or withdraws oil or gas from any portion of the 25,000 acres.” As to the landowners’ argument that the separate consideration provisions rendered the lease severable, the Court concluded that “the fact that consideration provisions include royalties, delay rentals, and storage rentals, and that unoperated acreage may be converted to operated acreage at any time, reflect an intent by the parties to enter an agreement to achieve the fullest development of the entire 25,000 acres of the leased premises.” Accordingly, the Court concluded that the lease was entire and that the operable and unoperable acreages were not severable from each other.

The Court also rejected the landowners’ argument that Seneca Resources had violated the implied covenant to develop by failing to develop approximately 3,000 acres of commercially viable land. The trial court held that because a portion of the leased premises was already developed at the time Seneca acquired the rights to the lease, the implied covenant to develop was inapplicable to the property as a whole. The Superior Court, following Jacobs, disagreed, reasoning that “the fact that the leased premises are under production at the time of the entry of the Lease does not, in itself, invalidate the implied covenant to develop.” However, the Court noted that the express terms of the habendum clause provided that the lease would be extended if oil or gas were stored in, produced or withdrawn from “all or any portion of said leased premises.” Because it was “undisputed that Seneca continues to drill and withdraw gas from a portion of the leased premises,” the Court held that “the Lease between the Appellants and Seneca forecloses a finding of a breach of the implied covenant to develop and produce oil and gas on the unoperated acreage.”

The Superior Court’s decision in Seneca Resources provides further support for the proposition that courts will be reluctant to sever oil and gas leases, and will instead construe them according to their express terms.

Written by:

McGuireWoods LLP

McGuireWoods LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.