Photo: junrong / Shutterstock.com

The Pennsylvania Superior Court has ruled that an oil and gas lease between property owners and resource drilling companies was still in effect despite so-called "shut-ins"—periods of inactivity in which the lessee still pays the property owner.

A three-judge panel consisting of Judges John Bender and Deborah Kunselman and Senior Judge Dan Pellegrini affirmed an Armstrong County judge's sustaining of preliminary objections made by defendants Snyder Brothers, PennEnergy Resources and Winfield Resources in the lawsuit filed by plaintiffs Donald Wilson, Shirley Wilson, James Wilson, Marie Wilson and Lara S. Wilson Shields.

According to Pellegrini's Jan. 3 opinion, the Wilsons entered into several lease agreements with the defendants concerning their properties in Armstrong County in 2003. The agreements said that Snyder would have the right to drill within 180 days from the date the lease started and also to extend the lease period by making annual delay rental payments if drilling did not begin during the allotted time. Snyder later assigned some of its drilling rights to PennEnergy and Winfield.

Snyder began drilling on the Wilsons' property in 2010 as well as the surrounding area, during which the Wilsons were paid royalties. In 2017, the Wilsons demanded that drilling stop, alleging that the lease was void because drilling did not begin until 2010, Pellegrini said.

The family also alleged that from 2011 to the present, their leases terminated due to impermissible "shut-in" periods. They accused the defendants of trespassing for the times they claim the lease was void, and alleged breach of contract.

The defendants argued that the Wilsons were paid during the intervening years; the leases did not go into effect until 2010, and the Wilsons accepted royalty payments after drilling started; and the Wilsons never notified the defendants that they considered the leases to be void or terminated, Pellegrini said.

The trial court found that the Wilsons failed to show that the leases had been terminated.

"The Wilsons ratified their original leases beyond the primary term and did not seek to void their amended leases until years after drilling had already begun," Pellegrini said. "As a purely contractual matter, the Wilsons waived any claim they may have had to dispute the validity of the subject leases based on non-production from 2003 until the 2010 ratification in their amended agreements."

He added that the Wilsons' claims regarding non-continuous gas production lacked specificity.

"Without a more precise description of the alleged shut-ins, Snyder/Winfield and PennEnergy cannot determine whether any potential defenses are applicable, such as the Wilsons' failure to give timely notice of a breach," Pellegrini said. "Thus, the Wilsons' shut-in claims lacked the required specificity, and the trial court did not err in sustaining preliminary objections on that basis. Regardless, the Wilsons accepted royalty payments from 2011 until 2017. Therefore, even if the Wilsons could sufficiently assert a shut-in period during that time, their acceptance of payment and lack of notice of a breach would establish that their leases remained valid during that time frame."

Peckville-based Douglas Clark represents the Wilsons and did not return a call seeking comment.

Snyder Brothers and Winfield's attorney, Nathaniel Parker, declined to comment.

Joshua Snyder of Fox Rothschild, who represents PennEnergy, declined to comment.