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April 16, 2014

Court Upholds New PA Pooling Law

A Pennsylvania Court has upheld the constitutionality of a controversial new law that explicitly allows operators to pool contiguous leases using horizontal drilling unless prohibited by a lease.  The case, EQT Production Comp. v. Opatkiewicz, which was filed in July 2013, was brought by EQT against dozens of its Pennsylvania lessors residing in Allegheny County alleging that the named lessors had improperly asserted that EQT was prohibited from pooling contiguous leases.

The Complaint was a first of its kind alleging the right to pool leases under recent amendments to Pennsylvania’s Oil and Gas Lease Act of 1979 (Senate Bill 259) which explicitly allows operators to pool contiguous leases using horizontal drilling unless prohibited by a lease.   According to the Complaint,

“Pursuant to Pennsylvania law, where an operator has the right to develop multiple contiguous oil and gas leases, it may jointly develop multiple contiguous oil and gas leases by horizontal drilling unless the same is expressly prohibited by the terms of the lease.”

In response, the defendant-lessors argued that the operative section of the Oil and Gas Lease Act violates the Pennsylvania Constitution as well as the Fifth and Fourteenth Amendments and Contract Clause of the U.S. Constitution.

Court of Common Pleas Judge Christine A. Ward rejected the defendant-lessors constitutional arguments, “concluding that section 34.1 of the Oil and Gas Act does not violated the Constitution of the Commonwealth of Pennsylvania nor the United States Constitution[.]”  Judge Ward therefore ruled that EQT has the right to develop the leases jointly by horizontal drilling unless expressly prohibited by a lease.  As stated in her opinion:

“So long as the lessors’ rights granted by lease and law are not impinged upon, the lessee has broad powers to develop the oil and gas estate as it sees fit, including crossing property lines between contiguous leases while engaging in horizontal drilling.”

One would expect that an appeal will be forthcoming.  Legislators from both sides of the aisle have already introduced bills to repeal Senate Bill 259 in the state House, although none have moved beyond the House Environmental Resources and Energy Committee.

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