United States: Pennsylvania Superior Court: Separate Consideration For Operated And Unoperated Acres Does Not Render An Oil And Gas Lease Severable

Last Updated: September 14 2015
Article by Paul K. Stockman, Alexander Martin Madrid and Anthony J. Carna

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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.