Skip to main content

View more from News & Articles or Primerus Weekly

Amendment To Pennsylvania’s Fiscal Code Will Allow Oil And Gas Companies To Revive Old Leases Thought To Have Expired

By Paul R. Yagelski, Esq.
Rothman Gordon
Pittsburgh, Pennsylvania

There has been no production under your oil and gas lease for quite some time.  As a result, you believe that your oil and gas lease has terminated.  Yet, you have not claimed that the lease has terminated.  You have not notified the oil and gas company of the lease’s termination.  Has the period of non-production terminated your oil and gas lease?  Not necessarily.  Not if the provisions of Section 1610-E, an amendment to Pennsylvania’s Fiscal Code, are applicable.

On October 30, 2017, Pennsylvania’s Governor, Tom Wolfe, signed House Bill 674 into law.  This Bill is an amendment to Pennsylvania’s Fiscal Code.  The Bill includes a section, Section 1610-E, entitled, “Temporary Cessation of Oil and Gas Wells.”  This section allows oil and gas companies to revive oil and gas leases that were thought to have expired or been terminated.  Specifically, Section 1610-E states as follows:

(A)      GENERAL RULE.   An oil and gas lessor shall be deemed to acknowledge that a period of nonproduction under an oil and gas lease is a temporary cessation insufficient to terminate the lease and the lessor waives his right to seek lease termination upon those grounds if, prior to claiming the lease has terminated:

  1. Production is recommenced and the lessor accepts royalty payments for the production.  Any first royalty payment following recommencement of production after a period of more than one year of inactivity shall be accompanied by an explanation, in plain terms, that acceptance of the royalty payment shall constitute acknowledgment of an existing lease with the operator; or
  2. The operator, after notifying the lessor of its intent to drill a new well and giving the lessor 90 days within which to object, drills a new well under the lease.

B.       LEASE PROVISIONS.  Nothing in this section is intended to waive lease requirements related to commencement of operations during a lease’s primary term or affect a lease provision expressly providing for lease termination following a fixed period of nonproduction.

Accordingly, under this section, if you have not notified the oil and gas company that your lease has terminated and production is recommenced after a period of more than one year of inactivity, and you accept a royalty payment, which is accompanied by an explanation that acceptance constitutes an acknowledgment of an existing lease with the operator, your lease will not have terminated.  It will be in effect.

In the alternative, if your oil and gas company notifies you of its intent to drill a new well and gives you 90 days within which to object, and you do not do so and the oil and gas company drills a new well, your lease will not have terminated.  It will be in effect.

In either scenario, an oil and gas lease, possibly if not probably an old oil and gas lease, which you thought to have expired or been terminated, will be in effect.  For any of a number of reasons, you may not want to see your oil and gas lease in effect; however, if either provision of Section 1610-E is complied with, the lease which you once thought to be dead will now, like Lazarus, be resurrected.

In view of Section 1610-E, if you believe that your lease has expired or been terminated, the oil and gas company should be provided with notice claiming that your oil and gas lease has terminated.  If this is not done and the oil and gas company complies with Section 1610-E(a)(1) and you accept a royalty payment  or if the oil and gas company complies with Section 1610-E(a)(2) and you do not object to the drilling of the new well within the requisite 90 day period, your oil and gas lease will not have expired or been terminated.  It will be in effect.

If you do not provide or have not provided the oil and gas company with notice that you believe that your lease has expired or terminated, you need to pay attention to any payment that you receive from the oil and gas company, particularly where the payment is accompanied by an explanation that acceptance of the royalty payment constitutes an acknowledgment of an existing lease with the oil and gas company.  If you receive such a payment along with the aforesaid explanation and you maintain that the lease has expired or been terminated, the check should not be cashed or retained.  The check should be immediately returned to the oil and gas company along with a statement that the lease has terminated.  Preferably, you should contact an oil and gas lawyer to assist you.

If, on the other hand, a royalty check has not been received, but rather notice from the oil and gas company of intent to drill a new well is received along with notice that you have 90 days to object to the drilling of a new well, objection to the drilling of the well needs to be made within those 90 days.  Preferably, you should contact an oil and gas lawyer to assist you.

If you have a situation where you believe that your oil and gas lease has expired or been terminated, particularly if there are circumstances involving non-production, you should consult with an oil and gas lawyer concerning notification to the oil and gas company that your oil and gas lease has expired or been terminated.  In particular, if you believe that your oil and gas lease has expired or been terminated, and a period of non-production is involved, you may be faced with a situation where either Section 1610-E(a)(1) or Section 1610-E(a)(2) may apply, and a lease, which you thought to be dead, and would rather be dead, is now alive.