On May 24, 2013, the United States District Court for the Middle District of Pennsylvania issued a Memorandum Opinion in which it addressed what activities constitute “commencing a well.”
On June 6, 2006, Range Resources – Appalachia, LLC (through its predecessor entity, Great Lakes Energy Partners, LLC) and Good Will Hunting Club, Inc. entered into an oil and gas lease with a five-year primary term. Range could extend that primary term provided it “commence a well on the Leased Premises….within five (5) years from [June 6, 2006] and….drill said well with due diligence.”
Four years later in June 2010, Range staked a drill site; applied for and obtained necessary environmental, drilling and zoning permits; removed timber; and obtained and constructed road access to the well. Yet as of June 6, 2011, Range had not drilled a well. Actual drilling commenced on August 5, 2011.
The Court in Good Will Hunting Club determined that Range’s actions in staking the drill site, obtaining several permits and easements, clearing timber, constructing roads to the well site, and beginning construction of the well pad constituted “commencing a well.”
In reaching its decision, the court in Good Will Hunting Club cited favorably two Pennsylvania cases that addressed the same issue: Pemco Gas, Inc. v. Bernardi, 5 Pa. D. & C.3d 85 (Armstrong Co. 1977) and Henderson v. Ferrell, 38 A. 1018 (Pa. 1898). In both the cases, the court found that conduct like that performed by Range coupled with a bona fide intention to complete a well, constituted “commencing a well.”
In adopting Pemco Gas and Henderson to the facts in Good Will Hunting Club, the court fluidly defined the operator’s duties and obligations during a lease’s primary term. However, as always, it is important that lease terms are well-defined in the drafting phase so that the parties’ rights and obligations are clearly understood.