On January 24, 2023, the U.S. District Court for the Middle District of Pennsylvania held that Act 85 of 2019, which permits drilling horizontal oil and gas wells across existing drilling units, is not unconstitutional.
Lessor Warner Valley Farm LLC sued Lessees SWN Production Co. LLC and Repsol Oil & Gas USA LLC, alleging that they breached the terms of a 2006 lease by drilling a well that crossed the boundary of the lessor’s unit. Warner Valley also sought a declaration that Act 85 was void under the Contracts Clauses of the U.S. and Pennsylvania constitutions.
The District Court granted summary judgment to both lessees, ruling that Act 85 was valid and that the 2006 lease permitted cross-unit drilling. The District Court found that Act 85 did not impair the 2006 lease because the Act does not affect leases that expressly forbid cross-unit drilling. Thus, while Act 85 effectively lifts the 330-foot regulatory barrier to cross-unit drilling, it leaves the parties free to contractually prohibit cross-unit drilling. In addition, Act 85’s requirement that the lessees reasonably allocate production between existing units did not impair an existing provision of the lease.
The District Court further held that even if Act 85 substantially impaired the 2006 lease, it was justified by its goals of reducing the economic costs and environmental impacts of oil and gas drilling. Finally, the District Court held that the 2006 lease did not forbid cross-unit drilling, citing the broad terms of the lease’s pooling and unitization clause.
If you have any questions regarding how this decision could impact you, please contact one of the authors of this alert.