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Making Heads or Tails of Oil and Gas Instruments

You know you may be in trouble when a court opinion opens with the linguistic equivalent of red lights and warning signs:

As we undertake our analysis, we remind ourselves the judicial construction of instruments involving oil and gas is particularly troublesome. Pennsylvania case law evidences a long and tortured trail of attempts to make sense of phrases, parts of phrases and words of art sometimes used in a common sense manner and sometimes used with a precise technical meaning, and all used in documents sometimes drafted with care and sometimes quickly scribbled by the litigants themselves.

Szymanowski, et al. v. Bruce and BCD Properties, Inc., 209 Pa. Super. 218 (Nov. 13, 2009).

Luckily, for the owner of the gas lease involved in the Szymanowski matter, the judicial construction stars were aligned in his favor. In Szymanowski, the lease owner entered into a gas well agreement/partnership agreement with two investors. Although the agreement referenced only two gas wells, the investors later claimed that the agreement also encompassed gas wells developed later on the same leasehold on which one of the partnership’s own wells was located. Id.

Because the agreement explicitly referenced the purchase of an interest in two specific wells and no others, the Court held that the investors did not have a claim for breach of contract or breach of fiduciary duty against the lease owner and the court affirmed the entry of summary judgment in the lease owner’s favor.

The Szymanowski opinion is a warning to anyone operating under any oil or gas instruments: do not assume the agreement includes or excludes anything that is not explicitly referenced.

For more information or if you need any assistance in deciphering an oil or gas instrument, please contact Jerri Ryan at 412 394 7765 or jryan@thorpreed.com.

This Thorp Reed & Armstrong, LLP Communiqué is prepared in summary form and should not be construed as legal advice or opinion on any specific fact or circumstance. We do not assume any responsibility to revise this communiqué if there are subsequent changes in the law.