Eastern Section Meeting

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Unconventional Shale Oil & Gas Development: Pennsylvania's approach to Unitization, Pooling and Lease Development Obligations

Abstract

The transition in the Pennsylvania oil & gas industry from shallow conventional well development activities to unconventional shale exploration and development activities has had profound effects on the regulatory regime of the industry in Pennsylvania and the relationship among oil & gas operators and owners of surface and subsurface rights. This presentation will focus on two discrete topics impacting oil & gas operators, as lessees, and owners of the oil & gas rights, as lessors, under Oil & Gas Leases in Pennsylvania: • Implied covenants with particular emphasis on recent case law in Pennsylvania analyzing whether or not an operator has an implied duty under an Oil & Gas Lease to develop each economic strata (e.g., the Marcellus Shale) of the oil and gas estate, and • Permitted unitization of certain contiguous oil and gas leasehold estates for purposes of horizontal well development activities by an operator under the Oil and Gas Lease Act, passed into law by the Pennsylvania General Assembly in 2013. The presentation will introduce and discuss, generally, the following oil & gas legal concepts: • Implied covenants and the impact, if any, of implied covenants on an operator's duties to develop the various economic strata (e.g., Marcellus Shale, Utica Shale, Upper Devonian Shale) under Oil & Gas Leases, • Habendum clauses in Oil & Gas Leases, including the “producing in paying quantities” language frequently used for the purpose of evaluating continuing lease validity during a lease's secondary term, • Pennsylvania's Oil & Gas Conservation Law and perceived differences in the applicability of the statute for purposes of statutory pooling relating to (i) Marcellus Shale exploration and development activities, and (ii) Utica Shale exploration and development activities, and • Unitization, including Pennsylvania's Oil and Gas Lease Act and the impacts of the statute on shale exploration and development activities in Pennsylvania. Note: These topics should integrate effectively with the materials that Dan Silber (Attorney, The Elexco Group) will discuss regarding lease clause considerations associated with developing multiple geological formations under an Oil & Gas Lease.