Appeal from the Judgment Entered November 25, 1987 in the Court of Common Pleas of Westmoreland County, Civil No. 5220 of 1981
George A. Conti, Jr., Greensburg, for appellants.
Anthony W. DeBernardo, Jr., Greensburg, for appellee.
Cirillo, President Judge, and Tamilia and Hester, JJ.
[ 380 Pa. Super. Page 54]
This is an appeal from a judgment entered by the Court of Common Pleas of Westmoreland County in favor of appellee Fairman Drilling Company and against the appellants, Glenn C. and Nora G. Kepple, and from an order requiring an audit and accounting of royalties owed by Fairman Drilling Company to the Kepples and others.
The appellants, the Kepples, leased gas and oil rights which they believed to be attached to twenty five acres owned by them to Fairman Drilling Company in August of 1978. They had acquired the property from Cecelia and Florence Burkley in 1971, subject to "conveyances of mineral rights as set forth in prior instruments of record or apparent on the ground." The Kepples were unaware of the fact*fn1 that the mineral rights to the Burkley land, including the parcel which they had purchased, were subject to a previous lease held by Peoples Natural Gas Company [Peoples Natural Gas] entered into by the Burkleys in May of 1957. The lease was to run for ten years, but included a provision which stated that it would continue in effect after that ten year period for as long as that land, or any portion of it, or any other land with which it had been pooled or unitized, was being explored for gas or oil by Peoples Natural Gas, was being used to hold gas or oil in storage, or was being used to produce gas or oil by that company. In 1964, the Burkley property was unitized with another tract of land owned by Rose E. White where a deep gas well had been drilled [the White well]. A shallow gas well [the
[ 380 Pa. Super. Page 55]
Burkley well] was later drilled in 1978 on the remaining Burkley property after a series of conveyances which included the conveyance to the Kepples.
Fairman entered onto the Kepple property, and began operations. At this point, Peoples Natural Gas informed Fairman that it, in fact, held the interest in the oil and gas rights to the Kepple property. The two companies then negotiated a "farm out" agreement, which permitted Fairman to drill two shallow gas wells on the Kepple property, and provided that Peoples Natural Gas would buy the gas produced by those wells.
Peoples Natural Gas then wrote to the Kepples and informed them that it was in possession of a title report which indicated that the Kepples possessed a twenty-five percent interest in the lease of the mineral rights from the Burkleys to Peoples Natural Gas. It stated that it would pay the Kepples proportionate royalties from the Burkley well and from the White well. The company indicated that the proportion of the royalty owing to the Kepples from shallow wells amounted to 41.7585% (this included the Burkley well), while the proportion of the royalty from deep wells (in this case, the White well was the only deep well) was 6.8776%. Peoples Natural Gas also informed Fairman that the Kepples were to receive 41.7585% of the royalty from any shallow wells. Fairman has consistently paid into an escrow account 41.7585% of the total royalties from the two shallow wells it has drilled. The total royalty from those two wells purportedly equals one-eighth of the value of the gas extracted from those wells.
Two lawsuits were filed, one in equity by Robert Bricmont, seeking an accounting and a determination of the royalties owed to the Burkley assignees,*fn2 and one in assumpsit by the Kepples, claiming that they were owed the full one-eighth royalty for all gas removed from their
[ 380 Pa. Super. Page 56]
property. These suits were consolidated and heard before the Honorable Charles H. Loughran, sitting without a jury. The judge made extensive findings of fact, and held that Fairman owed a proportionate amount of the royalty from the wells on the Kepple property to various persons, including the Burkley assignees, and that the Kepples were not entitled to the full one-eighth royalty from ...