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Jesmar Energy, Inc. v. Range Resources-Appalachia, LLC

United States District Court, W.D. Pennsylvania

March 26, 2018

JESMAR ENERGY, INC., Plaintiff,
v.
RANGE RESOURCES - APPALACHIA, LLC., Defendant.

          OPINION

          LISA PUPO LENIHAN JUDGE

         Pending before the Court is the Motion to Dismiss the Complaint or Stay Pending Arbitration filed by Defendant Range Resources - Appalachia, LLC (“Range”). (ECF No. 4). In the motion, Range seeks an order pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12 (b)(6) dismissing the Complaint filed against it by Plaintiff Jesmar Energy, Inc. (“Jesmar”), or, alternatively, compelling Jesmar to file its claims in arbitration. For the reasons set forth below, the Court will deny Range's motion.

         I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

         As previously summarized, [1] this action concerns a dispute over royalty amounts Jesmar contends Range owes Jesmar pursuant to an assignment of an oil and gas lease.

         On April 11, 2007, Jesmar signed an oil and gas lease ("Lease") with James E. Main ("Mr. Main") wherein Mr. Main agreed to lease to Jesmar the right to drill for, produce, and develop approximately 153 net mineral acres of oil and gas in Buffalo Township, Washington County, Pennsylvania (the "Property''). (Compl., ¶ 3, ECF No. 1-2.) The term of the Lease was for ten years beginning on April 11, 2007, and for as long thereafter that date as gas may be produced from the Property. (ECF No. 1-2, ¶ 4.) The lease also provided for the payment of a one-eighth (1/8) royalty realized by the lessee of the Lease from the proceeds of the gas from the Property to be paid to Mr. Main. (ECF No. 1-2, ¶ 6.) The Lease contained an arbitration provision stating:

ARBITRATION. In the event of a disagreement between Lessor and Lessee concerning this lease, performance thereunder, or damage caused by Lessee's operations, settlement shall be determined by a panel of three disinterested arbitrators. Lessor and Lessee shall appoint and pay the fee of one each, and the two so appointed shall appoint the third, whose fee shall be borne equally by Lessor and Lessee. The award shall be by unanimous decision of the arbitrators and shall be final.

(ECF No. 1-2, Ex. A.)

         Thereafter, on or about August 30, 2011, Rice Drilling B, LLC ("Rice Energy”)

         and Jesmar entered into a letter of intent for Rice Energy to purchase the Lease from Jesmar, with Jesmar reserving an overriding royalty interest ("ORRI") equal to the difference between 17.5% and the leasehold burden of record. (Id., ¶ 7.) On December 21, 2011, Jesmar and Rice Energy executed an Assignment of Oil and Gas Lease (the "Assignment"). (Id., ¶ 8.) The Assignment assigned all of Jesmar's right, title, and interest under the Lease to Rice Energy subject to Jesmar retaining an ORRI to the Lease:

OVERRIDE: [Jesmar] hereby reserves an overriding royalty interest in the Subject Lease equal to the difference between the respective lease burdens of record and 17.5% in and to all of the oil, gas and the respective constituents thereof, produced, saved, and marketed from the lands described therein, but in no event shall [Jesmar] deliver to [Rice Energy] less than an 82.5% net revenue interest in the [Lease]. In the event that the Subject Lease covers less than a full interest in the oil and gas in the lands described therein or [Jesmar] owns less than a full interest in the Subject Lease the overriding royalty interest herein reserved shall be proportionally reduced.

(Id., ¶ 10.) The lease burden of record (the Lease) referred to in the Assignment is a net lease allowing the lessee under the Lease to take deductions from the lessor's 1/8th royalty interest resulting in the royalty interest from the lease burden of record under the Lease being actually less than the 1/8th royalty interest defined in the Lease. (Id. at ¶ 12.) The Assignment does not provide for any post-production costs, deductions and/or adjustments (including but not limited to deductions for the cost of producing, gathering separating, treating, dehydrating, compression, transporting, and otherwise making the oil, gas and other products ready for sale or use) to be deduced from the ORRI. (Id. at ¶ 13.)

         The Assignment concludes with the following language:

TO HAVE AND TO HOLD the same unto the ASSIGNEE, its successors and assigns, according to the terms, covenants, and conditions of the Subject Lease, the ASSIGNEE to perform all such terms, covenants, and conditions thereof as to the Subject Lands, as well as all of the terms, covenants, and conditions hereof.
The reservations, terms, conditions, and conditions hereof shall be binding upon and shall inure to the benefit of ASSIGNORS and ASSIGNEE, their respective successors and assigns, and shall attach to and run with the Subject Lease and the ...

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