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Butters v. SWN Production Co., LLC

United States District Court, M.D. Pennsylvania

June 8, 2018

GARY R. BUTTERS, as Co-Trustee of THE BUTTERS CLINTON COUNTY GAS PROTECTOR TRUST, DAVID F. BUTTERS, individually, TERRY L. BUTTERS, individually, and GLEN E. BUTTERS, individually, Plaintiffs
v.
SWN PRODUCTION COMPANY, LLC, Defendant

          MEMORANDUM

          Christopher C. Conner, Chief Judge.

         Plaintiffs commenced this action against defendant SWN Production Company, LLC ("SWN") to quiet title under Pennsylvania Rule of Civil Procedure 1061(b)(3) and for declaratory judgment under 28 U.S.C. § 2201 and Federal Rule of Civil Procedure 57. (Doc. 7). SWN moves to dismiss plaintiffs' amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). (Doc. 15).

         I. Factual Background & Procedural History

         A. Subject Properties and Lease Execution

         Plaintiffs own several tracts of real property totaling approximately 445.61 acres in Morris Township, Tioga County, Pennsylvania that are subject to oil and gas leases. (Doc. 7 ¶¶ 11, 15). In 1997, Raymond G. Butters and Peggy A. Butters conveyed their interest in subterranean oil and gas associated with two parcels of land containing approximately 100.42 and 142.42 acres ("242 Acre Tract"), to the Butters Living Trust. (Id. ¶¶ 12-13). Two years later, Roger W. Mitschele, Jr. and Keith E. Mitschele conveyed title and interest in two parcels of land comprising approximately 214.15 acres ("214 Acre Tract, " and together with the 242 Acre Tract, the "subject properties") to plaintiffs David F. Butters and Terry L. Butters. (Id. ¶14).

         The Butters Living Trust leased the 242 Acre Tract to Jim Bourbeau Land Service, LLC ("Bourbeau") on December 8, 2005. (Id. ¶ 16; Doc. 7-7). David F. Butters and Terry L. Butters leased the 214 Acre Tract to Bourbeau on the same day. (Doc. 7 ¶ 17; Doc. 7-8). Each lease established a primary term of five years for the leases. (Doc. 7 ¶ 18; Doc. 7-7 at 3; Doc. 7-8 at 3). As lessee, Bourbeau could extend the primary term by an additional five years from the original expiration date at a cost of $45 per net-acre. (Doc. 7 ¶ 19; Doc. 7-7 at 7 C.12th; Doc. 7-8 at 7 C.12th).

         B. Relevant Lease Provisions

         The leases each contain a habendum clause setting forth five alternative conditions by which the lessee could extend the leases beyond the primary term. (Doc. 7 ¶ 20; Doc. 7-7 at 5 C.11th; Doc. 7-8 at 5 C.11th). The habendum clause provides that the leases will "remain in full force and effect" beyond the primary term and

as long thereafter as (1) drilling operations continue with due diligence, provided that LESSEE has commenced drilling operations on any portion of the premises or any lands pooled or unitized therewith, within the primary term, (2) an application for a drilling permit is pending with the appropriate authorities, and LESSEE, after grant of such permit, commences drilling operations within a reasonable time thereafter and continues same with due diligence, provided said permit application was filed prior to the expiration of the primary term, (3) oil and gas or either of them is produced or withdrawn from any portion of the premises or any lands pooled or unitized therewith, (4) gas storage operations are conducted in or on any portion of the premises or (5) a completed oil or gas well would be capable of producing oil or gas from any portion of the premises or any lands pooled or unitized therewith, but for acts of God, unavailability or interruption of markets or pipelines, delays due to pending governmental or regulatory authorization, or any other causes, which have caused LESSEE not to commence production from such well or to suspend production from such well.

(Doc. 7 ¶ 20; Doc. 7-7 at 3; Doc. 7-8 at 3). The leases provide the definition of "operations" in paragraph C.11th:

Operations. Whenever used in this lease, the word "operations" (unless specified to the contrary) shall mean operations for and any of the following: dirt work, building of roads and locations, drilling, testing, completing, reworking, recompleting, deepening, plugging back, repairing, abandoning or dewatering (meaning pumping or flowing of water and/or associated hydrocarbons from a well) of a well in search of or in an endeavor to obtain, increase or restore and/or market or render marketable or more valuable production of oil or gas, and/or production, actual or constructive, of oil or gas.

(Doc. 7-7 at 5 C.11th; Doc. 7-8 at 5 C.11th).

         The leases also set forth a notice requirement which reads:

All expressed or implied covenants of this Lease shall be subject to all federal, state and local laws, orders, rules and regulations. If LESSEE is unable to fulfill any covenant hereunder because of such laws, orders, rules or regulations, acts of God (such as natural disasters), wars, civil disturbances, insurrections, riots, epidemics, equipment or pipeline breakdown or freeze-up, or similar causes not reasonably within the control of LESSEE, for such time as such situation exists, the term of this Lease shall be extended for an equal period of time, and LESSEE'S obligation to fulfill its covenants under this Lease shall be suspended for such period of time. This Lease shall not be terminated, in whole or in part, nor Lessee held liable for any failure to perform unless such obligation, covenant or condition remains unsatisfied and unperformed for a period of one year following the express and specific written demand upon Lessee by Lessor for such satisfaction and performance. Neither the service of said notice nor the doing of any acts by Lessee intended to satisfy any of the alleged obligations shall be deemed an admission or presumption that Lessee has failed to perform all its obligations hereunder. No judicial action may be commenced by Lessor for forfeiture of this lease or for damages until after said period. Lessee shall be given a reasonable opportunity after judicial ascertainment to prevent forfeiture by discharging its expressed or implied obligation as established by the court.

(Doc. 7-7 at 5 C.7th; Doc. 7-8 at 5 C.7th).

         C. Lease Assignments and Transfers

         Bourbeau assigned its interest in the leases to Anadarko E&P Company, LP ("Anadarko") in February 2007. (Doc. 7 ¶ 29). Anadarko assigned a 50% interest in the leases to Chesapeake Appalachia, LLC ("Chesapeake") effective September 1, 2006. (Doc. 7 ¶ 30; Doc. 7-13). Chesapeake thereafter transferred a 32.5% interest in the leases to Statoil Hydro USA Onshore Properties, Inc. ("Statoil") effective November 17, 2008. (Doc. 7 ¶ 31; Doc. 7-14).

         The Butters Living Trust transferred its interest in the 242 Acre Tract to various members of the Butters family in 2011. (Doc. 7 ¶ 22). Plaintiffs David F. Butters and Terry L. Butters each received an undivided 35% interest in the 242 Acre Tract. (Id. ¶¶ 23-24). The Butters Living Trust conveyed an undivided 15% interest in the 242 Acre Tract to plaintiff Glen E. Butters. (Id.) Plaintiff Butters Clinton County Gas Protector Trust (the "Trust"), executed on November 16, 2010, received an undivided 15% interest in the 242 Acre Tract. (Id. ¶¶ 23-25).

         Chesapeake and Statoil assigned their combined 50% interest in the leases to SWN effective January 1, 2013.[1] (Id. ¶ 33; Doc. 7-16). Anadarko also assigned 32.5% of its interest in the leases to Mitsui E&P USA, LLC ("Mitsui") effective July 20, 2012. (Doc. 7 ¶ 34; Doc. 7-17). Anadarko assigned the remainder of its interest in the leases to SWN effective September 1, 2014. (Doc. 7 ¶ 36; Doc. 7-19). At the conclusion of the leases' primary terms on December 8, 2015, SWN and Mitsui held "the totality of the working interest in the [l]eases." (Doc. 7 ¶ 38; see also Doc. 30 at 7).

         D. Drilling Activity

         1. The ...


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