The Pittsburgh-Southpointe office assisted SWEPI LP in gaining the Third Circuit's affirmation of a grant of a motion to dismiss in connection with a claim that an oil and gas lease had expired.

The lessor claimed that the vertical wells drilled to the Marcellus Shale formation and then shut-in—but not fraced or producing or, allegedly, not capable of producing without further work—did not qualify for shut-in payments under the lease to perpetuate the lease beyond the primary term.

SWEPI, the lessee, argued that based on the shut-in language of the lease—allowing shut-in payments if all wells were "shut-in, suspended or otherwise not producing for any reason whatsoever"—the shut-in payments applied to the wells as they were "not producing" wells and, therefore, the lease was extended beyond the primary term.

The Magistrate Judge issued a Report & Recommendation adopting SWEPI's interpretation of the lease and the District Court adopted the Report & Recommendation in its entirety. The plaintiff lessor appealed to the Third Circuit.

The Third Circuit entered its opinion today wherein it affirmed the decision below.

In reciting the facts and the decision from the court below, the Court said it was "in complete agreement with the Magistrate Judge's careful and thorough analysis, and his well-reasoned conclusion that the complaint itself pleads facts that show that the Shut-In Royalty provision applies." Opinion, p. 4.

The Court went further and turned aside the appellant's argument that the wells needed to be capable of producing in paying quantities without further work in order to trigger a shut-in royalty. "Despite Messner's claims to the contrary, there is absolutely nothing in the language of the Shut-In Royalty provision that requires that wells in question must produce paying quantities of gas."  Id. In the end, the Court "affirm[ed] without further elaboration."  Id., p. 5.

The team included partner Jeremy Mercer and associate Michael Gaetani.