• Pennsylvania Supreme Court Clarifies Standard for Producing "In Paying Quantities" Under Oil and Gas Lease
  • April 3, 2012 | Author: Kevin K. Douglass
  • Law Firm: Babst Calland - Pittsburgh Office
  • In a long-awaited decision issued Monday, March 26, 2012, the Pennsylvania Supreme Court held that a court must consider an operator's good-faith judgment in continuing to operate a well in determining whether a well is producing "in paying quantities" under the terms of an oil and gas lease. T.W. Phillips Gas & Oil Co. v. Jedlicka, 19 WAP 2009, &under;&under;&under; A.3d &under;&under;&under; (Pa. 2012). The Supreme Court indicated that the subjective good-faith standard must be used where the well's revenues did not exceed its operating expenses. The Supreme Court rejected the argument that the question of whether the well was profitable was a threshold issue that, if answered negatively, would make irrelevant the lessee's subjective good faith. The Supreme Court had agreed to hear the case in 2009 to clarify whether a lower court correctly applied the Supreme Court's more than 100-year-old holding in Young v. Forest Oil Co., 45 A. 1 (Pa. 1899).