Abandonment of an Oil and Gas Lease

By: Paul R. Yagelski, Esq.
Rothman Gordon
Pittsburgh, Pennsylvania

Can an Oil and Gas Lease Be Abandoned? Can an Oil and Gas Lease Be Terminated for Abandonment?

SLT Holdings, LLC ("SLT") and Jack McLaughlin and Zureya McLaughlin (collectively "McLaughlin"), owners of oil, gas and mineral rights ("OGM") for two different parcels of land situated in Warren County, Pennsylvania, leased the OGM with the leases being assigned to Mitch-Well Energy, Inc. ("Mitch-Well"). The leases for the two parcels were similar in that both leases contained provisions requiring Mitch-Well to drill a certain number of wells on the two parcels and to make specified minimum payments to the lessors each year if the royalties did not exceed the minimum payments.

Beginning around 1996 and ending around 2013, the wells operated by Mitch-Well did not produce OGM in marketable quantities. Accordingly, Mitch-Well made no royalty payments to SLT and McLaughlin on their respective leases during that time. Mitch-Well also did not make minimum payments required by both leases. For approximately 16 years, Mitch-Well violated the leases by failing to either pay royalties in excess of the minimum payments or to make the minimum payments. Although Mitch-Well did visit the wells in question during this period, it did so to ensure that the wells remained safe and in compliance with applicable law. Mitch-Well did not attempt to achieve marketable levels of OGM production between 1996 and 2013, as the prevailing OGM prices hindered production and it was not economical for Mitch-Well to produce at that time.