After more than six years of litigation, Greg Krock, Shareholder in the firm’s Litigation section, and Bridget Daley, Associate, obtained a complete defense verdict for several oil and gas clients, including Repsol Oil & Gas USA, LLC and ABARTA Oil & Gas.
The clients entered into a Joint Exploration Agreement in order to drill oil and gas wells in Bradford County, Pennsylvania, including beneath a parcel adjacent to a State Game Lands tract, for which they obtained a lease.
In the lawsuit, the plaintiff alleged that the lease expired because the group failed to conduct any drilling operations on the property that would have extended the term of the lease. The plaintiff also alleged that the group formed the unit in bad faith for the sole purpose of extending the lease rather than for the legitimate purpose of developing the acreage because, at the time of its formation, they did not have access to the State Game Lands tract that was necessary to drill a well underneath the plaintiff's property.
The plaintiff acknowledged that the group combined some of his acres into a 640-acre drilling unit and drilled a well in that unit prior to the lease’s expiration, in accordance with their rights under the lease – activities that would extend the term of the lease, provided the unit was formed in good faith. Although they subsequently obtained the right to drill underneath the State Game Lands tract, they did not do so until after they inadvertently drilled underneath that tract. The plaintiff argued that this trespass established bad faith and sought to recover almost $8 million in damages.
During arbitration, Greg and Bridget convinced the panel that the issue of the group's good faith in forming the unit turned upon their intent to drill a well in that unit that would drain the plaintiff's acreage, rather than whether the lessees possessed all of the legal rights that they would ultimately need in order to drill such a well. Because the lessees intended to drill such a well – and did, in fact, drill the well, which is currently extracting natural gas from the plaintiff's property – the panel agreed that our clients formed the unit in good faith.