Many in gas and oil industry relieved high court did not overturn estoppel by deed, attorney says

By Karen Kidd | Apr 26, 2016

PHILADELPHIA – Pennsylvania's oil and gas industry recently breathed a sigh of relief after the state Supreme Court unanimously reaffirmed the long-standing "estoppel by deed," or rule of after-acquired title, a Pittsburgh industry attorney who wasn't surprised by the ruling says.

But not everyone in the industry was worried, McGuire Woods attorney Paul K. Stockman said.

"There was some concern (not on my part, to be clear, but more broadly in the industry) that one or more of the new justices might depart from this and exhibit a less rigorous approach," Stockman said.

"This decision – in a situation where some (not me) might have believed that the landowner got a 'raw deal' – shows that the court is sticking to its past practices, is giving lease language its plain meaning, and is not inclined to rewrite settled law."

The court's makeup was shaken in November's election, when three Democratic candidates were elected. It gave that party a 4-3 majority on the court.

The 6-0 decision handed down by the Pennsylvania Supreme Court on March 29 in Shedden v. Anadarko affirmed a lower court’s application of the state's equitable "estoppel by deed" doctrine.

Under that Pennsylvania doctrine, an oil and gas lessee is entitled to the lessor's subsequently acquired oil and gas interests.

Order in the case was affirmed with Chief Justice Thomas G. Saylor and justices Max Baer, Kevin M. Dougherty and David N. Wecht joining in the unanimous opinion. Justice Christine Donohue did not participate in the decision.

The case involves Leo and Sandra Shedden, owners of 62 acres in Ward Township in Tioga County. They also thought they owned all of the property's underlying oil and gas but discovered the Sheddens' predecessors in title to the property, Ezra and Emma Baxter, reserved half of those resources, as described in a Feb. 21, 1894, deed.

Oil and gas company Anadarko approached the Sheddens in 2006 to lease the oil and gas underlying their property. Anadarko agreed to pay the Sheddens a bonus of $80 per acre, being an upfront payment of $4,960.

The deal encountered difficulties when preliminary title research turned up the Baxters' old reservation, leaving the Sheddens vested only half-interest of their property's oil and gas. Anadarko paid the agreed per-acre bonus on only half of the Sheddens' property, equal to a payment of $2,480, and funded the lease on that basis.

The lease, however, was not written to cover the Sheddens' interested in the entire 62 acres.

In 2008, the parties reached an agreement that covered all 62 acres.

In 2011, Anadarko renewed its option with an extension payment of $70 per acre covering all 62 acres, or $4,340. The Sheddens refused and never cashed the check. Instead, they filed suit asking the court to clarify the rights of the parties under the lease, seeking a declaratory judgment that the lease cover only 31 net oil and gas acres, leaving the remaining acres unleased.

For its part, Anadarko claimed the Sheddens were estopped by their contractual obligations and Pennsylvania's doctrine of estoppel by deed.

The trial court ruled that the Sheddens intended to enter into a binding lease exclusively with Anadarko for all 62 acres. That ruling later was affirmed by the Superior Court in an order filed March 14, 2014.

When the state Supreme Court agreed later that year to hear the case, there were concerns within the industry that the high court might be considering a change in state law.

"The Supreme Court typically only takes cases that present new and unclear legal questions, questions on which the lower courts have disagreed, or matters of unquestionable public importance," Stockman said.

"This seemed to be a narrow matter, involving somewhat unique factual circumstances and a legal issue on which courts were in agreement. In short, this case appeared to have little impact beyond the immediate parties, and the Supreme Court generally doesn’t like to take cases like that."

Concern within the industry was so palpable that one legal news outlet referred to Shedden v. Anadarko in a headline as "The Case That Could Disrupt a Century of Settled Law".

The high court's decision late last month, affirming estoppel by deed, calmed those concerns, Stockman said.

"This decision was a good sign as to the approach the newly reconstituted court would take in addressing oil and gas lease disputes," he said.

"The Court has, to date, been consistent in applying settled precedents and in enforcing and oil and gas leases according to their terms. From an industry standpoint, that’s very important – companies can’t make decisions unless they can accurately predict how leases will be construed and applied."

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