PITTSBURGH - A March Superior Court ruling that prevented a Pennsylvania family from breaking it lease with a gas company was not surprising, as it followed several similar decisions, a Pittsburgh attorney says.

In Loughman v. EQT, the Superior Court held that a lease that allows for production or storage rights is not broken when only serving one of those two functions. The Loughman family claimed that the lack of producing wells on the land terminated its lease with Equitable Gas Co., a subsidiary of EQT. 

At issue was a 250-square acre plot of land that was leased from Dorothy Loughman in August 1966. EGC agreed to pay $500 per year for 10 years or for the duration of production or storage.

“Every Pennsylvania court to consider a ‘dual purpose’ has held that the production rights and storage rights are not severable from each other,” said attorney Paul Stockman, of McGuire Woods.

“The Western District of Pennsylvania has reached this conclusion three times, the Third Circuit Court of Appeals has so concluded once and – as the Superior Court recognized – this is the second time that it had reached that result.”

One Ohio Court of Appeals and the Fourth Circuit also have reached the same conclusion - the prevailing wisdom of the Appalachian basin being that the non-severability is simply a plain-text interpretation of this type of lease.

The Fourth Circuit decision on severability, which came before the ruling by the Superior Court in the Loughman case, may have given the Superior Court a compelling argument, but it in no way directly affected the outcome of the case, Stockman said.

“A state court is never bound by a federal court decision – to the extent the Superior Court relied on the Fourth Circuit’s decision, it was simply because the Superior Court found the Fourth Circuit’s logic to be persuasive,” Stockman said.

With the Superior Court’s decision made, all that is left is for the trial court to find in favor of EQT. However all might not be lost for the Loughmans.

In some cases, shale gas producers will welcome renegotiation of a lease to include certain "modern" lease provisions, and regardless of the original lease, under Pennsylvania law the Loughmans are entitled to one-eighth royalties on production from any new wells, Stockman said.

“To me, this was not a surprising decision,” Stockman said.

“This decision confirms the prevailing trend – and that landowners who own properties located above gas storage fields cannot break those leases in order to seek a more financially favorable arrangement for production rights.”

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