J. A29013/16


NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37


DANIEL L. HEATH,                          :     IN THE SUPERIOR COURT OF
                                          :          PENNSYLVANIA
                  Appellee                :
                                          :
           v.                             :
                                          :
GEORGE D. DELLICH AND MARY ANN            :
DELLICH,                                  :
                                          :
                  Appellants              :     No. 239 WDA 2016

                 Appeal from the Judgment February 8, 20161
               In the Court of Common Pleas of Venango County
                        Civil Division at No.: 848-2011

BEFORE: DUBOW, J., MOULTON, J., and MUSMANNO, J.

MEMORANDUM BY DUBOW, J.:                       FILED DECEMBER 13, 2016

     Appellants, George D. Dellich and Mary Ann Dellich, appeal from the

February 8, 2016 Judgment entered after a bench trial in this oil and gas

lease dispute. Upon review, we affirm.

     We adopt the facts as set forth by the trial court in its October 7, 2015

Findings of Fact pursuant to Pa.R.C.P. No. 1038. See Trial Court Opinion,

10/7/15, at 1-19.    We, therefore, reiterate only the facts relevant to the

instant appeal.   In 1982, Appellants, landowners of 59 acres in Venango

1
  Appellants purport to appeal from the January 28, 2016 Order denying
their Post-Trial Motions. Appellants filed a Praecipe for entry of Judgment on
February 8, 2016. See Pa.R.C.P. No. 227.4; Prime Medica Assocs. v.
Valley Forge Ins., 970 A.2d 1149, 1154 n.6 (Pa. Super. 2009) (holding
that Orders denying Post-Trial Motions are interlocutory and generally not
appealable; rather, the subsequent Judgment is appealable). We have
changed the caption accordingly.
J. A29013/16


County, Pennsylvania, and the Peoples Natural Gas Company entered into an

Oil and Gas Lease.

      The relevant portions of the lease provided as follows:

      2. TERM. It is agreed that this lease shall remain in force for the
      term of five (5) years from April 2, 1983 and as long thereafter
      as the above described land, or any portion thereof or any other
      land pooled or unitized therewith as provided in paragraph 3
      hereof is operated by the Lessee in the search for or production
      of oil or gas or as long as gas is being stored, held in storage, or
      withdrawn from the premises by the Lessee. Upon the drilling of
      a well upon the premises, or any portion thereof, or any other
      land pooled or unitized therewith, yielding no royalty, the Lessee
      may continue to hold the leased premises, upon the continued
      payment of the delay rental hereinafter provided for a further
      term of five (5) years after the expiration of the term above
      mentioned and as long thereafter as the land, or any portion
      thereof or any other land pooled or unitized therewith, is
      operated by the Lessee in the search for or production of oil or
      gas.

                                    *         *   *

      SHUT IN ROYALTY: If any well or wells, on the leasehold or
      acreage unitized therewith, are capable of producing gas and are
      shut-in and no gas is produced and there are no other
      production or drilling operations being conducted, or payments
      made under any other provision of this lease to maintain the
      lease in force, Lessee covenants and agrees to pay a royalty at
      the rate of [$29.50], quarterly in advance, beginning ninety (90)
      days from the date any well or wells are shut-in and each three
      months thereafter during the shut-in period.

Oil and Gas Lease, 12/2/1982, at 1.

      In 1987, the Peoples Natural Gas Company pooled Appellants’ land

with 17 other leases and 13 tracts of land, and drilled K. Greene #1 Well into

Medina sand to a depth of 6,700 feet (“Well #1”).




                                        -2-
J. A29013/16


      In   January   2000,   Appellee    acquired   the   Peoples   Natural   Gas

Company’s rights under the original lease by Assignment and continued to

operate the Well. In 2002, Well #1 ran into problems involving a salt bed

embedded near the Well, which dramatically decreased the amount of gas

produced. In 2005, due to similar salt bed issues, Well #1 collapsed.

      The Well stopped producing gas in April 2008.        Under a provision of

the original lease, if the Well yielded no royalty payments Appellee could

extend the lease for 5 years by paying a “delay rental,” also referred to as a

“shut-in royalty payment.” Beginning in February 2009, Appellee provided

these payments every three months in the amount of $29.50, accompanied

by letters to assuage Appellants’ concerns.     Appellants cashed the checks

until February 2011 when they began returning the checks. Appellee then

placed the checks in escrow from and after that date until July 2011.

      In March 2010, the Pennsylvania Department of Environmental

Protection (“DEP”) issued a Notice of Violation after an inspection indicated

the Well was abandoned.2       Appellee contacted DEP in August 2010 to

request additional time to bring the Well into compliance in order to conduct

evaluation and testing. DEP granted him 90 additional days. In November




2
 The trial court stated that the DEP characterized the well as abandoned “in
compliance with its regulations” pertaining to non-producing wells that are
not plugged. Trial Court Opinion, 10/7/15, at 26.




                                        -3-
J. A29013/16


2010, Appellee filed an Application for Inactive Well Status, which DEP

denied in December 2010.

      In February 2011, Appellee sought advice from Thomas Havranek

(“Havranek”) regarding his options to repair the collapsed Well #1, and the

two spoke about the project every 6-8 weeks. Havranek prepared a list of

five options to fix the Well. DEP again inspected Well #1 in March 2011 and

concluded that it was still abandoned. In May 2011, Appellee plugged Well

#1.

      In June 2011, Appellants sent a letter to Appellee terminating the

lease due to the lack of production and activity. On July 15, 2011, Appellee

initiated the instant action by filing a Complaint to quiet title and for

declaratory judgment. The trial court denied summary judgment.

      Also in July 2011, Appellee submitted an application to DEP for a

sidetrack procedure.3 Although DEP granted Appellee’s application, Appellee

abandoned the sidetrack in September 2011 after further consultations and

endangered species concerns.    Instead, in October 2011, Appellee applied

for a permit to drill an alternate Well (“Well #2”), which DEP granted in




3
  The sidetrack procedure involved plugging the existing vertical Well with
cement above the problematic area, and then drilling laterally into the side
of the existing Well from that point to a similar total depth “to correct the
deficiencies in the existing [W]ell[.]” Trial Court Opinion, 10/7/15, at 8;
Letter from Havranek to DEP, 7/8/11, at 1.




                                    -4-
J. A29013/16


November 2011. Appellee drilled Well #2 in March 2012, and Well #2 began

producing in November 2012.4

        Following a bench trial conducted on September 10-12, 2015, the trial

court rendered its written verdict in favor of Appellee on October 7, 2015,

granting the declaratory judgment and confirming title with respect to the

lease in Appellee.

        After the denial of their Post-Trial Motion, Appellants filed a timely

Notice of Appeal.     Appellants and the trial court complied with Pa.R.A.P.

1925.

        Appellants present four issues for our review:

        1. Did the trial court err as a matter of law when it concluded the
        burden of proof was initially on the Appellants in both the Quiet
        Title Action and the Declaratory Judgment Action?

        2. Did the trial court err as a matter of law or abuse its
        discretion by finding in favor of Appellee?

        3. Did the trial court err as a matter of law when it determined
        that Appellee was tendering a valid shut-in payment?

        4. Did the trial court err as a matter of law or abuse its
        discretion by utilizing an Exhibit that was not admitted into
        evidence?

Appellants’ Brief at 4.

        Our standard of review in a declaratory judgment action “is limited to

determining whether the trial court clearly abused its discretion or

4
 Appellee expended approximately $400,000 to get Well #2 into production,
as well as $300,000 for a compression facility completed in 2013 to create a
market for gas from the Well. Trial Court Opinion, 10/7/15, at 8, 10, 25.



                                       -5-
J. A29013/16


committed an error of law.” Peters v. Nat’l Interstate Ins. Co., 108 A.3d

38, 42 (Pa. Super. 2014). “We may not substitute our judgment for that of

the trial court if the court’s determination is supported by the evidence.” Id.

      In reviewing a trial court’s decision in a non-jury trial, we are mindful

of the following precepts:

      Our review in a non-jury case is limited to whether the findings
      of the trial court are supported by competent evidence and
      whether the trial court committed error in the application of law.
      We must grant the court’s findings of fact the same weight and
      effect as the verdict of a jury and, accordingly, may disturb the
      non-jury verdict only if the court’s findings are unsupported by
      competent evidence or the court committed legal error that
      affected the outcome of the trial. It is not the role of an
      appellate court to pass on the credibility of witnesses; hence we
      will not substitute our judgment for that of the factfinder. Thus,
      the test we apply is not whether we would have reached the
      same result on the evidence presented, but rather, after due
      consideration of the evidence which the trial court found
      credible, whether the trial court could have reasonably reached
      its conclusion.

Kennedy v. Consol Energy Inc., 116 A.3d 626, 640 (Pa. Super. 2015)

(citation and quotation marks omitted).

      “[A] lease is in the nature of a contract, and [it] is controlled by

principles of contract law.” T.W. Phillips Gas and Oil Co. v. Jedlicka, 42

A.3d 261, 267 (Pa. 2012) (citation omitted).     “[T]he object in interpreting

instruments relating to oil and gas interests, like any written instrument, is

to ascertain and effectuate the intention of the parties.” Szymanowski v.

Brace, 987 A.2d 717, 720 (Pa. Super. 2009) (citation and quotation

omitted).



                                     -6-
J. A29013/16


      A lease must be construed in accordance with the terms of the

agreement as manifestly expressed, and “the accepted and plain meaning of

the language used, rather than the silent intentions of the contracting

parties, determines the construction to be given the agreement.” Jedlicka,

supra at 267 (citations omitted).    “This Court must construe the contract

only as written and may not modify the plain meaning under the guise of

interpretation.” Szymanowski, supra at 722 (citation omitted). “[A] party

seeking to terminate a lease bears the burden of proof.” Jedlicka, supra at

267 (citation omitted).

      In Jedlicka, the Supreme Court of Pennsylvania held that “if a [W]ell

consistently pays a profit, however small, over operating expenses, it will be

deemed to have produced in paying [q]uantities.” Id. at 276. In that case,

the lessor argued that “because there was a $40 loss in 1959, the subject

[W]ells failed to produce in paying quantities, resulting in termination of the

lease.”   Id.   The Jedlicka Court rejected this argument and affirmed the

trial court’s finding that a one-year period in the context of a 80-year-old

lease was not an appropriate time period for evaluating profitability. Id.

      In their first issue, Appellants aver that the trial court improperly

placed the burden of proof on them as defendants in the underlying matter.

Appellants’ Brief at 14. Appellants acknowledge that they could not locate

any Pennsylvania oil and gas lease case, “where there was a challenge

regarding the burden of the moving party[.]”         Appellants’ Brief at 15.



                                     -7-
J. A29013/16


Instead, Appellants cite several Ohio cases and mischaracterize the trial

court’s actions and decision by arguing that “[t]he trial court seeks to shift

this requirement to [Appellants], without first requiring a showing of prima

facie title by [Appellee.]” Appellants’ Brief at 17.

         The trial court relied on our Supreme Court’s decision in Jedlicka,

supra, and concluded “that once it is established that a [W]ell has been

produced and that the lease has been in production, [] the burden then is on

the landowner, and not the producer, to demonstrate that the lease is no

longer in production.” Trial Court Opinion, 10/7/15, at 22. The trial court

then concluded that Appellee satisfied this prima facie showing and that

Appellants failed to meet their burden of proof. We agree with the trial court

and conclude that the trial court properly applied the applicable burden of

proof.

         In their second issue, Appellants aver that the trial court generally

abused its discretion and erred as a matter of law when it ruled in favor of

Appellee.     Appellants chiefly contend that the trial court fundamentally

misapplied the concept of good faith set out in Jedlicka, supra, which

permits the trial court to examine economic determinations and business

judgments when evaluating whether the leaseholder has exercised good-

faith efforts to maintain the lease. Appellants contend that Jedlicka applies

only to determinations of “what constitutes production ‘in paying quantities’

sufficient to maintain a leasehold[]” where a Well has continuously



                                      -8-
J. A29013/16


produced.   Appellants’ Brief at 21.    Appellants aver that, because Well #1

stopped producing, a different good-faith standard that did not examine

economic    determination    and   other   business      determinations   is   more

appropriate.

      Appellants specifically direct our attention to the good faith standard

set forth in Pemco Gas, Inc. v. Bernardi, 5 Pa. D. & C.3d 85 (Pa Com. Pl.

Ct. 1977), and argue that the Armstrong County Court of Common Pleas

properly took into account diligent actions and actual “operations [but] not

[] economic decisions.” Appellants’ Brief at 24; see also Appellants’ Reply

Brief at 2-3.   Appellants believe applying this alternative standard would

alter the legal conclusions in the instant case, and generally challenge the

trial court’s findings of fact and conclusions of law.

      As an initial matter, the trial court properly relied on Jedlicka, supra,

which constitutes binding precedent. Pemco, supra, a decision of a Court

of Common Pleas, is not binding precedent for this Court or another Court of

Common Pleas. Sysco Corp. v. FW Chocolatier, LLC, 85 A.3d 515, 520

n.2 (Pa. Super. 2014) (“It is well-settled that Court of Common Pleas

decisions ‘are not binding precedent for this Court[,]’ … [but] may be

considered for their persuasive authority.”); see also Castle Pre-Cast

Superior Walls of Delaware, Inc. v. Strauss-Hammer, 610 A.2d 503,

505 (Pa. Super. 1992) (holding trial court decision from a different county

did not constitute binding precedent).



                                       -9-
J. A29013/16


      Based on our review of the certified record, we conclude that the

findings of the trial court are supported by competent evidence and the court

did not err in its application of precedential law.   As a result, we will not

disturb the trial court’s reasonable conclusions.

      In their third issue, Appellants aver that the trial court improperly

concluded that Appellee had provided valid “shut-in payments” between

2009 and 2011 to extend the oil and gas lease under the “Shut In Royalty”

section.   Appellants’ Brief at 33.    They argue that “the [W]ell was not

capable of producing gas after April 17, 2008[,]” and the shut-in payment

provision could not apply because that provision of the lease states that the

well must be capable of producing gas. Appellants’ Brief at 34.

      As quoted above, the original oil and gas Lease provided for Shut In

Royalty payments. The trial court addressed this issue as follows:

      It was a bone of contention whether the payments were for
      “shut-in” royalty or for some other intention.     [Appellee’s]
      contention [was that they were] for shut-in royalty and he so
      testified repeatedly. Defense counsel’s position is that such
      language flaunts the language of the lease. We conclude that
      [Appellee] made the payments in good faith in an effort to
      demonstrate to the lessees that he was fully intending to
      maintain the well in operation, which was the subject of the
      lease.

Trial Court Opinion, 1/28/16, at 4.

      Appellants misread the relevant provision of the oil and gas lease in

constructing their argument. Upon examining the terms of the lease and the

trial court’s Opinions, the validity of the payments under the “Shut In



                                      - 10 -
J. A29013/16


Royalty” section was not at issue. Rather, the issue centered on the “Terms”

section of the lease, which examined whether Appellee operated the land “in

the search for or production of oil or gas.” Oil and Gas Lease, 12/2/1982, at

1.

      Appellants    also    mischaracterize    the    trial   court’s   findings     and

conclusions. The trial court concluded that the payments made to Appellants

constituted circumstantial evidence of Appellee’s good faith efforts to

maintain   the   lease     when examined       in   light   of the   totality   of   the

circumstances, including the letters accompanying the payments attempting

to assuage Appellants and Appellee’s good-faith efforts to get Well #1

running again.     The trial court did not resolve the issue of whether the

payments constituted valid “shut in royalty” payments.

      Moreover, the trial court pointed out that Appellants accepted the

payments from February 2009 through February 2011.                When they began

returning all payments to Appellee, Appellee deposited these payments in

escrow until July 2011. Trial Court Opinion, 10/7/15, at 7. The trial court

could reasonably rely on these payments to Appellants, along with the

letters and attempts at repairs, to support its conclusion that Appellee acted

in good faith to maintain the lease under the “Terms” section of the lease.

As a result, we will not disturb the trial court’s reasonable conclusions.

      In their fourth issue, Appellants aver that the trial court improperly

relied on an exhibit that was not admitted into evidence at trial.                   The



                                      - 11 -
J. A29013/16


evidence at issue is Exhibit 26, a letter Havranek sent to DEP in April 2011.

The trial court acknowledged the letter in its timeline of events in its formal

decision and findings of fact.    See Trial Court Opinion, 10/7/15, at 18.

Appellants’ argument has no merit.

      The trial court addressed Appellants’ challenge as follows:

      [Appellants] note[] that Exhibit 26 was never admitted into
      evidence; therefore, it was error for the trial court to rely upon
      the same. The discussion on the record as to Exhibit 26 is in the
      transcript Pages 281 to 291 and occurs during the testimony of
      Mr. Havranek. [Appellants’] counsel initially, as we discussed
      the admissibility of Exhibit 26, agreed it was admissible and did
      not object; however, once it was established that Exhibit 26,
      which was a transmittal letter to DEP, also contained enclosures
      and there was some dispute as to what the enclosures contained
      and also as to whether or not DEP even received the letter,
      counsel for the [Appellee] withdrew Exhibit 26 and Exhibit 26
      was not received into evidence. [However,] [w]hen counsel for
      [Appellee] withdrew Exhibit 26 he said that he was satisfied that
      the record showed that the letter, which was dated April 17,
      2011, was, in fact, sent and was mentioned to show activity and
      that he did not need to have in evidence the substance of the
      letter. We are treating the record as establishing that on
      April 17, 2011, a letter was sent from Havranek to DEP
      but the contents of the letter were not received into
      evidence. Whether this letter was sent or not is not very
      material to the overall disposition of the case.

Trial Court Opinion, 1/28/16, at 46 (emphasis added).

      Our review of the record indicates that Appellant did not object to the

admission of the fact of the existence of the letter. Appellants have waived

this claim by failing to specifically object and present this argument to the

trial court. See Pa.R.A.P. 302(a) (“Issues not raised in the lower court are

waived and cannot be raised for the first time on appeal.”).



                                     - 12 -
J. A29013/16


      Moreover, we note that “[t]he admissibility of evidence is a matter

addressed solely to the discretion of the trial court and may be reversed only

upon a showing that the court abused its discretion.” Klein v. Aronchick,

85 A.3d 487, 491 (Pa. Super. 2014).           “To constitute reversible error, an

evidentiary ruling must not only be erroneous, but also harmful or prejudicial

to the complaining party.” Id.

      Our review of the certified record confirms the trial court’s summary of

events.   While the trial court granted Appellants’ Motion to strike the

contents of the letter and any attachments, the trial court admitted the

testimony about the existence of the letter Havranek sent in April 2011. As

a result, the trial court could properly reference the letter in its timeline

based on Havranek’s actual testimony about the letter. We discern no abuse

of discretion or error under these circumstances.5

      As a result, Appellant’s fourth claim merits no relief.

      The parties are instructed to attach a copy of the trial court’s Opinions

dated 10/7/15, 1/28/16, and 3/24/16, to all future filings.

      Order affirmed.




5
  In addition, even if there had been error, Appellants suffered no prejudice
or harm. As the trial court noted, the letter was inconsequential given the
other evidence upon which the court relied.



                                     - 13 -
J. A29013/16


Judgment Entered.




Joseph D. Seletyn, Esq.
Prothonotary

Date: 12/13/2016




                          - 14 -
                                                                                         Circulated 11/22/2016 03:44 PM




 DANIEL       HEATH,                                        IN TH8 COURT OF COMMON PLEAS
         Plaintiff                                          VENANGO COUNTY, PENNSYLVANIA
                                                                                                                     ,....,
         v.                                                                                 .--,~v
                                                                                            .-·-o
                                                                                            ;·rr--c
GEORGE DELLICH and                                                                          _ ... '-':l:~
                                                                                            ..::J
MARY DELLICH,                                                                               ~.,
                                                                                            -.,r-
                                                                                                  . ..
         Defendants                                        CIV.      NO.    848   - 20li··i:::;
                                                                                         0::-.;-
                                                                                           o~
                                                                                           ·.:'"·-·..:
                                        FINDINGS OF FACT
                                                                                           ~-··...: :-:-. . .        i,)        ·-·1~ ·:o
                                                                                                                                        -,
                                                                                           :. ,'.· ::=
                                                                                                    <:.)  ... -; c
                 We have      for consideration              the nonjury          trial      wfiere t:fiis--::'::!

Judge      is acting       as trier     of fact on che              dispute       relating                      to

whether        or not     the gas     operations          of the      Plaintiff,         in the

Borough       of Barkeyville,          Venango       County,        Pennsylvania,            should                    be

terminated        consistent        with     the notice mailed               to   the    Plaintiff                            by

the Defendant.

        This     case     arises    when the      Defendants           in this case,                    George

and Mary Dellich,            hereinafter        Defendants,            sent notice,              on June

9,    2011,    to Daniel      Health,        hereinafter           the "Plaintiffu               that                the

oil    and gas     lease     was terminated.               The Plaintiff,            thereafter,                              on

July    15,    2011,      filed    a Complaint           in Quiet     Title       and Declaratory

Judgment.

        The matter         went    through     the       pleadings         and was      addressed                    by

the Court       in summary         judgment.         Summary        judgment      was     denied.

        The case        was scheduled         for four       days     of testimony;                    however,

the parties        were     able    to get     their       cases     in with       two days                     of

testimony       and an additional            day to allow            for submitting                   proposed

findings       of fact     and argument.



                                                     1



                                                                                                                         1236a
         Plaintiff's           counsel      has     submitted            proposed        findings     of

 fact,    and defense           counsel      submitted         proposed            findings        of fact at

 the commencement              of the      tr.ial and then               submitted        s upp Lemen t a r y

 findings     of fact          the   day before            final    Drgument.             Defense     counsel

also     submitted       rebuttal          findings of fact                on the morning            o~

argument.        All of the filings were                      consistent           with the direction

of the Court.

         The Court       heard from six witnesses                        on behalf         of the

Plaintiff,      and one witness                on behalf of the Defendants.

         Premises are in the                Borough        ot Barkeyville,                which     is the

southern      portion          of Venango          County,     very        close     to Interstate           80.

The oil and gas lease,                  dated       December        2,     1982,     involved        People's

Gas    and the Defendants.                  On July 24,            1983,      a pooling agreement

was provided          for six leases.                The pooling            involves        about 633 to

635 acres.           The acreage           would be mostly               in Irwin         Township,

Venango County,           Pennsylvania             with some activity                    in l3arkeyville

Borough.

         The original          well was drilled within                      two years        of 1982,        and

the original         well was called               the Kenneth             Greene No.        1.     It was

drilled      to the Medina            sand approximately                   6,700    feet deep.

       The Plaintiff,            Mr. Heath,           purchased            the gas        leases    on

September      16,     1992.         The   leases      had been transfer.red                   to Cabot

Oil,   and    in September            of   1992,      Cabot        assiqned        the     leases     to




                                                       2


                                                                                                             1237a
 Ironwood, Inc.,              wh:i.ch    is a company owned en                     t   ind y by L!1e

 Plaintiff.

         On January           1st     of 2000,       the Plaintiff                 assigned               the     lease

from Ironwood,             Inc.       to himself.

         The lease         was inactive,             under Cabot,                 for a period                   of about

five years,          extending           from August            30,       1989.         Hea~h extended                       the

inactive         status       one year,           on August         19,     1994.             Per    Exhibit                24,

there are issues                with the well          collapsing                 in 2003,           and the

Plaintiff         attempted           to repair the Ken Greene Well                                 No.     1,

hereinafter          "Greene No.            l,u     in March of 2000.

         And by the pleadings                     and the evidence,                    the parties

concluded         the well was not producing                          and had not               produced               during

the relevant            period,         after     April        13   or April            17,     2008.

         The last letter                with royalty            check to the Defendants                                from

the     Plaintiff,        Exbibit         72,     was sent in June of 2008.

         The     first    witness         called      by the Plaintiff                    was        Shawn Speedy.

Mr.     Speedy     is    a consultant             involved          in drilling               for     all        and gas,

and Mr.        Speedy was           engaged       to assist           the Plaintiff                  in deciding

how to cure the problem                    of the blocked                 well         (Greene        No.        1).

         Mr. Speedy        explained            Lhe clrcun~tances                   under which                  he was

brought        to the premises             and explained              that at            some point,                   as     the

new well       was      being     drilled,         there        was a collapse                 of some            of the

pipes     in    the well        and     he was      required          to use his               expertise                to

assist     the    dril.1.er       in retrieving                the piping          that        was separated


                                                           3


                                                                                                                                  1238a
 and dropped         into      the bottom           of the        well.        This     term       is called

 "fishing".

         The Plaintiff called the D~fendant,                                  George         Dellich,    as on

cross-examination.                 Mr.     Dellich             acknowledged           thac     he and    his

wife     had no specific               issues       with        the   driller.          They       had never

had any       conflicts         with him,           but concluded              that     Lht::!y wanted out

from     under     the oil and           gas lease.

         The Plaintiff,            Dan Heath, testi.fied                      at substantial            !ength,

and his       testimony         we will         summarize.              Mr.    Heath is generally               in

che oil and gas business.                        He has several other                    oil and gas

wells      independent          of the well              in question.            He owns and operates

a company called               Heath     Oil,       which        is a wholesale              oil   products

company.

         At the time he first investigated                               this well           and considered

purchasing         it,   Mr.     Heath      had been made                interested            in the well        by

Mr.     Havranek.        Mr. Havranek               is an oil           and gas       engineer        and

produces many oil              and gas       we.1..1.s     .i.n the area.             His place         of

business      is    in New       Castle,        Pennsylvania.                  And he did testify,

and we will         be discuss.:..ng         Mr. Ilavranek more                  thoroughly           in this

opinion.

        The   well had been drilled in                          1987,     and at the time,               in

1992,     that Mr.       Heath purchased                 the     well,        it was     pcoducing           1,700

pounds     of pressure.            He paid $75,000                    for the well .:ind the lease.

He    testified      the well          :i.s 6,700        feet deep,            that he had a tender


                                                           4



                                                                                                                1239a
  for     the well, Ben Hostetller,                               Mr.    Hostettler        was involved                ir1 a

  bad car accident                    and left           his employment.

           The     well         in question              is    not on the Defendants'                    property.

 Rather,         the well is on Mr.                         Greene's       property,        and tt1ere           are

 about        five different                  properties              pooled,     as we have           already

 noted,        totaling              about      635      acres.         Of which,         the    Plain~iff's

 portion         is about             80 acres.

           Initially            the well,             when he took it over,                     was    not     producing

 because         it   did       not have infrastructure                          to get the           gas to a

 buyer.          Mr. Heath             ran     a line to Frank's                  Truck     Wash,       in

 Barkeyville,              and the           well was supposed                  to provide            gas service             to

 Frank's       Truck           Wash.         Also,       the well was             run     to a home,           Bill

Corson,        Sr.

         Atlas Energy drilled                           two wells         in the vicinity               of     the     well

in question.                   And    he negotiated                with Atlas           to sell        Atlas     some

gas     from     the well,              and,        therefore,           a pipeline        was built           to the

east     to connect              to Atlas's              lines.

        The arrangement                      with       frank's         Truck Wash        did not        work        out

because        the    truck           wash      needed a constant,                    steady     supply        of gas

and the one well                     was not sufficiently                   reliable,           and,     ttierefore,

the arrangement                  with        E'rank's         Truck     wa~h     ended.

        Barkeyville                  has no public              utility         gas   service.

        Mr.      lleath        engaged         Mr.      Havranek         as an engineering

consultant.               At    that      time        the     pressure          was below 500           pounds,            and


                                                                  5


                                                                                                                              1240a
 it was determined                   there      was a 633-foot                 salt     dome below         the

 surface         where the well was drilled.

          They        attempted          to cure        the       issues with the pressure                       by

pouring fresh              water down the casing                        to dissolve            the salt.              That

seemed to improve                    the production               for     some period.             It     was

surmised             that the water drilling,                      where        there        are salt caverns,

the salt becomes                 malleable            and it facilitates                     crushing      of        the

line because             the cement             casing of the line                    does not protect                 it.

         Mr. Heath told                us he became concerned                         about     the well's

production             in 2005,        attempted to pull the tubing,                             also      tried

pouring         fresh water down the line.                              He said the technology                        is

such that if             the well         were drilled              today,          they would          not use

water because             of the salt;                as they now use air.                      Apparently

water causes             the     salt     to become malleable                       and creates         caverns.

         From 2005,            Mr.     Heath testified                  that    he was attempting                    to

come up with a game plan                         on how        to fix the well.

         He was        advised,          by    DEP,         to apply      for       inactive      status.

However,         when he applied                 for inactive             status,        which was          on

November         15,     2010,       the applicntion                wc.1s refused            on December             22,

2010.          And it     was refused                because       the well had              been on .inactive

status         one    other      time,        and,     apparently,             it     is a DEP policy                that

wells may not             be placed            on inactive           status           more    than one time.

         Mr.     Heath     testified            that,        at    very    substantial            cost,         he

built a compress:i.on                 station          at    Barkeyville,              and    the gas       is       put


                                                              6


                                                                                                                           1241a
 into containers             and     they     sell    the gas        to vehicles        at    the

 compress.ion          stat.i.on.      He stated           t   he compression      station with.

 conneccing        lines       to the well           cost       $300,000.       He activated           the

pipeline       between         the gas well and the processing                         plant.         He also

explained        that they have               7 million          BTU heaters      running          natural

gas,     and that,         in doing         this,     he had created            a market        for   gas

from the well.

         The work on the compression                           facility     was completed           in 2013.

Mr.    Heath explained               he had a difficult                  time getting        the

compression            station       completed       becausP.        he had to wa.i.t         forever        for

parts.

         There    were 10           letters    between February               of 2009 and July               of

2011     from the Plaintiff                 to the Defendants               where he sent           them

checks     of $29.50          for "shut-in           fees".         The first letter,               February

19,    2009,     explai~ed           tc the    Dellichs           that    he was having problems

with the Greene             ~o.      1 well,     that it was not producing,                        and that

they were working              to fix it.            The Defendants            accepted         the checks

up to February            of 2011,       and then the Defendants                   stopped

accepting        the    checks and returned them to the                         Plaintiff.            The

Plaintiff        then escrowed           the    checks,          and the Defendants'               money is

in esc.r.ow.       The royalty           checks are also in escrow from and after

that date.

       As we have           noted,      the    Defendants,           through     counsel,          sent     a

notice of termination                  on June       9th of 2011            (Exhibit    No.     3).


                                                       7


                                                                                                            1242a
         On February          16,    2011,         Tom Havranek,           who the Plaintiff

 engaged      as a consultant,               wrote     a memorandum,           which is in

evidence          as Exhibit        16.      In the letter,           Mr. Havranek            proposed

different          alternatives            on how     to address           the problem        with the

well not producing.                  The one         alle.r:natlve      was     to drllJ.          a well

alongside          the existing            well;     another     was to drill           in    such a

fashion       as to correct               the deficiencies           in the     existing            well;     and

there were other              alternatives            such    as drilling         Marcellus-type

wells     with the lateral                 production.         Marcellus        wells        were

expensive,          perhaps       as much as $2 million.

         Ultimately         the Plaintiff             chose the first option,                  which         was

to drill          a well alongside            of Greene No.           1,     and that        well became

Greene      No.     2.     Well No. 2 was permitted on November                              21,     2011,

and was drilled             over a space of four or five days                           in March of

2011.

        The Ken          Greene well         No.    2 continues        to produce.             Nobody

questions         that its      production,            at this       time,     is not in paying

quantities.

        To drill and hydrofracture                      the new well and get it

operating,         the     Plaintiff        expended         about $400,000.

        Mr. Heath          testified        that as he was            consultj_ng       with Mr.

Havranek,         his    object     was      to get a well           into     production           as soon

as possible.             In order         to get the well            into production,               they     had




                                                        8


                                                                                                                   1243a
 to apply      for   a permit.                It    takes        DEP about             45 days       to issue        a

permit.

        In the course            of applying                for the new well,                   they     ran inco

an environmental               issue     with        endangererl              Black      Massasauga

Rattlesnakes,           but Mr.         Havranek            cestified               he was able        co get a

clearance       on the       environmental                 issue         as to the rattlesnakes                      in a

reasonable       period         of     t~me.

        The    issue     for     the Plaintiff                  as to whether              he was going              to

attempt       to cor.r.ect       the existing               Greene            No.      1 or drill        a new well

was,    he characterized                as,        a difficult            decision         because        it would

require       getting     permits           for the         new well;               whereas,         he would        not

require       permits     to "sidetrack"                   the        existing         well.         The problem

was that       sidetracking             did not        appear           to be a consistently

successful       approach,             as nobody           really         knows        what     is    going     on

under the ground.                So Plaintiff               opted        to drill          the new well

because       of the     more        modern technology                        in drilling            at that time.

Based     upon the estimates                  and assessment                   of Mr.      Havranek,           it was

more of a sure          thing        than      to sidetrack                   and    certainly         cheaper

than    the Marcellus           drilling             (Exhibit           No.     16).

        Plaintiff       had trouble                getting            a drilling         company        to come in

and drill since he was only                          drilling           one     well,     and        at the    time

of the drilling          oil      and     gas wells              was     very active             in the area.

There was a huge Marcellus                         boom,        oil     d r Ll.Le r s \'lle.ce in       very     high

demand,       and he had to wait                   severa.l           months        for Union         Drilling       to


                                                            9


                                                                                                                           1244a
                bring     a drilling         rig    in and drill         the well.          The well was

                finally        drilled      ln 2012.

                         The gas from Ken Greene 2 is now being delivered                               to the

                processing         station        in Barkeyville.              Plaintiff     attempted        to sell

                the    gas through          the pipeline       to the Atlas line              to Chevcon

                Chevron        has .in the interim pu rcha se d Atlas                  -- but Chevron           had no

                interest        in buying         the gas.     The evidence           adduced that          over the

                last year and half                the bottom     has fallen ou~ of the                gas market

                because        of the vast         quantity    of gas now available                 because    of the

            Marcellus production                    boom.     Gas prices presently             arc extremely

                low.

                        Mr.     Heath did plug Greene No.                 l,    consistent     with the

            directions            of the DEP.

                        The cost         of fishing the lost line out of the second well

            was about            $50,000.         Mr. Heath did         write      to Mr.    Willy, on August

            10,        2010,     to discuss        wich him the issues              concerning       Greene No.

            l.        On November           21, 2011, Mr. Heath's notes, which                      is Exhibit

            18,       show that he was actively                 pursuing alternatives                on either

            repairing            Greene     No.    1 or drilling          a new well.         Mr.    Heath

            testified            he was having         problems        witt1    Greene No.     1 beginning         in

            2005.        Based     upon his consultation                with Mr. Havranek,            Mr.     Speedy,

            and Mr.            Willy of DEP,        they attributed             the casing collapse            issues

            to the sand            cone or the salt            cone.       And    that problem        eY.tended     up

            to when the well finally                    quit producing            in April     of 2008.


                                                                  10


                                                                                                                   1245a

-   --~·-----
          Mr.     Heath acknowledged                receiving        the Defendant's               attorney's

letter terminating                  che    lease,        in June of 2011,                but    he credibly

insists         his intent          always has been to get the well                             back inco

production.

        On cross-examination,                      Mr.    Heath     acknowledged               that on

February         19,    2009,       at a deposition,              he acknowledged                that    he was

paying shut-in             royalties.           Explained           that     at the time           he was

paying      shut-in        royalties,          he did not know at                  that time how or

whether         he would be able             to repair Greene                No.    1.         The constant

dilemma         was    to e i.z he r z epa i r Greene             No. l or plug it and drill                         a

new well,         using     modern         technology,           near it.

        It is noted          that DEP sent Heath notices                           in February           of

2010,     May of 2010,          and March of 2011,                   wherein        DSP surmised              that

Greene No.            1 had been abandoned.                     The DEP's,         we find,        contention

that the well had been                     abandoned was based on the fact that

there had not been              production               since April        of 2008.

        On May 10,          2011,         a slip     line,       which     is a test           wire dropped

down    the well,         wa s dropped down                the well        to determine            at what

point the line encountered                     the       crushed casing,             which       would be

crushed by the sand                 preventing            the    cement from         protecting           the

casing,         and the crush was             found at           about 5,267         feet.        As we have

already         stated,     the well         was in the Medina               sand        at abouc        6,700

feet deep.




                                                          11


                                                                                                                 1246a
         Mr. Willy         sent reports,     on May 23rd         of 2011     and May 24th of

 2011.

         The permit        to drill    or alter a well was issued               on August

 31,    2011.

         The Pennsylvania         Fish     and Boat Commission           gave the    approval

 on the well,        notwithstanding         the issue of the endangered

 Massasagua       Rattlesnack      on August 25,         2011.

         The parties        essentially      agreed that there was no capability

 of production        between April of 2008 and when Greene No.                      2 came

 on line in November           of 2012.      During cross-examination,

 Mr. Heath testified there may have been some production                             after

April of 2008, but whatever production                     occurred        after April of

2008 was not meaningfuJ. production

         $29.50 was to be paid to the lessors as shut-in royalty

every three months.             Greene No.     1 was plugged on May 25,                  2011.

Greene     No.    2 was drilled and completed              in March of 2012.             A

completion        permit     was filed July 12,          2012.     The   well was in

production        on and after November            of 2012, see ~xhibits           No.       18

and Z.

        Thomas Havranek         testified     on behalf        of the Plaintiff.

Mr.    Havranek     was not offered         as an expert;         however,    he   is an

engineer     who is    very     much   involved     in   the     oil   and gas industry

and has drilled        or supervised         the drilling         of thousands      of oil




                                              12

                                                                                                  1247a
 and gas wells.                He is partner          of     the    Plaintiff         in other oil and

 gas wells.

         Mr.   Havranek             acknowledged          that     in about     1982         he had brought

 Mr.    Heath's        attention         ~o the Greene No.             l   in the firsc place and

 that he did consult wi:h Mr.                       Heath         throughout     the operation                   of

 Green No.        1.         He explalned         that,      in 2008 and        2009,         he was very

 busy with his           own drilling            company.          When discussing              with Heath

 the problem           with che well,            he surmised          it was     probably            related

 to the salt ring and that salt rings                              in that location              were       a

constant problem because                       they caused         the well     casing          to

collapse.

        He acknowledged                that during that period Mr.                      Heath        kept       the

well going        for a brief period by pouring                        water        down      the line.

He stated      that          he and Mr.        Heath conferred             about every          six weeks,

beginning      in 2005.

        He discussed                the five    options          to resolve     the         problems        he

presented      in writing              to Mr.     Heath      on February        16,         2011.     (Exhibit

No.    16).

       At Mr. Heath's                direction,       he did        obtain the         permits        to

drill Greene           No.     2.

       He also engaged                Universal       Well       Service to assist              in

determining where the                  blockage was on Greene                 No.      l.




                                                      13


                                                                                                                  1248a
        He acknowledged               that     Heath had difficulty                     finding        a driller

 to schedule          drilling        the new well because                      the drilling           industry

was    very        busy at that time drilling                       Marcellus          and    other     wells.

        On cross-examination,                   Mr.     Havranek           acknowledged              that the

letter which he prepared                     foe the         Plaintiff           that set           forth his

alternatives           (Exhibit        No.    16)     would have taken                  about        eight hours

for him to prepare.                   He said that the                time      that he spent

applying       for the permits               and getting permit                  approval            from OEP

would require about               20 hours           of work.

       Mr.     Havranek       said      G£eene        No.     1 was the first                 case that       he

had worked          on where there was a salt-collapsed                                well and that             the

producer did          not use what            was called            a sidetrack drilling

technique          to fix    the well.           In this case,               he concurred             with    the

Plaintiff, Mr. Heath, that the better                                approach was to plug                    the

existing       well and drill            a new well.                This     is because             the Medina

sand   is much deeper            than        other     gas wells           in    the    area,        and even

deepe~,       at    least in Barkeyville,                    then    even a Marcellus                 well.

       Mr.     Willy from        the DEP        testified.             He noted              thal    2008    and

2009 was a busy             time for drilling.                  Oil    at       that time was selling

for $80 to $100             a barrel and gas production                          and the Marcellus                 in

this   region        was extremely            active,         especially          in the Utica play

in this      inunediate       area.




                                                        14


                                                                                                                1249a
          He established,           on Exhibit        C,    that on April         17,    2008,        a

 chart,     which is on the well,               shows that          date was the last date

 of production        for Greene No.            l.

          The    defense   called      William        Roach,       who is a professional

 engineer,        and qualified        Mr.    Roach as an expert               jn oil     and gas

 production;        especially        jn Pennsylvania.               He has      36 years        of

experience.          Mr.   Roach      was of the opinion that the Plaintiff,

Mr.     Heath, in responding            to the plugged well,                  as of April         2008

did not exercise           due diligence             (objective       prudent      operator).              He

created         a timeline    with     the best-case           scenario       and a worst-case

scenario,         and under both scenarios                  the well    should      have been

repaired        or the new well drilled                   within   18 to 28 months            of when

the blockage occurred.                 It was his opinion              that the         Plaintiff

did not meet the standards                   -- the industry           standards         on

reasonableness         in terms        of correcting           the blockage         or putting

the well back         into production.

        He concluded         that     the    recormnenda tions         of: Mr.    Hav.r.anek,         as

set forth on Exhibit            16,     were consistent             with what       he would have

recormnended       to the Plaintiff            at the time.            He notes         that his

completion,        if done within            a reasonable          period     of time,        would

have been done before               the DEP came on the site                  and gave notice

to the Plaintiff           of a violation            for nonproduction.                 In his

opinion     the    well    should     have been completed,               ac    the latest,            in

2010.


                                                     15


                                                                                                           1250a
          He told        us     that in 2007          and 2008       and     2009,        there were many

 DEP permits            arid    applications          were       very busy,      especially            2008 and

 2009,     for    nonconventional              wells,           which ls     what        is    characterized

 as the Marcellus                well.

         He told us he would allow                         28 months        from April of 2008                   to

 have the well             either back         in production           or have a new well

drilled.          Mr.      Roach produced             and       explained     timelines           which are

Exhibits         Y and Z.

         He was of             the opinion         that Mr.        Havranek's        work was done in

a timely fashion,                    once he began it, and that the permitting                                   and

drilling,        once Havranek began his work, was not unduly slow.                                                   He

acknowledged            that the choice of drilling the new well versus the

other     several options                 proposed by Mr. Havranek                   is the option

that he would             have recorrunended.

         He confirmed                that the salt bed,            which is like plastic,                        is

the probable            reason         why the well casing collapsed.

         And Mr.        Roach         opined   that the technology                  in drilling             is

different        and improved              today     from what        it was        in        the early      1980s

when the Greene                No.     1 was drilled.

         He opined         that        $400,000,      the cost        to drill           Greene No.         2,

was not unreasonable.

         The values            for gas were          higher       in 2008,     2009 and 2010.                    And

the values        of gas in 2012,                  2013,    2014, arc vastly                  below   the

values     in 2008.


                                                           16


                                                                                                                      1251a
         We are operating             with     the    following timeline,                      which        we find

by preponderance             of the      evidence:

 People's     Gas     leased from Dellich                                               December            2,      1982
                                                                                                                                 I
 Pool agreement of leases,                   633     acres                          I   .July 2 '1,         1983

Cabot     to I.r.onwood          assignment:       recorded                         I   December            31,
                                                                                    '

                                                                                    11962
                                                                                    I
Heath assigned             lease from Ironwood,                   Inc.     to       j January          1,         2000
                                                                                    I
Heath

DEP gives inactive                status to well            under Cabot                 August        30,         1998

for five years

Heath extended             the    inactive     status        f o.r one                  August        19,         198'1

year
                                                                                               ---·    -·--·-
Per Exhibit         24,     there are issues               with     Greene              2003

No. 1 collapsing

Pulling     rig attempts            to repair Ken Greene                                March of 2008

lease

Greene No.        1 not      producing,        see Exh i.b i        t;   No.    4       r~pril    13 or 17,

                                                                                        2008

Last     letter     with     .royalty    check to Defendants,                           June of 2008

see     Exhibit      No.     22

Letter     from Heath            to Dellich        with     Shut-in        fees         February        19,
                                                                                                                             I
                                                                                        2009
                                                                                                                           j
Letter     from Heath            to Delli ch with          Shut-in         fees         December        28,        __J

                                                      17


                                                                                                                     1252a
                                                                              2009
                                                                                                                  I
    Letter from Heath co Delli ch with Shut-in                         fees    Febr.uary        8,       2010

I
    Letter from Heath             to Delli.ch   wit.h Shut-in      fees       May 18, 2009

    Letter     from Heath to Dell.i.ch wi.th ShuL-in fees                     May 4   I    2010

    Letter from Heath to Dellich                with Shut-in       fees       Ju1y 9,       ?.010

    Letter from Heath             to Dellich    with Shut-:i.n     fees       October 13,                2010

    Letter     from Heath to Delli.ch with Shut-in                 fees       December 31,

                                                                              2010

    Letter from Heath to Delli ch with Shut-in                     fees       April 19      I    2010

    Tom Havranek         letter     with five alternatives                    February          16   I




                                                                              2011

    Application      to D!~P for inact.i.ve        status                     November 15,

                                                                              2010·

    Application      denied,       DEP,   to put Greene No.            1      December 12,

    on inactive      status                                                   2010

    DEP wrote     letter to the Plaintiff              giving    him          May 19,      2010

    90 days    to remedy deficiencies noted .in its

    letter

    Havranek    and Heath meet with Speedy regarding                          March of 2011

    sidetrack well

Letter to         DE!?   frorn Ha v.r a n e k , see Exhibit      26           April 17,         2011

Greene No.         1 plugged                                                  May 25,      2011

Notice of termination                                                         June 9,      2011
                                                                  ..



                                                  18


                                                                                                          1253a
                                                      - ---·
    Letter          from Heath to Dellich                                              II .Ju l.y   1,   20 l'!
                                                                                   -----        --·-·
    Complaint          in de c La r a t or y judgment and quiet                          July 15,         2011

    title      filed

    Greene No. 2 drilled                 by Union Drilling             Company          March 15,           2012
I

    Greene No. 2 fracked                 and Greene No.             2 in                November          2012

    production



                                           CONCLUSIONS OF LAW

              The     first    issue the Court             has to address         as we resolve this

    matter      is where         lies   the burden          of proof.        The Plaintiff               would

    contend the burden              of proof is by preponderance                       of     the evidence

    on the      Defendant.          Both counsel            have cited, and to some extent

    have    followed,          Phillips     Gas v. Jedlicka,               615   Pa.     199,       42 A3d 261

    (2012).

            The Jedlicka           case held        that        the party seeking            to terminate

the lease bears the burden of proof.                                 At argument,            counsel        for

the Defendant                 contended     that    that language            would not apply

because             the Jedlicka        case and the other             cases similar                to it     are

dealing             with   "production          leases".

Cases which the defense                    counsel cited,             and which         Jedlicka

addresses,             involve      situations        where there is an oil and gas

lease         for a specific            term.      In some cases           the   term is five

years,         in some cases            the term is             two or ten years,           and then the

lease is extended                 beyond the initial term                  for a period             in the

                                                           19



                                                                                                                    1254a
 habendum clause,          which most commonly,                and    in     Jedlicka,        is    ''for

 so long     as oil      and gas         is produced       in paying         quantities."

         Obviously,       if     there     is no activity           for    the initial         period

 of the lease,          which     in this case is           five     years,        at the end        of

 five    years    the    lease     t~rminates        and the lessee            is on the

premises      as a tenant          at-will.         On the other           hand,     if at the end

of the term,          as in this case five               years,      there is production,

then     so long as the production                  continues,        the habendum clause

has the lease continue.

         The defense       counsel        would     have    this     Court    more     closely        rely

upon Pemco Gas v.              Bernardi,      5 D.&C.3d 85           (Armstrong        Co.    1977),

which is a decision               out of Armstrong           County,       which was decided

by the     late Judge House.

         The Pemco      case,      however,        like the Jedlicka           case,      involves

the issue        of whether        or not     the lease in quest.ion                cont.lnued

beyond the initial              term of the lease            and is extended consistent

with     the habendum       clause        applicable.         The    Pemco case also

involved     a lease      of     five     years,    where     the producer           did not begin

actively     attempting          to produce        until right before               the

termination       of the period            of the lease,           and then there were

issues on whether          or not the          producer       had demonstrated               good

faith effort to produce                  before the        lease moved into           the period

beyond     the initial          term.




                                                    20


                                                                                                            1255a
          The         Pemco    lease         does     h~ve     habendum          language         very       similar          to

  the    language         in     quest~on.

          In this         case,        nobody         disputes           that    the    well      was     drilled        in

 1987,      and apparently                   was     fracked        in September            of    1987,       but    then,

 in     1989,     the     producer            applied        for     inactive          well      status.        This

 tracks         the     testimony            that     there        was    some    difficulty            in    finding         a

 market         for     the    gas.

          The     habendum            clause,        which         is the       operative         language          of   the

 lease     in     this        case     has     been     recited          as five        years      from      April       2,

 1983 and:

         "As long thereafter as the above described land or any
         portion thereof or any other land pooled or unitized
         therewith, as provided in Paragraph 3 hereof, is
         operated by the lessee in the search for or production
         of oil or gas or as long as gas is being stored, held
         in storage, or withdrawn from the premises by the
         lessee.n   Exhibit 2.

         Apt in         this case is the additional                              language        that provides

when     a well has been                 drilled,         but the well yields no royalty,

the lessee may continue                            to hold the premises                 upon the continued

payment         of the delay rental or a further term of five                                              years

after the expiration                     of the term originally                        mentioned,            which

would     be five years,                and as long thereafter                         as the land,            or any

portion         the.r.eof or any              other land pooled or unitized                             ther.ewith

is operated            by the lessee                in sear.ch           for or production                of oil or

gas.




                                                              21


                                                                                                                         1256a
         There       is addi tJ.onal          language        rel a ting     to the s t o r aqe of

 gas;    however,           the parties           agree that        this    case    does      not involve

 a storc:ige     issue.

         Therefore,           the    operative           language     of the lease            is   "whether

 the land is operated                 by the         lessee    in search       for     or production

 of oil or gas."               This language              appears,     therefore,          to be a

fairly      common      clause        for     an oil and gas lease in                  Pennsylvania,

and we construe               the    language         as not being         ambiguous.

         We conclude,           however,           that the Defendants'              contention            on

the burden           of proof is in error.                    We conclude          that once it            is

established          that      a well has been produced                    and that the lease                   has

been     in production,              that the burden then j_s on the landowner,

and not      the producer,                to demonstrate            that the lease is no longer

in production.

        Pennsylvania            cases       have     characterlzed          lhls     as a fee simple

interest       that is determinable                   or subject to reversion.                      We

construe       that    to mean        that once the producer                   (lessee)         has

expended       the resources               to produce         a well and produce              on the

premises,       that the lessor               then has the burden                  to show      that      there

is   no longer "search               for or production               of oil        or gas."

        Jedlicka,           pp 208-209,           Jedlicka      relies      on Youna       V.      Forest

Oil Co.,       194    Pa.     2~3,    45     A.    2nd    12l(Pa.     1899).         The   Young         case,

although     quite ancient,                 states       the law of        Pennsylvania            for

construing       the lease           in    question.          Pennsylvania           applies       a purely


                                                         22


                                                                                                                  1257a
 subjective        test to determine           an oil or gas         lease        "has    produced

 in paying        quantities"       or,     as here,     "in search     for or           product ion

 of oil or gas."            Our inquiry        then,     is whether     Heath,           during          the

 relevant     period,       acted    in good faith         in operating            the    well      or

 wells    on the lease           in search     for or production         of gas.              As

 Defendant's        expert       opines,     Heath's     getting     Greene       No.     2 into

production        was     not timely,       but Heath      credibly     testified             to lhe

vast uncertainties,               obstacles,     and substantial         costs he incurred

to determine         the best       way    to restore      or replace        the production

of the well.

         Taking    the language           of the habendum clause             in    this       lease

to its logical           conclusion,        we conclude      that the        Defendant           must

show that the lessee              in this case up to the time of notice                             of

termination,        was    not    searching      for or producing         oil or gas                on

the premises.            Evidence     of Plaintiff's         conduct    after           the

notice    to quit was relative               to Plaintiff's        state of mind,                and

in this case,           also shows        a course     of conduct.      We apply              the

subjective        standard.

      Two quotes          from the Jedlicka            case which     we consider

especially        apt:

     "So long as the lessee is acting in good faith on
     business judgment, he is not bound to take any other
     party's,  but may stand on his own.  Every man who
     invests his money and labor in a business does it on
     the confidence  he has in being able to conduct it in
     his own way.   No Court has any power to impose a
     different judgment on him, howe ver erroneous L t may


                                                 23


                                                                                                          1258a
          deem his to be.     Its right to interfere does not arise
          until it has been shown clearly that he is not acting
          in good faith on his business judgment, but
          fraudulently,   with intent to obtaj_n a dishonest
          advantage over the party to the contract.      Nor is the
          lessee bound, in case of difference of judgment,     to
          surrender   his lease, even pro tanto, and allow the
          lessor to experiment.     Lessees who have bound
          themselves by covenant to develop a tract, and have
          entered and produced oil, have a vested estate in the
          land, which cannot be taken away on any mere
          difference of judgment. "Colgan v. Forest Oil Co.,
          194 Pa. 234, 45 A. 119 (PA. 1899).


Quoted     in Jedlicka       at 213-214.

         "In determining paying quantities, in accordance with
        the above standard, the trial court necessarily must
        take into consideration all matters which would
        influence a reasonable and prudent operator.    Some of
        the factors are: The depletion of the reservoir and
        the price for which the lessee is able to sell his
        produce, the relative profitableness of other wells in
        the area, the operating and marketing costs of the
        lease, his net profit, the lease provisions, a
        reasonable period of time under the circumstances, and
        whether or not the lessee is holding the lease merely
        for speculative purposes." Jedlicka quoting Clifton v.
        Koontz, 325 S.W.2d 684, 691, (1959).   Jedlicka, at
        273.


        Pennsylvania        cases have characterized         the foregoing

analysis        as a fee simple interest that is determinable                or

subject     to reversion.          We construe    that    to mean that once         the

producer        has expended   the resource       to pr.educe   a well   and

produce     on the premises,         the lessor    then   has the   burden     to

show    there     is   no longer   search   for or production       of oil     and

gas    by the     lessee.



                                            24


                                                                                          1259a
        Taking    that language        along to its logical        conclusion,       we

 conclude the Defendant           must show that the lessee in this case,

 up till the time of notice of termination,                   was not   searching

 for or producing        oil or gas.

                                         Discussion

       In balancing       Heath's      contended good faith operation

against    the unrefuted         testimony of Mr. Roach that Heath was

extremely     slow in getting the well back to production,                   we

conclude it is not a question of industry standard                      or even

reasonableness         as to the time Heath took.             What is controlling

is that a review of the time line and all the evidence

presented     to the Court, especially,                taking into account     the

huge amount of expenditures:               $400,000 for the new well,

$300,000    for the compression           station, $75,000       for the original

cost   of the well, plus the cost of laying a pipeline                     to the

Atlas line and the vast uncertainties                    relative to gas prices

over the period;         the uncertainty            whether the new well would

produce    at all, demonstrates           that,      notwithstanding    the delay,

Mr. Heath steadfastly            and   inexorably worked,       expended   money

and took    action     to get the well back into production.

       Our conclusion       is    buttressed        by the consistent   payment      of

the shut-in      fees,   Plaintiff's       conferring      with consultants,       his

explanations      to   lessors as he sent shut-in fees, and his




                                               25


                                                                                          1260a
 statement      and explanation            in his        letter of his problems               with

 the   well.

         For example,          Exhibit     4,    a letter      from Heath          to

 Defendants,          dated     February    19,     2009,     expressly       states,

 "Attempts      have     been made,        but have         not been      successful        to this

point."        This     statemert        clearly establishes             that Heath had

been attempting              to repair the well.             The standard           is not       the

timeliness         of the      effort,     rather whether the producer,                     in good

faith,     is attempting             to produce gas.

         Taking    into consideration              the uncertainties               in gas

prices,     the costs expended              for the compression               station, the

difficulties          in finding drillers at the time of drilling,                               we

conclude       that    Heath exercised            good faith and there is no

evidence       that he wavered           on whether he would try to get the

production        restored          for the lease.                                 We are

especially        persuaded         by his constant attempt to assuage                        the

lessors     with      shut-in       payments      and letters indicating                his

intent to put the well back                     on production.          ( Exhib:i. t 4) .

       Other than the delay,               there is no evidence                that supports

a contention          that    Heath    had abandoned          the well       or was

stalling,      manipulating           the lease,         or acting      fraudulently

toward Defendants             or.   the other lessors.           DEP at one point,                  in

compliance      with     its regulations,               characterized        the    well    as

"abandoned,"        but at that point,             and even      well      before,      the


                                                   26


                                                                                                         1261a
  record       is     replete            with     efforts           indicating        that    Heath    was

  trying       to get          the       well     back      into production.

           We accept,               as    credible,           the     testimony        of    Heath    that    he

  was   throughout                 solving        the difficult              issues     of the best          way to

  get   the      well into               production.                As you    listened        to the

  testimony,           it     was        clear      that      his preference            was to try to

  repair      Greene No.                 1,     but at the           point when Mr. Havranek                 gave

  him the opinion                  that drilling another well would                             be more

 efficient,            less costly,                and probably more              productive,           he

 accepted           Mr. Havranek's                 opinion.

          We therefore                   conclude        that the verdict in this case

 should be in favor of the Plaintiff, which is to grant the

 declaratory             judgment               and confirm the title, at least as to the

 lease,       in the         Plaintiff.                We will enter an appropriate                      order.

          For purposes                   of Pa.      R.C.P. 1038(c), we acknowledge                          that the

 opinion       was supposed                     to be filed within seven days of the trial;

however,         our        finding             j_s that this case presented                   extraordinary

complexity            and      required            more than seven             days      to write and print.




                                                                                                        Judge
sab
Cc:                                . ~ · l 4- 'i31J-i.t.£.· . \
        William J. Cisek, Esquire- g
        Robert Coyer. Esquire /,
                               ~      Y.· ~ "] (>.f.i.·
                                                        I/ 0  J
                                               .. 'T - ~'-il.(Cj)




                                                                                                                      1262a
                                                             Circulated 11/22/2016 03:44 PM




DANIELL.     HEATH,                  IN THE COURT OF COMMON PLEAS OF
             Pla.int.iff             VENANGO COUNTY, PENNSYLVANIA
                                                                    .,,,.,,:-·   ..
va.

GEORGE D. DELLICH and                  CIV. No. 848 - 2011
MARY ANN DELLICH,
             Defend.ants



                                     OPINION


       AND NOW, this 28th day of January, 2016, the Court has for

consideration    Defendant's Motion for Post-Trial Relief pursuant

to Pa. R.C.P. 227.1 docketed October 13, 2015.

      The Court heard argument in this matter.       Both counsel

submitted memorandum       and the Court has considered the briefs.

The Court will deny the motion for Post-Trial Relief.          Some of

the issues raised on the Motion for Post-Trial Relief we

conclude, however, deserve explanation by the Court.

      We are satisfied that the findings which we docketed on

October 7, 2015, are consistent with the facts of the case

generally and our conclusions of law, we conclude, are sound and

the disposition docketed on October 7, 2015, shall remain the

primary explanation    for and the order of this Court.

      Counsel in the Post-Trial motions in Paragraph 10 recites

that some of the findings of fact and conclusions of law are not

supported by any evidence.       Counsel references Page 17 and 18 of

the brief,   which is incorporated in the motion.      On Page 18 of




                                                                                      1289a
the brief there are numerous specific allegations             of findings

that are not supported by the evidence.            We will deal with those

issues seriatim:

     a.   The number of leases in the pulling agreement                is not

          really material.        We do not intend to spend any time on

          this   issue.

     b.   Page 2 of the opinion does recite the well was drilled

          within two years, that is either error or a typo.                   We

          recite at least one other time in the opinion                that the

          well was drilled       in 1987 (See for example Page 4 of the

          findings) .

     c.   The last letter with a royalty check from the

          plaintiff,      Exhibit 72,    was sent in June 2008.         We

          reference       our "time line" Page 18.

     d.   The allegation       is that the Court     rnischaracterized       the

          time frame of Shawn Speedy's         involvement.      The notes of

          testimony       establish   that there was credible     testimony

          that   Shawn Speedy     met with Mr.   Havranek     and the

          plaintiff       in March of 2011 to discuss     the concept of

          remediating       the well with a "sidetrack"       method     (Notes

          of testimony       Volume II, Page 271).

     e.   That there were       five different   properties     pooled       and

          the plaintiff's       property   is about 80 acres,     we do not

          consider     this point as material.


                                                                                     2

                                                                                   1290a
f.   Mr. Heath testified in two different places that he was

     advised by DEP to apply for inactive status.     We found

     that testimony credible.   (See Volume I of transcript

     Page 114 and Page 113, Line 6.)

g.   Page 115 Mr. Heath testified about gas going to a

     station which he has established and the gas is made

     ready to put into truck tractors.     That testimony

     supports the Court's finding on the gas operations and

     the market which Mr. Heath creat€d for the gas from the

     relevant well.

h.   The evidence supports that checks were received by the

     Defendants as late as July of 2011.    Mr. Dellich     (Page

     78 of Volume I of the transcript) admits receiving a

     check July of 2011 and Exhibit 4 also supports that

     inference.

i.   Evidence as to the fact that gas prices have been

     volatile is established through the testimony of Mr.

     Roach, Volume II, Page 366.

j.   Testimony of one witness did refer to the defect that

     was causing the collapse as a salt column and in

     another place referred to it as a sand sore or column.

k.   It was a bone of contention whether the payments were

     for "shut-in" royalty or for some other intention.

     Heath's contention it was for shut-in royalty and he so



                                                                    3
                                                                1291a
          testified repeatedly.     Defense counsel's position is

          that such language flaunts the language of the lease.

          We conclude that Heath made the payments     in good faith

          in an effort to demonstrate to the lessees that he was

          fully intending to maintain the well in operation,

          which was the subject of the lease.

     1.   Mr. Havranek testified that they actively considered a

          "sidetrack" plan and that was the reason that Mr.

          Speedy was consulted.     The testimony does not support

          that Mr. Havranek had worked a sidetrack method with

          other wells.   To the extent that that is the finding,

          that is incorrect.      Havranek consulted a driller who

          referred him to Speedy and Speedy was engaged because

          he apparently had some expertise with the "sidetrack"

          technique.

    m.    The Capital Iron assignment occurred on December 31,

          1962 is clearly a typographical error.      That error is

          on Page 17, which is our time line.      The Capital Iron

          assignment was recorded 1992.

     n.   The letters to the Defendants from the Plaintiff are

          set forth in Exhibit 4.

     The rest of the issues raised as to errors in findings

of fact are not material.

     The other issue which the Court needs to address is


                                                                        4

                                                                      1292a
the issue as to Exhibit 26.

     Defendant notes that Exhibit 26 was never admitted into

evidence; therefore, it was error for the trial court to rely

upon the same.   The discussion on the record as to Exhibit 26 is

in the transcript   Pages 281 to 291 and occurs during the

testimony of Mr. Havranek.     Defense counsel initially,    as we

discussed the admissibility    of Exhibit 26, agreed it was

admissible and did not object; however, once it was established

that Exhibit 26, which was a transmittal letter to DEP, also

contained.enclosures   and there was some dispute as to what the

enclosures contained and also as to whether or not DEP even

received the letter, counsel for the Plaintiff withdrew Exhibit

26 and Exhibit 26 was not received into evidence.     When counsel

for the Plaintiff withdrew Exhibit 26 he said that he was

satisfied that the record showed that the letter, which was

dated April 17, 2011, was, in fact, sent and was mentioned       to

show activity and that he did not need to have in evidence the

substance of the letter.     We are treating the record as

establishing that on April 17,    2011, a letter was sent from

Havranek to DEP but the contents of the letter were not received

into evidence.   Whether this letter was sent or not is not very

material to the overall disposition of the case.

     We confirm, therefore, that other than as noted above we

are satisfied with the findings and the conclusions of law



                                                                        s
                                                                      1293a
docketed October 7,   2015.

     The Court will dismiss      the Defendant's   Motion for Post-

Trial Relief.

                              BY THE COORT,




                                                         Judge




                                                                       6
                                                                      1294a
                                                                                Circulated 11/22/2016 03:44 PM




      IN THE COURT OF COMMON PLEAS OF VENANGO COUNTY, PENNSYLVANIA
 DANIEL HEATH,
      Plaintiff,

        v.                                                   crv. No. 848-2011
GEORGE DELLI CH and
MARY DELLICH,
     Defendant.


                                     OPINION OF COURT

        AND NOW, thfr/)c/ day of March, 2016, the Court has before it Defendants' Concise

Statement of Matters Complained of on Appeal. This Court is of the opinion that these issues raised

in the Concise Statement have been adequately ad.dressed between the Findings of Fact and

Conclusions of Law, filed on October 7, 2015, and the Opinion of Court, dated January 28, 2016,

issued in response to Defendants' Motion for Post- Trial Relief. For this reason, the Court will

stand by its reasoning as supplied in these documents, and no further opinion is necessary.




                                                 BY THE COURT,




                                                 H. WILLIAM WIIlTE, President J.
                                                 Specially Presiding


cc:    William J. Cisek, Esq.
       Robert Coyer, Esq.




                                                                                               1299a
