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Who Can Terminate Your Oil and Gas Lease?

By Paul R. Yagelski, Esq.

Can Someone Other Than You as Lessor and Your Oil and Gas Company as Lessee Terminate Your Oil and Gas Lease?

You own oil and gas rights, which you have leased, but the surface is owned by someone else.  The surface ownership is subject to your oil and gas rights and the lease of these oil and gas rights.  Under these circumstances, can the surface owner seek to have your oil and gas lease terminated if the surface owner believes that your lease has expired, been terminated, or cancelled?  In other words, can someone, who is not a party to your oil and gas lease, seek to have your oil and gas lease declared expired, terminated, or cancelled?

In Pennsylvania, an oil and gas lease is in the nature of a contract and is controlled by principles of contract law.  T.W.Philips Gas and Oil Co. v. Jedlicka, 615 Pa. 199, 42 A.3d 261, 267 (2012).  Under Pennsylvania contract law, a stranger to the contract cannot seek to have it voided.  See Aston Twp. v. Southwest Delaware County Mun. Authority, 112 Pa. Comwlth. 439, 535 A.2d 725, 727 (1988).  Under Pennsylvania contract law, the proposition is unassailable that only those who are parties to a contract may enforce its terms; a third party cannot seek to enforce the terms of a contract to its own benefit.  In re Dept. of Transp., of the Right of Way for State Route 0202, Section 701, 871 A.2d 896, 901 (Pa. Cmwlth. 2005) (citing the following cases as plainly establishing this proposition:  CGU Life Insurance Co. of America v. Metropolitan Mortg. & Securities Co., Inc., 131 F. Supp. 2d 670, 676 (E.D. Pa. 2001) (protection is limited to those specifically named in the contract and enforcement is based on the manifestation of intent between the parties); Hahn v. Atlantic Richfield Co., 625 F.2d 1095, 1104 (3^rd Cir. 1980) (parties to a contract have no duty to non-parties); Halstead v. Motorcycle Safety Foundation, Inc., 71 F. Supp. 2d 455, 460 (E.D. Pa. 1999) (in the absence of some statutory law, common-law or equitable duty, parties to an agreement simply have no obligation to a non-party, regardless of the extent to which that non-party is interested in enforcement or abrogation of the contract; for a third party to have rights in a contract, it must be so intended by the parties); Forum Ins. Co. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 865 F.2d 584, 586 (3^rd Cir. 1989) (non-party to a lease may not use the lease to pursue an affirmative claim)).  In addition, for anyone to be a third-party beneficiary entitled to recovery on a contract, both parties to the contract must indicate that intention in the contract.  Farmers Nat. Bank of Ephrata v. Employers Liability Assur. Corp., 414 Pa. 91, 199 A.2d 272 (1964); R.M. Shoemaker Co. v. Southern Pennsylvania Economic Development Corp. 275 Pa. Super. 594, 419 A.2d 60, 62-63 (1980).

Accordingly, under Pennsylvania law, in order to terminate your oil and gas lease or void it, you have to be a party to the contract, to the lease, or a third-party beneficiary thereunder.  In addition, if the lease provides that it is binding on successors and assigns, then in that event, successors and assigns can attempt to enforce the lease, void it, terminate it or assert a claim thereunder.

If you have questions about your oil and gas lease, contact us or call (412) 338-1124.