Heath, D. v. Dellich, G.

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37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withdrawn from the premises by the Lessee.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”).
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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.
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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.
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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.
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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).
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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.
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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
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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).
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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
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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
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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.”).
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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.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 12/13/2016
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Circulated 11/22/2016 03:44 PM
DANIEL HEATH, IN TH8 COURT OF COMMON PLEAS
Plaintiff VENANGO COUNTY, PENNSYLVANIA
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GEORGE DELLICH and _ ... '-':l:~
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MARY DELLICH, ~.,
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Defendants CIV. NO. 848 - 20li··i:::;
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FINDINGS OF FACT
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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.
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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
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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
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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
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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
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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
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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).
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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
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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
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docketed October 7, 2015.
The Court will dismiss the Defendant's Motion for Post-
Trial Relief.
BY THE COORT,
Judge
6
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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.
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