United States: No Implied Duty For Operators To Develop "Each Economically Exploitable Strata," Says Pennsylvania Superior Court

Last Updated: July 23 2013
Article by Jeffrey A. Schlegel, Roy A. Powell, Jeffery D. Ubersax, Kevin C. Meacham, Michael A. Magee, David A. Kutik, David J. Grecco and Katelyn M. Matscherz
Most Read Contributor in United States, September 2019

In a published opinion on July 12, the Pennsylvania Superior Court—an intermediate appellate court—adhered to the express terms of an oil and gas lease, and affirmed the trial court's decision rejecting the landowners' attempts at terminating the lease due to the operator's failure to develop the Marcellus Shale formation. In formulating its decision in Caldwell v. Kriebel Res. Co.,1 the Superior Court demonstrated strong judicial adherence to the specific agreements of the parties contained in the lease, and the Superior Court refused to read into the lease a new implied duty to develop the various economically exploitable strata where gas was being produced in accordance with the lease from shallow wells drilled on the leased premises.

The Implied Covenant to Develop

The implied covenant to develop requires oil and gas lessees in Pennsylvania to operate their leaseholds "in a proper manner and with reasonable diligence."2 This covenant, like the implied covenant to market and the implied covenant to protect against drainage, informs the standard of care that lessees must exercise, absent terms to the contrary in their leases. A lessee's failure to comply with the implied covenant to develop may warrant a determination that it has partially or completely surrendered its leasehold.3

The Caldwell Decision

In Caldwell, the lessors (or "the Caldwells") of a mineral estate brought suit seeking a declaratory judgment to terminate the oil and gas lease, contending, among other things, that the defendants failed to produce gas in paying quantities or develop the Marcellus Shale formation. It was undisputed that the defendants had drilled on the shallow wells and that gas was being produced and royalties were being paid from those shallow formations. Specifically, the Caldwells argued that the defendants' limited production from the shallow formations and their failure to tap the gas trapped in the Marcellus Shale formation constituted a breach of the implied covenant to develop. The defendants filed the Pennsylvania state court equivalent of a motion to dismiss, and subsequently, the Clearfield County Court of Common Pleas dismissed the Caldwells' amended complaint for failure to state a claim.

On appeal, the Superior Court declined to accept the Caldwells' argument that the implied covenant to develop "attaches to each economically exploitable strata of natural gas of the lessee." To do so, as argued by one of the defendants, would read a substantial new implied duty to develop different strata into every oil and gas lease in Pennsylvania. The Superior Court adhered to the Pennsylvania Supreme Court's decision in Jacobs v. CNG Transmission Corp.,4 recognizing that the implied covenant to develop applies when the lessor's only source of compensation is royalty, but that the covenant may nonetheless be precluded by the language of the specific lease. Such language expressly rejecting all implied covenants appeared in the Caldwell lease. Additionally, the lease in question guaranteed that the lessors would receive delay rentals in the event that no gas were produced. It was not disputed by the parties that the defendants were in fact producing gas pursuant to the lease, and the Superior Court held that oil and gas lessees in Pennsylvania are not required "to drill additional wells to different depths to completely develop the entire property."

The Superior Court also declined to remand the case to allow the Caldwells to pursue the theory that there "is an implied duty to develop in paying quantities" or to present evidence of defendants' bad faith. The Superior Court emphasized that the lease at issue did not contain the term "paying quantities." The Superior Court also found, in any event, that, in accordance with the definition of "paying quantities" set forth in T.W. Phillips Gas & Oil Co. v. Jedlicka5—that the well consistently pays a profit over operating expenses—defendants did in fact "produce a paying quantity, albeit not to the extent [the lessors] desire." Finally, the Superior Court noted that it was not convinced "that the legal theory set forth in Jedlicka [requiring the operator's good faith judgment in maintaining operation of the well] should be expanded "to include a good faith standard for all aspects of the [gas] industry that affect production of lessors' natural gas." As a result, the Superior Court affirmed dismissal of the lessors' claims.

Where Does the Implied Covenant to Develop Stand in Pennsylvania?

As Caldwell demonstrates, the implied covenant to develop continues to apply in Pennsylvania oil and gas leases when compensation to the lessor is based solely upon royalties. However, Pennsylvania courts will not read the implied covenant to develop into an oil and gas lease when that lease contains express contractual language disclaiming implied covenants. Further, by refusing to impose an implied covenant to develop all economically exploitable strata, the Caldwell decision evidences a judicial preference to stay within the confines of the lease itself and established Pennsylvania case law standards in analyzing whether contractual obligations relating to "production" or "production in paying quantities" are being fulfilled under an oil and gas lease.

As with all matters relating to the leasing of oil and gas interests, stakeholders should consult experienced oil and gas attorneys to answer any questions that they may have with regard to implied covenants in oil and gas leases.


1 2013 PA Super. 188 (July 12, 2013).

2 Jacobs v. CNG Transmission Corp., 332 F. Supp. 2d 759, 779 (W.D. Pa. 2004).

3 Id. at 796; Kleppner v. Lemon, 35 A. 109, 110 (Pa. 1896) (mandating that a lessee drill an additional well within a period of 20 days or lose those portions of the leasehold not currently being produced by an existing well).

4 772 A.2d 445 (Pa. 2001).

5 42 A.3d 261 (Pa. 2012).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions