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SWEPI LP Ordered to Pay $4.1M to Landowners in PA Lease Contract Dispute

Royal Dutch Shell plc affiliate SWEPI LP has been ordered to pay more than $4.1 million as part of a breach of contract suit filed by owners of two parcels in Lycoming County, PA.

The dispute centered around 1,036 acres owned jointly by Janet and Martin Masciantonio and the trust of Phyllis E. Latshaw. SWEPI had agreed in 2011 to pay an initial bonus of $4,000 per net mineral acre to lease the property, plus royalties.

SWEPI subsequently opted to surrender the leasehold due to competitor acreage located to the south and a geohazard in the northern portion, according to court documents. After deciding to drop the acreage, SWEPI canceled the bonus payment, which prompted the landowners to eventually sue the exploration and production (E&P) company for breach of contract.

According to court documents, SWEPI argued that “per industry custom, any obligation to fund the bonus drafts was deferred for 90 days pending title verification, during which time SWEPI could surrender the leases without liability.” The landowners argued that the bonus payment and the lease were enforceable as soon as the agreement was executed “and that SWEPI was contractually bound to pay the bonuses when it surrendered the leases.”

Chief Judge Christopher C. Conner of the U.S. District Court for the Middle District of Pennsylvania sided with the plaintiffs in a memorandum and accompanying order issued Friday, writing that execution of the lease documents created an “obligation to pay bonus consideration of $4,000 per acre to plaintiffs in exchange for SWEPI’s reciprocally immediate right to explore and to develop” the acreage.

SWEPI was ordered to pay $2,072,000 each to the Masciantonios and the Latshaw trust.

An alternative count for fraudulent inducement submitted by the plaintiffs was dismissed.

Pennsylvania has been the site of numerous legal disputes in recent years between E&Ps and landowners over lease agreements and royalty payments, including a far-reaching lawsuit filed against Chesapeake Energy Corp. and Anadarko Petroleum Corp. by the state Attorney General’s office (see Shale Daily, June 2).

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