T.W. Phillips Gas and Oil Co. v. Jedlicka (majority)Annotate this Case
The issue before the Supreme Court was the determination of the proper test for evaluating whether an oil or gas lease has produced "in paying quantities," as first discussed "Young v. Forest Oil Co.," (194 Pa. 243, 45 A. 1 (1899)). Appellant Ann Jedlicka owned a parcel of land consisting of approximately 70 acres. The Jedlicka tract is part of a larger tract of land consisting of approximately 163 acres, which was conveyed to Samuel Findley and David Findley by deed dated 1925. In 1928, the Findleys conveyed to T.W. Phillips Gas and Oil Co. an oil and gas lease covering all 163 acres of the Findley property which included the Jedlicka tract. The lease contained a habendum clause which provided for drilling and operating for oil and gas on the property so long as it was produced in "paying quantities." Notably, the term "in paying quantities" was not defined in the lease. Subsequently, the Findley property was subdivided and sold, including the Jedlicka tract, subject to the Findley lease. A successor to T.W. Philips, PC Exploration made plans to drill more wells on the Jedlicka tract. Jedlicka objected to construction of the new wells, claiming that W.W. Philips failed to maintain production "in paying quantities" under the Findley lease, and as a result, the lease lapsed and terminated. After careful consideration, the Supreme Court held that when production on a well has been marginal or sporadic, such that for some period profits did not exceed operating costs, the phrase "in paying quantities" must be construed with reference to an operator's good faith judgment. Furthermore, the Court found the lower courts considered the operator's good faith judgment in concluding the oil and gas lease at issue in the instant case has produced in paying quantities, the Court affirmed the order of the Superior Court which upheld the trial court's ruling in favor of T.W. Phillips Gas and Oil Co. and PC Exploration, Inc.