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Court Clarifies What Constitutes "Commencement Of Drilling"

Last week, in Good Will Hunting Club, Inc. v. Range Resources-Appalachia, LLC, the U.S. District Court for the Middle District of Pennsylvania held that a landowner (Good Will) was bound by a five-year extension clause in an oil and gas lease that it signed with Range Resources because drilling commenced within the initial term of the lease.  The court concluded that staking a drill site, obtaining permits, obtaining easements, clearing timber, and beginning construction of a well pad clearly constituted commencement of drilling operations even though no drill bit had touched the ground.  Good Will argued that the five-year extension clause was unenforceable because Good Will was not aware of the clause.  However, the lease had been negotiated on behalf of Good Will by a consultant who had authority to execute the lease on Good Will’s behalf and the Court concluded that the consultant “had actual authority to negotiate the Lease… and it [was therefore] his understanding of the terms of the Lease that bind[s] Good Will.”