A Cry for Clarity: Pennsylvania's Method of Compensating Unleased Fractional Oil & Gas Owners

Abstract

Pennsylvania law permits a cotenant of an oil and gas estate to develop that entire oil and gas estate without the consent of other cotenants. This right to develop without the consent of all of the cotenants extends to a lessee-developer, and therefore an oil and gas exploration and development company can lawfully develop an entire oil and gas estate with a lease from just one cotenant. Pennsylvania law also provides that the developer must compensate, or "account to," the unleased cotenants for their share of the oil or gas produced. Pennsylvania law, however, does not clearly provide how developers should compensate unleased cotenants. No statutes or regulations speak to the issue. Instead, developers are left to discern century-old court opinions, which are extremely vague. This Comment will provide an analysis of the current state of Pennsylvania law by closely examining each court opinion that has ruled on the proper method of compensating unleased cotenants. The purpose of such an analysis is to guide developers who are plagued with the current, ambiguous state of law regarding unleased cotenant compensation. Next, this Comment will compare different methods of compensation and, ultimately, urge Pennsylvania legislators to unequivocally adopt the net-profits method with a risk penalty.