EVIDENCE-PAROL EVIDENCE RULE-GAS LEASES

Family v. Pennenergy Resources, 2022 Pa. Super. LEXIS 182 (April 29, 2022) (McCaffery, J.)  In this oil and gas lease/breach of contract matter, Dressler Family, LP (Appellant) appeals from the order entered in the Butler County Court of Common Pleas, granting summary judgment in favor of PennEnergy Resources, LLC, as Successor in Interest to R.E. Gas Development, LLC (Appellee). The issue before the trial court, as well as this Court on appeal, is whether a lease provision — setting royalties to be one-eighth (1/8th) of “gross proceeds received from the sale of [gas] at the prevailing price for gas sold at the well” — permits Appellee to deduct post-production costs from the royalties. The parties agree that gas is not, in fact, “sold at the well.” The trial court concluded the royalty provision was plain and unambiguous, and it permitted the deduction of post-production costs. On appeal, Appellant argues the trial court erred in this interpretation, and in the alternative, that the lease was ambiguous. We conclude the lease terms are ambiguous and thus reverse and remand. “When . . . an ambiguity exists, parol evidence is admissible to explain or clarify or resolve the ambiguity, irrespective of whether the ambiguity is patent, created by the language of the instrument, or latent, created by extrinsic or collateral circumstances.” Kripp v. Kripp, 578 Pa. 82, 849 A.2d 1159, 1163 (Pa. 2004) (citation omitted). “While unambiguous contracts are interpreted by the court as a matter of law, ambiguous writings are interpreted by the finder of fact.” Id. We conclude the royalty provision contains a latent ambiguity, as “it is reasonably susceptible of different constructions and capable of being understood in more than one sense.” See Mitch, 212 A.3d at 1139. As stated above, the Lease provides that royalties are “equal to [1/8th] of the gross proceeds received from the sale of same at the prevailing price for gas sold at the well.” While the lease specifically refers to the “sale” of gas “at the well,” both parties agree that gas is not, in fact, sold at the well. See Kripp, 849 A.2d at 1163 (latent ambiguity latent is created by extrinsic or collateral circumstances). Accordingly, we reverse the order of the trial court granting Appellee’s motion for summary judgment and denying Appellee’s motion for partial summary judgment. Furthermore, as “ambiguous writings are [to be] interpreted by the finder of fact,” we remand this case to the trial court for further proceedings. See Kripp, 849 A.2d at 1163. We note that on remand, the trial court may consider, inter alia: whether it should apply the accepted meanings, in the oil and gas industry, of “gross proceeds” and “at the well;” the contractual intent of the original Lease parties who executed the Lease in 2007; whether gas was ever sold at the wellhead under this Lease; the subsequent conduct or course of performance of WCMOG and its successors in not deducting post-production costs for eight years, from 2007 to 2015; and any other factors advocated by the parties or found to be relevant by the trial court. Again, we characterize these issues to be parol evidence, outside the four corners of the Lease, and relevant only after we have determined the Lease is ambiguous. For the reasons set forth above, we reverse the order of the trial court granting Appellee’s motion for summary judgment and denying Appellee’s motion for partial summary judgment. We remand this case to the trial court for proceedings consistent with this opinion. We again emphasize that we offer no opinion as to the merit of the parties’ various arguments regarding the meanings of the Lease terms.