PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 15-1166

K & D HOLDINGS, LLC,

Plaintiff – Appellee,

v.

EQUITRANS, L.P.; EQT PRODUCTION COMPANY,

Defendants – Appellants,

and

EQT CORP. a/k/a Equitrans, Inc.,

Defendant.

Appeal from the United States District Court for the Northern 

District of West Virginia, at Wheeling. John Preston Bailey, 

District Judge. (5:13-cv-00152-JPB)

Argued: December 9, 2015 Decided: December 28, 2015

Amended: February 8, 2016

Before NIEMEYER, DUNCAN, and AGEE, Circuit Judges.

Reversed and remanded with instructions by published opinion. 

Judge Duncan wrote the opinion, in which Judge Niemeyer and 

Judge Agee joined.

ARGUED: Nicolle Renee Snyder Bagnell, REED SMITH LLP, 

Pittsburgh, Pennsylvania, for Appellants. Stephen A. Wickland, 
Clarksburg, West Virginia, for Appellee. ON BRIEF: Kevin C. 

Abbott, Lucas Liben, REED SMITH LLP, Pittsburgh, Pennsylvania; 

Michael W. Smith, R. Braxton Hill, IV, CHRISTIAN & BARTON LLP, 

Richmond, Virginia, for Appellants.
3

DUNCAN, Circuit Judge:

This appeal concerns an oil and gas lease (the “Lease”) 

between Defendants-Appellants Equitrans, L.P., and EQT 

Production Co. (collectively, “EQT”),1 as lessees, and PlaintiffAppellee K & D Holdings, L.L.C. (“K & D”), as lessor. The 

district court concluded that the Lease was divisible into two 

separate segments--one for production and exploration, and one 

for gas storage and protection of gas storage--and found that 

the production and exploration segment of the Lease had 

terminated after the Lease’s initial five-year term. On appeal, 

Appellants contend that the Lease is not divisible and that 

because they are actively engaged in one of the activities 

covered by the Lease--protection of stored gas--the entire Lease 

remains in effect.

For the reasons stated below, we conclude that the district 

court erred and, accordingly, we reverse and remand with 

instructions to enter judgment for EQT.

 1 K & D originally filed the complaint against EQT Corp., 

also known as Equitrans, Inc. The district court later granted 

the parties’ Joint Motion for Substitution of Parties, 

dismissing EQT Corp. d/b/a Equitrans Inc. as a party to this 

civil action and substituting Equitrans, L.P., and EQT 

Production Co. as defendants. Because all prior proceedings in 

the civil action were binding on Equitrans, L.P., and EQT 

Production Co. as if they had been properly joined and served as 

defendants from the initial filing, “EQT” will be used to refer 

to the Defendants-Appellants both before and after the 

substitution. 
4

I.

A.

On December 2, 1989, Henry H. Wallace and Sylvia L. Wallace 

executed an oil and gas lease with Equitrans, Inc., covering

180 acres of land in Tyler County, West Virginia (the 

“Premises”).2 K & D is the successor-in-interest to the lessors,

the Wallaces, and Equitrans, L.P., is the successor-in-interest 

to the lessee, Equitrans, Inc. Equitrans, L.P., subleased to 

EQT Production Co. the rights to produce and sell gas from the 

“premises and subsurface formations that are not used for the 

storage of gas or protection of stored gas.” J.A. 254.3 Thus, 

the Lease now governs the relationship between K & D and EQT.

The Lease grants EQT the right to use the Premises to 

explore for and produce oil and gas, to store gas, and to 

protect stored gas.4 The term of the Lease is established in 

Article IV (the “Durational Provision”), which reads as follows: 

 2 The Wallaces also entered into two other oil and gas 

leases with Equitrans, Inc.: a lease for 40 acres dated

March 26, 1992, and one for 12 acres dated September 16, 1994. 

On December 22, 2014, during the course of this litigation, 

Equitrans, L.P., released and surrendered these leases. Only 

the 1989 lease remains. 

3 Citations to the “J.A.” refer to the Joint Appendix filed 

by the parties in this appeal. 

4 Under Article I of the Lease, the Lessor 

(Continued)
5

To have and to hold the said land and privileges 

for the said purposes for and during a period of 

5 years from December 2, 1989, and as long after 

commencement of operations as said land, or any 

portion thereof or any other land pooled or unitized 

therewith as hereinafter provided, is operated for the 

exploration or production of gas or oil, or as gas or 

oil is found in paying quantities thereon or stored 

thereunder, or as long as said land is used for the 

storage of gas or the protection of gas storage on 

lands in the general vicinity of said land. It is 

understood that a well need not be drilled on the 

leased premises to permit the storage of gas 

thereunder and the Lessee shall be the sole judge of 

when and if said land is being used for the storage of 

gas or the protection of gas storage on lands in the 

general vicinity of said land. 

J.A. 261. 

Since entering into the Lease, EQT has not engaged in 

exploration, production, or gas storage on the Premises. It 

has, however, engaged in protection of gas storage. Equitrans, 

L.P., owns and operates a nearby natural gas storage facility 

known as the Shirley Storage Field, which is authorized and 

 

hereby leases and lets unto the Lessee, for its 

exclusive possession and use for the purpose of 

exploring and operating for and producing and saving 

oil and gas by all methods now known or hereafter 

known or hereafter discovered, and of injecting gas, 

air, water or other fluids into any subsurface strata 

for the purpose of recovering and producing oil and 

gas, and of pooling or unitizing the same with other 

lands for such purposed [sic], as hereinafter more 

fully set out and for storing gas in the substrata 

thereof, and protecting stored gas . . . .

J.A. 260. 
6

regulated by the Federal Energy Regulatory Commission (“FERC”).5

FERC established a 2,000-foot buffer zone around Shirley Storage 

Field for the protection of the gas storage facilities. It is 

undisputed that part of this protective buffer zone falls on the 

Premises, and that therefore EQT is using a portion of the 

Premises for protection of storage of natural gas.

Because EQT has not used the Premises to engage in gas or 

oil production, K & D now seeks to enter into a more lucrative

oil and gas lease agreement with Antero, Inc., but has been 

unable to do so because of the EQT Lease.

B.

On September 20, 2013, K & D filed a complaint against EQT 

in the circuit court of Tyler County, West Virginia. K & D

primarily claimed that, because EQT has not produced and sold or 

used gas or oil on the Premises for a period of greater than 

twenty-four months, K & D was entitled to a rebuttable 

presumption under West Virginia law that EQT has abandoned the 

Lease. See W. Va. Code § 36-4-9a.6 

 5 FERC has regulatory authority pursuant to the Natural Gas 

Act of 1938, 15 U.S.C. §§ 717 et seq.

6 This provision reads, in relevant part, as follows: 

There is a rebuttable legal presumption that the 

failure of a person, firm, corporation, partnership or 

association to produce and sell or produce and use for 

(Continued)
7

EQT removed the case to the United States District Court 

for the Northern District of West Virginia, where the parties 

subsequently filed cross motions for summary judgment. K & D 

claimed that, because EQT “has expended no money to explore, 

test, or drill for over twenty years,” J.A. 81, the Lease was 

therefore “cancelled by operation of law.” J.A. 84. K & D 

further argued that it should be permitted to lease the unused 

portion of the Premises to another corporation for oil and gas 

production and stated that any drilling permitted on the leased 

area would not affect the protective zone for storage in use by 

EQT.

EQT, on the other hand, argued that West Virginia Code 

§ 36-4-9a by its terms does not apply to leases for gas storage 

purposes. Instead, the “plain and unambiguous terms” of the 

Durational Provision, which contain no requirement that gas or 

oil be produced in order to hold the Lease, were determinative

of the abandonment issue. J.A. 91.

 

its own purpose for a period of greater than twentyfour months, . . . oil and/or gas produced from such 

leased premises constitutes an intention to abandon 

any oil and/or gas well and oil and/or gas well 

equipment situate [sic] on said leased 

premises . . . .

W. Va. Code § 36-4-9a.
8

On September 30, 2014, the district court denied the cross 

motions for summary judgment. The district court rejected 

K & D’s argument that West Virginia Code § 36-4-9a operated to 

terminate the Lease, observing that this provision “specifically 

states that the rebuttable presumption does not apply to leases 

for gas storage purposes.” J.A. 158. Thus, the provision had

“no bearing” on the outcome of the case. Id.

The district court also rejected EQT’s interpretation of 

the Durational Provision. Acting sua sponte, the district court 

found as a matter of law that the Lease was divisible or 

severable, rather than entire. J.A. 156. The district court 

reasoned:

[The lease agreement] has two purposes for the lease 

of the land, the exploration for and the production of 

oil and gas versus the use of the property for the 

storage of gas and the protection of stored gas. A 

separate consideration is stated for each. The fact 

that the leases indicate that the lessee is not 

obligated to drill any wells is further evidence that 

the terms of each are not interrelated, as is the fact 

that the lessee has taken no steps whatsoever to 

develop the oil and gas underlying the property. 

J.A. 157–58. The district court then considered the segment of 

the Lease relating to production of oil and gas and concluded 

that given that the initial five-year lease term had elapsed 

without EQT attempting to explore for or produce oil or gas, 

this segment had expired. Because EQT is using a portion of the 

Premises for protection of gas storage, however, the district 
9

court concluded that the segment of the Lease relating to gas 

storage and the protection of gas storage remains in effect. 

The district court determined that “the resolution of these 

issues leaves general issues of material fact,” such as whether 

the entire Premises was necessary for gas storage and whether 

drilling from an area of the Premises “not necessary for gas 

storage protection would interfere with gas protection.” 

J.A. 158–59.

EQT subsequently moved for reconsideration, arguing both 

that the district court’s finding of severability was erroneous

and that the district court acted improperly by raising this 

issue sua sponte without giving the parties notice or an 

opportunity to respond prior to issuing its order denying the 

cross motions for summary judgment. The district court denied 

this motion.

In anticipation of the district court making a final 

ruling, the parties jointly filed stipulations before the court 

that resolved all remaining factual issues “with the 

understanding and agreement that by entering into these 

stipulations the parties are not waiving any objections or 

rights to appeal any rulings by the Court, including those 

contained in the Order Denying Cross Motions for Summary 

Judgment.” J.A. 253.
10

The district court issued its final order on January 21, 

2015. The court reiterated its conclusion from its previous 

order that the lease at issue was divisible and that the segment 

of the lease for the purpose of exploration for and production 

of oil and gas had expired. Given this, and taking into account 

the stipulations made by the parties, the district court 

concluded that “the plaintiff may drill exploration and 

production wells on areas which are not within the gas storage 

protection area and which extend horizontally under the gas 

storage protection to the Marcellus Shale area.” J.A. 287. 

EQT timely appealed.

II.

EQT raises two arguments on appeal: (1) that the district 

court erred as a matter of law in holding that the Lease was 

divisible into separate segments, one for exploration and 

production, and one for storage and protection of storage; and 

(2) that the district court erred in finding that the “segment” 

of the Lease for exploration and production had terminated after 

its initial five-year lease term. In essence, this appeal asks 

us to resolve whether the Lease required EQT to explore for or 

produce oil or gas beyond the initial five-year period in order 

to maintain its production rights, or whether, instead, EQT 
11

preserved all of its rights under the Lease by exercising just 

one of them, protection of gas storage.

We consider each of EQT’s arguments in turn, reviewing the 

district court’s findings of fact for clear error and its 

conclusions of law de novo. Perez v. Mountaire Farms, Inc., 650 

F.3d 350, 363 (4th Cir. 2011). As this court’s jurisdiction is

based on diversity of citizenship, we apply West Virginia law to 

the facts of this case. See Moore Bros. Co. v. Brown & Root, 

Inc., 207 F.3d 717, 722 (4th Cir. 2000). 

A.

EQT argues that the district court erred in finding sua 

sponte that the Lease was divisible. We agree.

EQT argues that the Durational Provision, stating that the 

lessee would have and hold the land and its privileges “as long 

after commencement of operations as said land . . . is operated 

for the exploration or production of gas or oil, or as gas or 

oil is found in paying quantities . . . , or as long as said 

land is used for the storage of gas or the protection of gas 

storage,” J.A. 261 (emphasis added), is clear: “the unambiguous 

language of the Lease means that EQT had to do only one of the 

alternative acts in order to keep the entire Lease in effect, 

including EQT’s right to produce oil and gas.” Appellants’ Br. 

at 9. K & D argues that to adopt this interpretation would be 

contrary to West Virginia public policy and would conflict with 
12

the intent of the parties “to enter into a contract that would 

be beneficial to both parties.” Appellee’s Br. at 9. 

B.

In general, West Virginia contract law principles apply 

equally to the interpretation of leases. See Energy Dev. Corp. 

v. Moss, 591 S.E.2d 135, 143 (W. Va. 2003). Under West Virginia 

law, “the primary criterion” for determining if a contract is 

severable “is the intention of the parties as reflected from a 

fair construction of the terms of the contract itself, the 

subject matter of the contract and the circumstances which gave 

rise to the question.” Quinn v. Beverages of W. Va., Inc., 

224 S.E.2d 894, 900 (W. Va. 1976). A severable contract is one 

that is “susceptible of division and apportionment,” while a 

contract that is not severable has material provisions and 

consideration that “are common each to the other and 

interdependent.” Dixie Appliance Co. v. Bourne, 77 S.E.2d 879, 

881 (W. Va. 1953). Further, “[t]here is a presumption against 

finding a contract divisible unless divisibility is expressly 

stated in the contract itself, or the intent of the parties to 

treat the contract as divisible is otherwise clearly 

manifested.” 15 Williston on Contracts § 45:4 (4th ed. 

2000)(footnotes omitted). 

In this case, a fair construction of the terms of the Lease 

compels the conclusion that the Lease was intended to be entire, 
13

not divisible. To hold otherwise would be to ignore the

disjunctive use of the word “or” in the Durational Provision. 

The Lease expressly sets out a list of activities and makes 

plain that engaging in any one of them constitutes an exercise 

of rights such that the entirety of the Lease would remain in 

effect. As the West Virginia Supreme Court of Appeals has held, 

“the word ‘or’ . . . in the absence of a contrary intent of the 

parties appearing from other parts of the lease, [shall] be 

given its ordinary meaning and not considered as meaning ‘and.’”

Syl. Pt. 1, Little Coal Land Co. v. Owens-Ill. Glass Co., 

63 S.E.2d 528, 529 (W. Va. 1951).

K & D argues that the fact that the Lease contains 

provisions for separate monetary consideration for distinct 

activities renders it severable under Regent Waist Co. v. O.J. 

Morrison Department Store Co., 106 S.E. 712 (W. Va. 1921). In 

Regent Waist Co., a case involving a contract for different 

types of garments, the Supreme Court of Appeals of West Virginia 

held that “[w]here a retail merchant orders from a manufacturer 

of shirtwaists a number of such waists of different kinds and 

qualities, a definite price being fixed for each of such 

different kinds and qualities, such contract is separable in the 

absence of any circumstance indicating the contrary.” Id. Syl. 

Pt. 2, at 712. 
14

It is true that the Lease requires the lessee to pay 

different rents or royalties depending on the activities in 

which the lessee engages. However, these activities are 

interrelated and quite different in kind from the transactions 

at issue in Regent Waist Co., so the same logic does not apply 

when interpreting the Lease at issue here. Rather than this 

Lease being “made up of several distinct items,” there is

instead an “intimate connection” between the different rights 

bargained for. Id. at 714. Therefore, “it can safely be said 

that the contract is entire.” Id.

Finally, K&D argues that under West Virginia law, the 

“general rule” is that oil and gas leases will “be liberally 

construed in favor of the lessor.” Appellee’s Br. at 22 (citing 

Martin v. Consolidated Coal & Oil Corp., 133 S.E. 626 (W. Va. 

1926)). This is so, but only when there is ambiguity as to the 

meaning of the lease terms. “Where the intent of the parties is 

clear, [the Supreme Court of Appeals of West Virginia] will not 

use the vehicle of interpretation to relieve one party of a bad 

bargain.” Pechenik v. Baltimore & O.R. Co., 205 S.E.2d 813, 815 

(W. Va. 1974).7

 7 We find K & D’s arguments based on vague notions of 

fairness and West Virginia public policy similarly unavailing in 

interpreting a lease the text of which is unambiguous.
15

Because we agree with EQT that the language of the 

Durational Provision is clear and that the Lease does not evince 

any intent of the parties to enter into a divisible lease

agreement, we conclude that the district court erred in holding 

to the contrary.

C.

The district court’s determination that EQT’s production 

and exploration rights had terminated as a result of non-use 

during the initial five-year lease term was based on the 

erroneous premise that the Lease was divisible. Having 

concluded that the Lease is not divisible, we next consider 

whether EQT has continuing rights under the Lease under the 

requirements of the Durational Provision found in Article IV.

Under the Durational Provision, a lessee will maintain 

continuing rights under the Lease beyond the initial five-year 

term so long as (1) the lessee explores for or produces gas or 

oil; (2) “gas or oil is found in paying quantities thereon or 

stored thereunder”; or (3) the “land is used for the storage of 

gas or the protection of gas storage on lands in the general 

vicinity of said land.” J.A. 261. The parties have stipulated 

that “a portion of the 180 Acre Lease falls within the 

protective zone of the Shirley Storage Field.” J.A. 254. Thus, 

EQT is using a portion of the land for protection of gas 

storage, one of the rights conferred by the Lease. Because 
16

there is no disagreement that EQT is indeed engaging in one of 

the activities enumerated in the Durational Provision of the 

Lease, we find that EQT continues to hold all rights under the 

original Lease.

III.

For the foregoing reasons, the judgment of the district 

court is

REVERSED AND REMANDED WITH INSTRUCTIONS

TO ENTER JUDGMENT FOR EQT.