SALEM, Ohio — The Pennsylvania Superior Court has made a landmark decision, ruling that a drilling company cannot remove hydrocarbons from the shale formations beneath your property without your permission.
The decision, which was appealed April 16, clarifies an aspect of Pennsylvania oil and gas law, stating the “rule of capture” does not apply to fractured fissures that extend under unleased parcels.
Some of these horizontal fissures could extend 5,000 to 10,000 feet from a well.
In the case, Briggs vs. Southwestern Energy Production Co., the owners of an unleased, 11-acre parcel in Susquehanna County, Pennsylvania, claimed that a horizontal well bore drilled in November 2015 under a neighboring parcel by Southwestern Energy Production Co. was unlawfully draining hydrocarbons from their property.
Since their property was not under lease with Southwestern, the Briggs argued that Southwestern had trespassed.
Southwestern used the “rule of capture” as its defense to the subsurface trespass claim.
The rule has been recognized in Pennsylvania since the 1880s and generally precludes liability for drainage of oil and gas from under another’s land.
Rule history
The decision by the two judges in April alarmed the oil and gas industry over worries that the “rule of capture” will no longer apply to hydraulic fracturing, or fracking, said Ross Pifer, director of the Center for Agricultural and Shale Law at Penn State University.
The rule of capture originates from hunting laws: If a deer is on your property and you shoot it, the deer is yours; if it is on your neighbor’s property and you shoot it, then there could be problems.
Transferring such logic to underground resources has been common, since pools of oil and gas naturally migrate across property boundaries, making ownership difficult to determine, said Mike Chadsey, with the Ohio Oil and Gas Association.
Chadsey said there is such a rule in all 30 plus states that produce oil and gas. The difference is spacing laws. (See sidebar below.)
The trial court agreed with Southwestern and granted its motion for summary judgment and dismissed the plaintiff’s complaint. The trial court held that, as a matter of law, the “rule of capture” precluded any claim of subsurface trespass.
Reversed in high court
On appeal, the Pennsylvania Superior Court reversed and held that the “rule of capture” didn’t apply to hydraulic fracturing:
“In light of the distinctions between hydraulic fracturing and conventional gas drilling, we conclude that the rule of capture does not preclude liability for trespass due to hydraulic fracturing.
“Therefore hydraulic fracturing may constitute an actionable trespass where subsurface fractures, fracturing fluid and proppant cross boundary lines and extend into the subsurface estate of an adjoining property for which the operator does not have a mineral lease, resulting in the extraction of natural gas from beneath the adjoin landowner’s property,” said the ruling.
Clarification needed
This is the section of the superior court’s ruling that needs some clarification, said Chadsey, because hydrofracturing is done in conventional development too.
“How are they are separating hydraulic fracturing from conventional gas drilling?”
Chadsey thinks the main focus of the appeal will be in defining the terms based on industry practices.
In a 97-page motion filed April 16, Southwestern said the decision could have an adverse impact on oil and gas production nationwide, not just in Pennsylvania.
“Hydrofacturing is the most economic and commonly used method of producing oil and gas across the country, and because Pennsylvania is the second largest natural gas-producing state, this court’s decision unsettles the legal landscape for the entire industry,” the motion said.
Rule of capture
The rule of capture is an English common law. Simply put, it’s been around for a long time. Under this law, the first person to “capture” a certain resource has rightful ownership to it. This can be easily understood with hunting: When a hunter kills a wild beast that is roaming freely, it becomes his property. Prior to the “capture,” the beast belonged to no one.
Likewise, when oil or gas that was previously “roaming” under the ground is captured, it becomes the property of the captor.
Spacing
The last time an lawsuit challenge the rule of capture in Ohio was in the late 1800s, Kelly vs. Ohio. Because of spacing laws, Ohio doesn’t see such cases, explains Mike Chadsey, Ohio Oil and Gas Association director of public relations. The difference is that Pennsylvania doesn’t have spacing laws, There you could put a well right on the property line.
Spacing regulations depend on horizontal or vertical well permits.
To get an approved permit, you have to be mindful of the business unit acreage, or the total acreage of all involved, and property lines. There is an ongoing debate as to how close laterals can be to a property line. Many Ohio permits require a 400-500 feet buffer.
“If applicants don’t follow the spacing rules, they won’t receive the permit,” Chadsey said.
“There is a lack of clarity in the rule of capture and what is encompassed by this opinion,” said Penn State’s Pifer. “It is likely the industry will change its practices based on this ruling. The impact will be that companies are going to back away from property boundaries.”
For some landowners, this will be an advantage, if the ruling stands, giving them more ability to negotiate to be included in a contract or move drilling back from property lines, he said. But it could also reduce the gas that is extracted.
Needed regulations
The case highlights the fact that Pennsylvania lacks compulsory pooling and spacing regulations.
Compulsory pooling, also known as forced, statutory or mandatory pooling, forces landowners — who do not wish the mineral resources underneath their land to be extracted — to become part of a drilling unit.
Although this process does not allow extraction companies surface access to the non-consenting landowner’s property, it does allow drilling to occur underneath their land, while compensating the owner for the extracted resource.
If Pennsylvania had a statue like this, perhaps the Briggs would have been involved in the drilling process, Pifer said.
If this litigation is challenged, rendering an opinion on how to allocate the gas, there will be evidence issues to be resolved.
“Expert opinions will be sought on geologic factors and the technology used to predict fracture distance,” Pifer said.
“The rule of capture was easy to administer. With a new ruling, it will lead to a need to make a determination for each well,” he said.
