Gas operators have been drilling gas wells throughout this Commonwealth for over a hundred years. As a result, the Pennsylvania countryside is littered with tens of thousands of gas wells. Many of these older wells, unfortunately, are no longer producing gas and have long been abandoned by the gas operator. To make matters worse, the gas operator has disappeared or is no longer in business. Who owns these older, non-producing wells? More importantly, who now owns the remaining natural gas underlying the surface estate? A recent decision of the federal court in Pittsburgh suggests that the mere passage of time will not vest ownership of an unproductive formation in the surface owner.
In Hoffman v. Arcelormittal Pristine Resources, Inc., 2011 WL 1791709 (May 10, 2011 W.D. Pa.), the plaintiff sought a declaration that she was the rightful owner of all oil and gas located beneath a 97 acre tract in Washington County. The plaintiff had purchased the surface estate in 1971. Her deed, however, specifically stated that the conveyance was subject to all “prior instruments” in her chain of title. Plaintiff did not own the oil/gas rights – they were severed from the surface in 1928. Nonetheless, plaintiff entered into three (3) separate gas leases in 1971, 1986 and 2006. No drilling operations were ever conducted on the property by the plaintiff or anyone else.
In February 2011, the plaintiff filed an action to quiet title based on “adverse possession”. Plaintiff argued that because she openly “leased” the underlying oil/gas between 1971 and 1986 and the mineral owner never objected or contested her efforts, she acquired title to the underlying gas formation. The defendants, the successors-in-title from the 1928 deed, opposed the suit on the grounds that a surface owner cannot acquire oil/gas rights through adverse possession without actual production and drilling. Since the plaintiff had never drilled any wells, defendants argued that the plaintiff acquired no rights in the underlying gas formations.
Adverse possession is an extraordinary doctrine which permits one to achieve ownership of another property by operation of law. A party claiming title to real estate by adverse possession must prove that he or she had actual, continuous, exclusive and hostile possession of the land for twenty-one (21) years. Recreation Land Corp. v. Hartzfeld, 947 A. 2d 772, 774 (Pa Super 2008). The adverse possessor must actually “possess” the subject real estate for twenty-one (21) years and treat the property as his own. See, Glen v. Shuey, 595 A. 2d. 606, 610-611 (Pa. Super. 1991) (“Broadly speaking, actual possession of land is dominion over the land; it is not equivalent to occupancy”). While the word “hostile” has been held not to mean ill will or hostility, it “does imply the intent to hold title against the record title holder.” Tioga Coal Co. v. Supermarkets General Corp., 546 A. 2d 1, 3 (Pa. 1988); Sutton v. Miller, 592 A.2d 83, 90 (Pa. Super. 1986) (the adverse possessor “always claims in derogation of the right of the true owner, admitting that the legal title is in another”).
In Hoffman, the plaintiff argued that her execution of three oil/gas leases between 1971 and 1986 constituted “exclusive and hostile possession” of the underlying oil/gas rights. The trial court disagreed and noted that a majority of jurisdictions that have addressed this issue have held that actual possession of the mineral estate must occur:
” . . . the possession of the surface estate will not become adverse possession of the mineral estate unless there is an actual entry upon and use of the underlying minerals for the requisite time period.”
See, Hoffman, 2011 WL 1791709 at 7. In the case of oil/gas, the Hoffman court further explained that “actual possession” means drilling and production. Since no drilling had ever taken place, the Hoffman court concluded that plaintiff never “possessed’ the oil/gas estate and, therefore, no rights or title were acquired by the mere act of signing leases:
” . . . the material facts as set forth by the plaintiff demonstrates that she has merely leased this property . . . Therefore, plaintiff fails to meet the first element required under the law of adverse possession: that there be actual possession on some part of the land at issue”
See, Hoffman, 2011 WL 1791709 at 7. The Hoffman decision is consistent with other oil/gas jurisdictions. Generally, these courts have been held that mere possession of the surface will not constitute “adverse possession” of the minerals. The purported adverse possessor must actually commence drilling operations in an open, obvious and continuous manner. See, Natural Gas Pipeline Co. v. Pool, 124 S.W. 3d 188 (Tex 2003) (the surface owner must engage in “drilling and production of oil and gas “); Monhoma Oil Co. v. Ambassador Oil, 474 P. 2d 950, 960 (Okla. 1970) (the surface owner must take “actual possession of the minerals by opening and operating mines . . .”); Schaneman v. Wright, 470 N.W. 2d 566 (Neb. 1991) (“An actual, public, notorious and uninterrupted working of the minerals for the statutory period is generally required”); Thomas v. Rex A. Wilcox Trust, 463 N. W. 2d 190, 192 (Mich. Ct. App. 1990) (the surface owner must take “actual possession of the mineral estate”); Kriss v. Mineral Rights Inc., 911 P.2d 711, 714 (Colo. App. 1996) (“one must take actual possession of the minerals under the surface or so exclude the owner that he or she cannot enter upon the land to drill for oil or gas”); Frank v. Fortuna Energy, 856 N.Y.S. 2d 322 (N.Y App. Div. 2008) (plaintiff did not “gain title to subsurface minerals through adverse possession based on longstanding residential use of the property”).
Hoffman was correctly decided and is good news for all Pennsylvanians. Valuable mineral rights should not be “lost” by virtue of a phantom lease executed by someone who does not even own those rights. By emphasizing the need for Surface owners must engage in open and continuous drilling operations for twenty-one (21) years before the concept of adverse possession even becomes relevant. the Hoffman court clarified an important area of Pennsylvania oil/gas jurisprudence. Surface owners must engage in open and continuous drilling operations for twenty-one (21) years before the concept of adverse possession even becomes relevant. Given this heightened level of proof, it is unlikely that mineral estates will be at risk for adverse possession.
The Independent Petroleum Association of America estimates that approximately 325,000 oil and gas wells have been drilled in Pennsylvania since 1859. DEP only has records for 88,300 operating wells and 44,700 plugged wells.
Oil and gas development can present unique and complex issues that can be intimidating and challenging. At Houston Harbaugh, P.C., our oil and gas practice is dedicated to protecting the interests of landowners and royalty owners. From new lease negotiations to title disputes to royalty litigation, we can help. Whether you have two acres in Washington County or 5,000 acres in Lycoming County, our dedication and commitment remains the same.
We Represent Landowners in All Aspects of Oil and Gas Law
The oil and gas attorneys at Houston Harbaugh have broad experience in a wide array of oil and gas matters, and they have made it their mission to protect and preserve the landowner’s interests in matters that include:
- New lease negotiations
- Pipeline right-of-way negotiations
- Surface access agreements
- Royalty audits
- Tax and estate planning
- Lease expiration claims
- Curative title litigation
- Water contamination claims
Robert Burnett - Practice Chair
Robert’s practice is exclusively devoted to the representation of landowners and royalty owners in oil and gas matters. Robert is the Chair of the Houston Harbaugh’s Oil & Gas Practice Group and represents landowners and royalty owners in a wide array of oil and gas matters throughout the Commonwealth of Pennsylvania. Robert assists landowners and royalty owners in the negotiation of new oil and gas leases as well as modifications to existing leases. Robert also negotiates surface use agreements and pipeline right-of-way agreements on behalf of landowners. Robert also advises and counsels clients on complex lease development and expiration issues, including the impact and effect of delay rental and shut-in clauses, as well as the implied covenants to develop and market oil and gas. Robert also represents landowners and royalty owners in disputes arising out of the calculation of production royalties and the deduction of post-production costs. Robert also assists landowners with oil and gas title issues and develops strategies to resolve and cure such title deficiencies. Robert also advises clients on the interplay between oil and gas leases and solar leases and assists clients throughout Pennsylvania in negotiating solar leases.
Brendan A. O'Donnell
Brendan O’Donnell is a highly qualified and experienced attorney in the Oil and Gas Law practice. He also practices in our Environmental and Energy Practice. Brendan represents landowners and royalty owners in a wide variety of matters, including litigation and trial work, and in the preparation and negotiation of:
- Pipeline right of way agreements
- Surface use agreements
- Oil, gas and mineral conveyances