This is a familiar yet troubling question. Imagine that you own 150 acres in southwestern Pennsylvania. You have received offers from several prominent gas producers but have not yet signed a lease. Your neighbor, however, did sign a Marcellus lease a few years ago. A typical Marcellus well pad site was erected about 600 yards from your property line. Hydraulic fracturing operations are now complete and the horizontal well is now producing 15 mcf of gas per week. You were told that the horizontal well bore – which is approximately 6,000 feet below the ground – does not encroach or cross your surface boundary. Nonetheless, you are concerned that your neighbor could be draining gas from underneath your property. If so, can you stop your neighbor from taking “your” gas? As with many oil/gas issues, the answer to this question is based on a unique aspect of oil/gas law: the rule of capture.
The “rule of capture” is a well-established doctrine which holds that a landowner is entitled to extract the oil and gas beneath his land, as well as the oil and gas which flows or migrates from a common reservoir. Oil and gas generally migrate to low pressure areas within a reservoir. As a result, production from one well may cause gas to migrate across property lines. The “rule of capture” recognizes this unique geologic phenomenon by allowing a landowner to “appropriate the oil and gas that have flowed from adjacent lands without the consent of the owner” of those adjacent lands. See, Ellif v. Texon Drilling Co., 210 S.W. 2d 558, 561 (Tex. 1948). Under this rule, there is no liability for “reasonable and legitimate drainage from the common pool.” Ellif, 201 S.W. 2d at 562. As the Texas Supreme Court once observed:
“…the rule of capture can mean little more than that due to their fugitive nature the hydrocarbons when captured belong to the owner of the well which they flowed, irrespective of where they may have been in place originally…”
See, Halbouty v. R.D. Commission, 357 S.W. 2d 364, 375 (Tex. 1962); see also, Occidental Permian Ltd. v. Helen Jones Foundation, 333 S.W. 3d 392, 409 (Tex. Ct. App. 2011) (“the rule of capture provides that a landowner owns all of the oil and gas produced by a legally drilled well located on his property, even though the well may be draining minerals from neighboring properties…”); Cowling v. Bd. of Oil, Gas & Mining, 830 P.2d 220, 224 (Utah 1991) (landowner not liable to adjacent landowner “even if the producing well [is] drilled next to the adjacent landowner’s boundary”). Thus, since gas in a continuous reservoir will flow to a point of low pressure, a landowner is not restricted to the particular gas that may underlie his property but is the owner of all “which he may legally recover.” See, Halbouty, 357 S.W. 2d at 375.
So long as the well is within the vertical boundaries of his or her property, all gas extracted from that well is lawfully owned by that landowner/operator. If the well bore “bottoms out” underneath the property of another and is a so-called “deviated well”, the operator has committed a subsurface trespass. See, Continental Resources Inc. v. Farrar Oil Co., 559 N.W. 2d 841, 844 (N.D. 1997) (“A subsurface trespass remains defined that way: the bottoming of a well on the land of another without his consent.”); see also, Hastings Oil Co. v. Texas Co., 234 S.W. 2d 389 (Tex. 1950) (enjoining a deviated well that bottomed under the land of another); Edwards v. Lachman, 534 P.2d 670 (Ok. 1974) (rule of capture does not apply to hydrocarbons removed as a result of a deviated well). The rule of capture only protects the operator from drainage liability if the gas produced has migrated from underneath the land of another. No such protection is afforded the operator of a deviated well.
When the rule applies, the only protection that a landowner has against the flow of migrating gas to a neighboring well is to drill an offset well. Such wells “interrupt the flow of oil and gas being drawn by neighboring wells.” See, INB Land: Lattle, LLL v. Kerr-McGee Rocky Mt. Corp., 190 P.3d 806, 808 (Colo. Ct. App. 2008). “[T]he rule of capture is justified because a landowner can protect himself from drainage by drilling his own well thereby avoiding the uncertainties of determining how gas is migrating through a reservoir.” Coastal Oil & Gas v. Garza Energy Trust, 268 S.W. 3d 1, 14 (Tex. 2008). Because the landowner generally has the right to drill offset wells, the rule of capture precludes claims of trespass or improper drainage against a neighboring well.
Does the “rule of capture” apply to gas extracted from Marcellus shale formations? The rule is based on the notion that gas within a common reservoir will freely migrate throughout that gas reservoir. Shale gas, such as the Marcellus, is considered a “tight” geologic formation – the gas is trapped within relatively nonporous and impermeable rock and does not migrate naturally. The natural gas in such formations cannot be produced without hydraulic fracturing stimulation or “fracing.” Fracing is accomplished by pumping fluid down a well at extremely high pressure so that it “cracks” natural fault lines in the rock formation. These fault lines, which are then “propped” open by certain proppants, allow the “trapped” natural gas to escape to the surface through the well bore. What happens when these subterranean fractures extend across surface property boundaries and release gas which would have otherwise remained in place?
The Texas Supreme Court recently addressed the issue of subsurface trespass by hydraulic fracturing in the landmark case of Coastal Oil and Gas Co. v. Garza Energy Trust, 268 S.W. 3d 1 (Tex. 2008). In Garza, the plaintiff argued that drainage caused by fracing was analogous to a suit for trespass caused by drilling a slant or deviated well. The plaintiff contended that fracing operations, like a deviated well, unlawfully remove gas located beneath another’s property. The Garza court rejected this argument under the auspices of the rule of capture and opined that “the rule of capture determines title to gas that drains from property owned by one person onto property owned by another.” Garza, 268 S.W. 3d at 14. The court further observed that the gas produced through a deviated well, unlike fracing operations, “does not migrate to the wellbore from another’s property; it is already on another’s property.” Id. at 14. Since fracing operations create a new reservoir by loosening the rock formation, the court implicitly reasoned that such gas “migrated” onto the defendant’s property. As such, the plaintiff’s claim for unlawful drainage caused by the adjacent fracing operations was precluded by the rule of capture.
The Pennsylvania Supreme Court has yet to address the issue of subsurface trespass by hydraulic fracturing. It is unclear how the Pennsylvania Supreme Court will decide this issue. Hydraulic fracturing is a legitimate, widely used recovery method which is essential to the economical production of non-conventional gas resources such as the Marcellus shale. Nonetheless, there are some that believe Garza was wrongfully decided since the gas itself did not “migrate” naturally and drained only because of an artificially created channel. e.g. Peterson v. Grayce Oil Co., 37 S.W. 2d 367, 370-371 (Tex. Civ. App. 1936) (suggesting over seventy years ago that rule of capture does not apply to artificially induced flows). Given this fact, opponents argue that the rule of capture should not insulate or protect fracing operations. This debate will certainly continue in the months ahead as fracing operations escalate throughout the Commonwealth.
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
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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