The Oil and Gas Addendum

In a landmark decision, the Pennsylvania Superior Court recently ruled that the “rule of capture” does not apply to frac fissures that extend under unleased parcels. The decision clarifies an important aspect of Pennsylvania oil and gas law: a driller cannot remove hydrocarbons from the shale formations beneath your property unless you have signed an oil and gas lease with that driller. In Briggs v. Southwestern Energy Production Co., the owners of an unleased 11-acre parcel in Susquehanna County claimed that a horizontal well bore drilled under a neighboring parcel by Southwestern Energy Production Co., (SWN) was unlawfully draining hydrocarbons from their property. The plaintiffs argued that when the well bore was hydraulically stimulated (i.e., fracked) the resultant fissures or cracks in the shale formations extended beyond the property boundary and into their acreage. Since their property was not under lease with SWN, the plaintiffs argued that SWN had no right or authority to remove hydrocarbons from their property and that the fissures constituted a subsurface trespass. SWN asserted the “rule of capture” as a complete defense to the subsurface trespass claim. The rule has been recognized in Pennsylvania since the 1880’s and generally precludes liability for drainage of oil and gas from under another’s land. The rationale for the rule is that oil and gas, when trapped in a common reservoir, are “fugitive” since the molecules will flow and migrate throughout the space. See, Barnard v. Monongahela Natural Gas, 65 A. 801, 802 (Pa. 1907) (a landowner “or his lessee may locate his wells wherever he pleases, regardless of the interests of others…he may crowd the adjoining farms so as to enable him to drain the oil and gas from them”); Westmoreland & Cambria Natural Gas Co. v. DeWitt, 18 A. 724 (Pa. 1889) (“If an adjoining, or even a distant, owner drills his own land, and taps your gas, so that it comes into his well and under his control, it is no longer yours but his…’); Minard Run Oil v. United States Forest Services, 670 F.3d 236 (3rd Cir. 2011) (the rule of capture “permits an owner to extract oil and gas even when extractions depletes a single oil and gas reservoir lying beneath adjoining lands”); see also, Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d. 1 (Tex. 2008)(dissent) (“…the rationale for the rule of capture is the fugitive nature of hydrocarbons. They flow to places of lesser pressure and do not respect property lines”). The rule, however, has historically only been applied to vertical wells that access a common reservoir. Here, there was no common reservoir as the rock formation itself (i.e., Marcellus Shale) had to be fractured in order to unlock the gas and create flow into the well bore. Despite this critical operational distinction, SWN argued that the “rule of capture” should also apply to the fissures created during the hydraulic stimulation process. The trial court agreed with SWN and granted SWN’s motion for summary judgement 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. On appeal, the Pennsylvania Superior Court reversed and held that the “rule of capture” was inapplicable 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.” The author submits that the Briggs court made the right call. The “rule of capture” is based on the premise that oil and gas originates in subsurface pools or reservoirs and that the gas will migrate freely within that reservoir (and across property lines) according to changes in pressure. That is simply not the case with gas trapped in a tight shale formation. Such gas is non-migratory in nature and cannot be extracted unless and until artificial channels are created. In essence, the fissures or cracks in the shale created during hydraulic fracturing are an extension of the well bore itself. Since the “rule of capture” would not insulate a claim of subsurface trespass if SWN drilled directly under the Briggs’ property, why should the fissure be treated any differently?