Pennsylvania Commonwealth Court Addresses Subsurface Mining Rights

January 27, 2014

In Commonwealth v. Seneca Resources Corporation, 2014 Pa. Commw. LEXIS 76 (January 27, 2014), the Commonwealth Court of Pennsylvania held that language in a deed from 1928 may restrict the owner of oil and gas rights to oil and gas extraction methods that were in existence at the time of the deed.

The Pennsylvania Gaming Commission (“Commission”) filed a complaint against Seneca Resources Corporation (“Seneca”) asserting that although deeds from 1928, 1929, and 1932 granted Seneca the rights to oil and gas under certain parcels of land owned by the Commission (“Property”), the language in one of the deeds gave permission to Seneca to extract oil and gas only using methods that existed in 1928. The Commission also argued that language from another deed gave it development rights for oil and gas. The Commission asserted that since it held the development rights to extract the oil and gas, Seneca had to compensate it for drilling on the Property.

Seneca filed preliminary objections to the Pennsylvania Gaming Commission’s Complaint asserting that the claims were nonjusticiable because there was no case or controversy and that the Complaint failed to state a claim upon which relief may be granted. With respect to whether the claims were justiciable, the Court held that because Seneca had obtained a well permit for extracting oil and gas under the Property and Seneca had already performed a well test, Seneca’s actions were “threatening imminent invasion” and therefore the claims were justiciable.

Seneca’s second preliminary objection was upheld, in part. The Commission argued that since modern gas extraction methods such as hydrofracking did not exist at the time of the deed transfer, the Commission must hold the rights for oil and gas extraction at the Property. The Court disagreed and held that the plain language of the deeds conveying the parcels to the Commission clearly excluded rights to the oil and gas under the Property.

The Court did, however, note that one of the deeds transferring surface ownership of certain parcels to the Commission expressly excluded all oil and gas under the land with “the right to operate for same by ordinary means now in use.” The Commission interpreted this clause to mean that Seneca could only extract oil and gas from the parcel by using extraction methods that were in use in 1928. Seneca countered that interpreting the clause to mean exclusion of modern extraction methods would make their oil and gas rights meaningless. While it is well established in the Commonwealth that anyone who has rights to subsurface oil and gas may enter the surface of the property for purposes of reasonably extracting the oil and gas, the plain language of one of the deeds was ambiguous enough for the Court to overrule Seneca’s objection. Thus, the case will continue on the sole issue of whether Seneca’s oil and gas extraction methods are restricted by the 1928 deed.

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