Fracking and the Rule of Capture

April 19, 2018

On April 2, 2018, the Pennsylvania Superior Court decided, in the case of Briggs v. Southwestern Energy Production Company, that hydraulic fracturing of shale gas (“fracking”) can constitute a trespass to land.  The Briggs case may seem surprising to many in the industry who believed that the long-standing “rule of capture” would preclude any claims of trespass.  However, the Briggs Court based its decision on longstanding fundamentals of Pennsylvania real property law, and a misguided understanding of hydraulic fracturing.  Once again, unique aspects of oil and gas law have collided spectacularly with established real property law, and the Pennsylvania Supreme Court may be called upon to resolve the conflict.

The Briggs own an 11 acre tract in Susquehanna County, Pennsylvania.  Southwestern holds an oil and gas lease on adjacent property, and operates gas wells located on units which include the leased property, but which do not include the Briggs’ property.  The Briggs believe that Southwestern has been extracting gas from the shale underneath their property, using the method of hydraulic fracturing.  The Briggs filed suit against Southwestern, alleging that Southwestern had trespassed onto the Briggs’ property and converted (taken) gas belonging to the Briggs.  The trial court held in favor of Southwestern, but the Superior Court found in favor of the Briggs.

In order to understand the Briggs decision, basic fundamentals of the law of real property in Pennsylvania must be reviewed and applied to the process of fracking.

Pennsylvania common law defines the concept of “trespass”.  All things being equal, the common law provides that the owner of land owns not only the surface of the land, but also everything below the surface, including the coal, oil and gas, and minerals.  The common law further provides that if a person comes onto property owned by someone else, without consent, a trespass has occurred.  Likewise, if a person places an object onto property owned by someone else, a trespass has occurred.  The Briggs asserted that by forcing fracking fluid into shale under their property, Southwestern trespassed onto their land.  The Briggs further argued that Southwestern unlawfully came onto their property to take (“convert”) gas belonging to Briggs, and should be required to pay Briggs for that gas.

Southwestern raised the “Rule of Capture” as its defense to the Briggs’ claims of trespass and conversion.  The Rule of Capture is an exception to the fundamental law that landowners own everything under the surface of their property, and has been part of Pennsylvania jurisprudence for more than a century.  The Rule allows operators to extract gas from underneath adjacent properties owned by other parties.  The Rule recognizes that when a common pool of gas underlies adjacent properties, the gas will naturally flow into a well drilled on either property.  Gas is therefore said to be “fugacious” or migratory.  Accordingly, the Rule of Capture states that when one of the adjacent landowners drills a well on his or her own property, that landowner may extract gas from the common pool without consent of the other landowner.  This is true even if one landowner extracts all of the gas in the common pool.

The Briggs argued, however, that the Rule of Capture should apply only to conventional (vertical) wells drilled into a common pool of gas.  By contrast, according to The Briggs, unconventional (horizontal) Marcellus Shale wells are not drilled into common pools where gas is migratory.  Instead, the gas is trapped in the Marcellus Shale and cannot migrate to the wellbore unless it is released by the force of injecting fracking fluid at high pressure into the shale.  Briggs’ argument appears to be that the means of extracting shale gas is so new and different that the Rule of Capture should not apply.

The Superior Court agreed with the Briggs that hydraulic fracturing is distinguishable from conventional methods of oil and gas extraction:

“Unlike oil and gas originating in a common reservoir, natural gas, when trapped in a shale formation, is non-migratory in nature.  Shale gas does not merely “escape” to adjoining land absent the application of an external force. . . . Instead, the shale must be fractured through the process of hydraulic fracturing; only then may the natural gas contained in the shale move freely through the “artificially created channels.”

Recognizing that the injection of fracking fluids into another person’s property may constitute a trespass to land, the Briggs Court held that:

“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 adjoining landowner’s property.”

Unfortunately, the Briggs’ arguments and these two statements by the Briggs Court reflect a fundamental misunderstanding of hydraulic fracturing in unconventional shale gas formations, which is the same technology that has been used for decades to stimulate conventional gas wells in Pennsylvania, albeit on a smaller scale in terms of liquid volumes.  Southwestern has since filed a motion asking the Superior Court to allow reargument of the case en banc (in front of a full seven judge panel).  Several industry trade groups have submitted “amicus curiae” (friends of the court) briefs in support of the motion.  On June 8, 2018, the Superior Court denied this motion. 

Finally, since the motion for reargument was denied, Southwestern may decide to appeal further to the Pennsylvania Supreme Court.  Ever since the Marcellus Shale play first began, the Supreme Court has generally upheld the ancient case law favoring the gas lessees in disputes with landowners.  Many observers in the industry anticipate that the Supreme Court will ultimately uphold the Rule of Capture in the context of unconventional drilling, similar to how some other courts around the country (most notably the Texas Courts) have dealt with this issue.  It will be interesting to see how the Supreme Court would decide the issue presented in the Briggs Case upon further appeal.

Updated: June 25, 2018

This Eckert Seamans Energy Alert is intended to keep readers current on matters affecting businesses and is not intended to be legal advice. If you have any questions, please contact Jim Pellow at (412) 566 -1986 – jpellow@eckertseamans.com.

© Eckert Seamans Cherin & Mellott, LLC, 2018.  All rights reserved.

 

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