In oil and gas law, it is well-settled that the “rule of capture” holds that there is no liability for a mineral rights owner’s drainage of oil and gas from another person’s land so long as the oil and gas is produced from a well bottomed on the mineral owner’s property and all relevant statutes and regulations have been observed.1 The rule shields exploration and production operators from liability for a trespass when they extract oil and gas below ground from another person’s land, unlike the case where a prospector extracts hard minerals such as coal or precious metals such as gold or silver. The application of the rule of capture to extraction of oil and gas and not to hard or precious minerals is due in large measure to the “fugitive and wandering” nature of oil and gas.
Nonetheless, this deep-rooted tenet of oil and gas law was recently upended by the Superior Court of Pennsylvania. On April 2, 2018, the court issued an order in Adam Briggs et al. v. Southwestern Energy Production Company,2 holding that the rule of capture does not preclude trespass liability for the drainage of oil and gas resulting from hydraulic fracturing. The order reverses the trial court’s August 2017 order granting summary judgment for Southwestern against claims for trespass, conversion and punitive damages relating to the alleged drainage of gas from an adjacent property as a result of hydraulic fracturing.3 In reversing the trial court, the Superior Court was swayed by what it considered to be a distinction in removal of gas through free movement under conventional oil and gas extraction techniques as opposed to the liberation of the gas from trapped areas by means of “forced extraction” methods such as hydraulic fracturing.
Southwestern is now seeking a rehearing, with an April 16, 2018 application for reargument en banc of the April 2nd order by the Superior Court. If left unchanged, the Briggs decision will be in conflict with a Texas Supreme Court case, Coastal Oil & Gas Corp. v. Garza Energy Trust,4 one of the very few cases known to have considered this issue. In Coastal, the Texas Supreme Court held that a plaintiff seeking to assert a claim of trespass for the drainage of oil and gas from beneath its property as a result of hydraulic fracturing was precluded from making such a claim under the rule of capture.5 The Briggs holding creates uncertainty for oil and gas producers extracting gas by means of hydraulic fracturing in the Marcellus Shale regions of Pennsylvania, not to mention other oil and gas bearing regions outside of Texas.
The facts of the case are fairly straightforward. The Briggs family owns an approximately 11-acre parcel of land in Susquehanna County, Pennsylvania, and Southwestern is the lessee of oil and gas rights on a tract of land adjoining the Briggs family’s property. Since 2011, Southwestern has continuously operated gas wells on the property adjacent to the Briggs family’s property. Southwestern conducted hydraulic fracturing to extract the gas from the Marcellus Shale formation through wellbores located on the adjacent property.
The Briggs family filed a Complaint on November 5, 2015, asserting trespass and conversion, and seeking punitive damages, contending that Southwestern, in conducting its gas extraction activities, unlawfully extracted the gas from beneath the Briggs family’s property by conducting hydraulic fracturing, thereby releasing gas from beneath the Briggs family’s property that otherwise would not be released through the “conventional process” of removing gas without fracturing. Southwestern filed an Answer on December 23, 2015, asserting, among other things, that Southwestern had not trespassed onto the Briggs’ property and, in any event, that the Briggs family’s claims were barred by the rule of capture. On August 8, 2017, the trial court granted Southwestern’s Motion for Summary Judgment, finding that, as a matter of law, the rule of capture precluded recovery by the Briggs family.
The Briggs family appealed the August 8th order to the Superior Court. In its appeal, the Briggs family argued that the extraction of gas from beneath their property is a trespass, despite the lack of physical intrusion by Southwestern, because the gas contained in the shale formations beneath their land would remain trapped there forever if not for the “forced extraction” through hydraulic fracturing. Southwestern reiterated its defenses used in the trial court, that it cannot be held liable for trespass because it never entered, or drilled any wells on, the Briggs family’s property and because the theory of trespass is precluded by the rule of capture.
The Superior Court opinion cited to cases decided in Pennsylvania as early as 1889 in acknowledging the application of the rule of capture as a legal basis for precluding liability for drainage of oil and gas from under another person’s property while using conventional oil and gas extraction activities. However, the court seized upon the Briggs family’s assertion that hydraulic fracturing “differs dramatically” from conventional gas drilling, in determining that the distinction between hydraulic fracturing and conventional drilling in draining gas from another’s property represented a case of first impression in Pennsylvania. Consequently, the court considered two cases from other jurisdictions to guide it on whether the rule of capture applies to hydraulic fracturing – Coastal Oil & Gas Corp. v. Garza Energy Trust, a Texas Supreme Court case decided in 2008, and Stone v. Chesapeake Appalachia, LLC,6 a federal district case court in West Virginia in 2013.
As recited by the Superior Court, in the Coastal case, plaintiffs owned the minerals in a tract located adjacent to, but not a part of, mineral property leased by Coastal. Coastal extracted gas from several hydraulically fractured wells on the leased property. Plaintiffs alleged that Coastal’s fracturing of one of its leased wells closest to the Plaintiffs’ boundary line had trespassed onto the tract, resulting in substantial drainage of gas from the tract.
The Texas Supreme Court in Coastal determined that it did not have to determine whether hydraulic fracturing is a trespass. Rather, , the Texas Supreme Court focused on the nature of the alleged claim and determined that the plaintiffs had to establish an injury, but the only injury the plaintiffs claimed was drainage of gas by means of hydraulic fracturing from beneath the Plaintiffs’ tract. The court held that the drainage was allowed by the rule of capture.7
The Texas Supreme Court cited four justifications for this holding:8 (i) the law already afforded the owner who claims damage full recourse;9 (ii) allowing recovery for the value of gas drained by hydraulic fracturing usurps to the courts and juries the preferable authority of the Texas Railroad Commission to regulate oil and gas production;10 (iii) determining the value of oil and gas drained by hydraulic fracturing is a difficult issue, not easily handled in litigation;11 and (iv) the law of capture should not be changed to apply differently to hydraulic fracturing because the industry does not appear to want such a change.12 A concurring and dissenting opinion in Coastal13 focused on the fact that gas was being extracted only after being unlocked from beneath the plaintiffs’ tract by means of hydraulic fracturing.14 As a result, the dissenting view was not to apply the rule of capture under circumstances where a party artificially creates a channel or device and then “captures” the minerals on the trespasser’s lease.15
In Stone, the plaintiffs were owners of a tract of land that was subject to a mineral lease establishing a right to pool and unitize certain formations (but excluding the Marcellus Shale formation) under the tract. The plaintiffs and Chesapeake Appalachia, LLC (“Chesapeake”), the lessee/defendant, were unable to agree to a lease modification that would allow for pooling and unitization of the Marcellus Shale formation and, as a result, Chesapeake drilled a well on a neighboring property (not part of the plaintiff’s tract), drilled horizontally to within tens of feet of the plaintiffs’ property line, and conducted hydraulic fracturing to extract gas from the well on the neighboring property. The plaintiffs filed a complaint in federal district court alleging, among other things, that Chesapeake had trespassed on their property by engaging in hydraulic fracturing. Chesapeake filed a Motion for Summary Judgment, asserting, among other things, that the plaintiffs’ trespass claim was barred by the rule of capture, and urged the district court to apply the holding in Coastal.
The district court considered the Coastal decision but applied the reasoning of the Coastal dissent to deny the summary judgment motion and hold that hydraulic fracturing beneath a neighbor’s land without consent constitutes an actionable trespass.16 The Stone court reasoned that the Coastal opinion “gives oil and gas operators a blank check to steal from the small landowner. Under such a rule, the companies may tell a small landowner that either they sign a lease on the company’s terms or the company will just hydraulically fracture under the property and take the oil and gas without compensation. In the alternative, a company may just take the gas without even contacting a small landowner.”17
Additionally, the district court was not influenced by the four justifications cited by Coastal, instead referencing the dissent’s criticism that not all property owners are able to drill their own well to protect their rights.18 Additionally, with respect to the fourth justification, the district court stated that “[it] sees no reason why the desires of the industry should overcome the property rights of small landowners.19
After examining the Coastal and Stone decisions, the Superior Court in Briggs was persuaded more by the Coastal dissent and Stone than by the Coastal decision, whereupon it concluded that hydraulic fracturing is distinguishable from conventional methods of oil and gas extraction.20 Finding that the gas is not escaping without assistance but, instead, flowing through artificial means applied to stimulate such flow,the Briggs court concluded that the rule of capture does not preclude liability for trespass due to hydraulic fracturing and, thus, found an actionable trespass where subsurface fractures, fracturing fluids and proppant cross boundary lines and extend into the subsurface estate of an adjoining property for which the mineral operator does not have a mineral lease.21 In so holding, the court acknowledged that determination of the value of natural gas so drained in a trespass action will present “evidentiary difficulties,” but it does not believe such difficulty is a sufficient justification for precluding recovery.22
Accordingly, the Briggs court held that the entry of summary judgment by the trial court in favor of Southwestern was premature and, reversed the summary judgment order and remanded the case to the trial court for further proceedings.
Consequently, the courts in two prolific oil and gas bearing regions — Texas and Pennsylvania — have reached different conclusions as to whether the rule of capture may defeat a claim of trespass for drainage of gas from beneath another person’s land by means of hydraulic fracturing. The holding in Briggs may increase the likelihood of drainage claims to be asserted when hydraulic fracturing is used to produce oil and gas, at least in Pennsylvania. Pending a rehearing by the Superior Court, Briggs is the law in Pennsylvania.