Two recent decisions from two different states, Pennsylvania and West Virginia, suggest that courts are becoming increasingly skeptical of landowners seeking to capitalize on oil and gas companies utilizing horizontal directional drilling (HDD) to access resources under the property of the landowners.
In Mitch v. XTO Energy, Inc., 2019 PA Super 189 (Pa. Super. June 12, 2019), the Superior Court of Pennsylvania affirmed the trial court’s grant of summary judgment in favor of XTO Energy. The case dealt with Mitch, a landowner in Butler County, Pennsylvania, who believed that XTO’s use of HDD to access natural gas under his land without payment to him violated the terms of a Lease he had signed with the company. Specifically, the Lease in question provided that “[i]f any well(s) is (are) drilled on the lease premises and is (are) producing in paying quantities," Mitch was to receive additional payments beyond the royalties he received for extraction. No well pad was built on Mitch’s property, XTO instead building a pad on a neighboring property and utilizing HDD to access the natural gas under Mitch’s property.
Mitch argued that, under the terms of the Lease, he was owed the additional payments since physical drilling had occurred in the subsurface of his property. However, the trial court held, and the Superior Court agreed, that the cited provision in the Lease was only triggered if the well pad was built on Mitch’s property and drilling occurred from the surface vertically into the subsurface. Specifically, the Superior Court found that it was unreasonable to interpret the Lease to find that XTO had agreed to compensate a surface landowner for drilling occurring thousands of feet beneath the property. In addition to the plain language of the Lease, the Court noted that the additional payment was intended to compensate the owner for the disruption attendant to drilling activities which does not occur as a result of subsurface drilling.
Similarly, in Andrews v. Antero Resources Corp., No. 17-0129 (W.Va. June 10, 2019), the Supreme Court of Appeals of West Virginia decided that surface owners were not entitled to receive additional payments for the extraction of natural gas under their land via HDD. The predecessors to the surface owners had signed severance deeds in the early 1900s, but had retained the mineral rights under the properties. Separate mineral leases were signed over several decades, with the mineral lease most relevant for the case signed with Antero in 2001. As in Mitch, no actual well pads were built on the relevant properties, but instead, six well pads were built within one-mile of the subject properties, and HDD was used to access the gas under the surface.
The property owners claimed that the use of HDD interfered with their enjoyment of their surface rights “due to the [off property] annoyance, inconvenience, and discomfort caused by excessive heavy equipment and truck traffic, diesel fumes and other emissions from the trucks, gas fumes and odors, vibrations, noise, lights and dust.” The trial court rejected these claims premised on property law, holding that “Antero has leasehold rights to develop the oil and gas underlying the properties that are the subject of [Property Owners’] complaint. Those development rights were retained by the oil and gas mineral owners in the severance deeds separating the surface estates from the mineral estates.” The trial court further added that the nuisance and inconvenience were “reasonable and necessarily incident to Antero’s development of the underlying minerals.”
In reviewing the trial court’s decision, the West Virginia Supreme Court of Appeals added that even technological advances, such as the use of HDD, while not contemplated when the original severance agreements were signed, did not undercut the ability of the mineral rights owner to access the minerals. The Court distinguished a few cases that had held that such technological advances could vitiate a contract, stating that those earlier cases all involved “the incompatibility of the use of the surface by the mineral owner with the use of the surface by the surface owner. In each of the cases . . . the use of the surface by the mineral owner caused such significant damage to the surface that it amounted to the destruction thereof and was utterly incompatible with any use the surface owner may have engaged in or anticipated as a future surface use.” Ths the owner could not have reasonably contemplated the eventual harm when signing the contract. Here, as discussed above, the Supreme Court believed that there was no such surface harm and thus the new HDD technology did not hamper the original understanding of the parties.
Only time will tell if other courts continue this trend, holding that horizontal directional drilling allows for access to subsurface minerals without payment to the surface landowner, so long as certain agreements are in place beforehand. Nonetheless, parties would be well advised to consider how new technologies, perhaps barely even contemplated, may impact access to mineral resources and property rights associated therewith.