Reversing an order granting Southwestern Energy Company’s (SWN) Motion for Summary Judgment, the Superior Court of Pennsylvania held in a published decision on April 2, 2018, that trespass and conversion claims arising from hydraulic fracturing by SWN are not precluded by the rule of capture. Briggs v. Southwestern Energy Production Company, 2018 PA Super 79 (Apr. 2, 2018).
SWN holds a valid oil and gas lease and operates shale gas wells on property adjacent to the Briggs’ tract, on which no oil and gas lease is in effect. The Briggs alleged that SWN’s wells were unlawfully draining gas from beneath their land as a result of fissures induced by hydraulic fracturing. SWN countered that the Briggs’ claims were barred by the rule of capture: the concept that there is no liability for capturing oil and gas that drains from another’s land. The trial court ruled for SWN on summary judgment, holding that the rule of capture precluded the Briggs’ claims as a matter of law.
The Briggs argued in their appeal that the rule of capture addresses concerns with conventional development and does not apply to gas extracted from shale formations through hydraulic fracturing. SWN urged the court to follow the Supreme Court of Texas’ decision in Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d 1 (Tex. 2008), which held that damages for drainage by hydraulic fracturing are precluded by the rule of capture. Like Texas, Pennsylvania has long followed the rule of capture. See Barnard v. Monongahela Natural Gas Co., 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 draw the oil and gas from them).” A reasonable and prudent Pennsylvania operator could therefore feel confident in the propriety of its location and completion strategy.
For now, that confidence has been shaken. The court was not persuaded and sided with the Briggs, declining to follow Garza. It concluded that “[i]n light of the distinctions between hydraulic fracturing and conventional gas drilling…the rule of capture does not preclude liability for trespass due to hydraulic fracturing.” Briggs at 23.
The court offered three reasons for its decision:
(1) The rule of capture assumes that oil and gas are capable of migrating freely within a reservoir according to changes in pressure and without regard to surface property lines, but due to the low permeability of shale formations shale gas is not capable of migrating to an adjoining tract absent the application of an artificial force.
(2) Under the rule of capture, the traditional remedy for a landowner impacted by a neighbor’s well was to drill an offsetting well to avoid drainage, to “go and do likewise.” Coastal Oil at 14. Since hydraulic fracturing is a “costly and specialized endeavor” that the average landowner can’t conduct, this is not a realistic remedy for the Briggs.
(3) While the court acknowledged the evidentiary burden facing the Briggs and the difficulties in calculating damages for gas extracted through hydraulic fracturing, it did not believe that these difficulties were sufficient to preclude the Briggs’ claims.
The court held “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.” Briggs at 23.
Briggs raises questions which make it an unsettling precedent for oil and gas operators. First, the court quoted but did not apply the Pennsylvania standard for liability for trespass on land under the Restatement (Second) of Torts Section 158. While stating “[o]ne is subject to liability to another for trespass…if he intentionally…enters land in the possession of another or causes a thing…to do so,” Briggs did not address SWN’s intent for the hydraulically induced fractures to cross the boundary between the tract covered by their lease and the Briggs’ property. If the operator did not intend the fracturing operation to reach the Briggs’ land, will the Briggs’ trespass claim fail?
Second, the court relied heavily on the apparent disparity of power between a well-financed operator, on the one hand, and a small landowner, on the other, who could not afford to drill his own well. Briggs at 21. But SWN’s lessor, presumably also a small landowner, was presumably equally without the capital to drill and fracture a well. The two landowners would appear to have the same power of self-help: to issue oil and gas leases. Should the court have regarded the two landowners as the relevant point of comparison?
Third, the court reasoned that if it did not allow a trespass remedy to Briggs, then SWN would have little incentive to negotiate minerals leases with small property owners. Briggs at 22-23. But that would be true only if the formation SWN fractured were the only formation that could be developed and only if the fracturing opened up that formation throughout the area of the unleased land. Ordinarily, the fact that SWN completed a well so close to the Briggs’ land would raise the value of that land for other potential lessees. SWN’s well signals to the marketplace that the Briggs’ land is more valuable for possible natural gas development than might have been supposed before the well was completed. The Briggs could likely receive a larger bonus for a lease after the fracturing than before. Is it reasonable to carve out an exception to the rule of capture if the activity benefits the supposed victim?
We will explore in a future article how well trespass law is equipped to deal with the problems and questions Briggs raises, if it is equipped at all. In the meantime, Briggs will give operators much to consider when designing a fracturing operation.