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Oil and Gas Update

Pennsylvania Appellate Court Decides "Rule of Capture" Does Not Preclude Liability From Trespass Due To Hydraulic Fracturing

June 12, 2018

By: Matthew F. Chase

In a decision which may have severe consequences on oil and gas operations not only in Pennsylvania, but nationwide, the Superior Court of Pennsylvania held on April 2, 2018, in Briggs. v. Southwestern Energy Production Company, 2018 PA Super 79 (Apr. 2, 2018) that the “rule of capture” would not preclude liability for trespass of oil and gas operations due to hydraulic fracturing.

 

The rule of capture, a fundamental principle of oil and gas law in many jurisdictions, precludes liability for oil and gas operations on a landowner’s property which by coincidence drains oil and gas from an adjoining landowner’s property.  This is because, unlike with more concrete natural resources that are minable like coal, “oil and gas are fugitive in their nature, and will by reason of inherent pressure seek any opening from the earth’s surface that may reach the sand where they are confined.”  Barnard v. Monongahela Natural Gas Co., 216 Pa. 362, 65 A. 801, 802 (1907).  Given the undefinable ownership of oil and gas produced from a landowner’s property through conventional oil and gas operations, the traditional remedy for aggrieved adjoining landowners wanting to protect their oil and gas ownership was to have it produced themselves.  Id.  Current oil and gas producers have considered operations using hydraulic fracturing as also falling under the rule of capture, although until recently the courts had not addressed this issue.

 

In Briggs, Adam Briggs, Paula Briggs, his wife, Joshua Briggs, and Sarah Briggs (the “Appellants”) filed suit against Southwestern Energy Production Company (“Southwestern”) for trespass and conversion, alleging that Southwestern’s oil and gas operations using the process of hydraulic fracturing on adjoining property of the Appellants’ 11.07-acre tract of land was unlawfully extracting natural gas from beneath Appellants’ property, even though there was no physical intrusion by Southwestern.  In response, Southwestern filed a Motion for Summary Judgment, alleging that the “trespass claim must fail because Southwestern had not entered Appellants’ property, and the rule of capture bars damages for drainage of natural gas due to hydraulic fracturing.”  The trial court granted in favor of Southwestern’s Motion for Summary Judgment, agreeing that, as a matter of law, the Appellants’ trespass claim was precluded by the rule of capture.

 

On appeal, the Superior Court of Pennsylvania reversed the trial court’s summary judgment ruling, stating that “the rule of capture does not preclude liability for trespass due to hydraulic fracturing.”  In its reasoning, the Court found that “hydraulic fracturing [was] distinguishable from conventional methods of oil and gas extraction.”  Whereas the rule of capture was needed for “subsurface reservoirs or pools . . . [that could] migrate freely within the reservoir and across property lines, according to changes in pressure,” for more conventional oil and gas operations, “natural gas, when trapped in a shale formation, is non-migratory in nature” and must be fractured by hydraulic fracturing for it to be extracted.  Also, the Court found that the traditional remedy for aggrieved adjoining landowners was not as practical for extraction through hydraulic fracturing, noting that “[it] is a costly and highly specialized endeavor, and the traditional recourse to “go and do likewise” is not necessarily readily available or an average landowner.”  As for undefinable ownership of oil and gas produced from a landowner’s property, the Court referenced the more precise operations of hydraulic fracturing in determining trespass liability, stating that while establishing trespass ‘will present evidentiary difficulties . . . [it] did not believe that such difficulty, in itself, is a sufficient justification for precluding recovery.”  Lastly, the Court feared that applying the rule of capture to hydraulic fracturing would lead to oil and gas producers strategically locating their wells near unleased small property owners in order to not have to negotiate leases and pay royalties.  In reversing the trial court’s summary judgment ruling, the case was remanded to the trial court for further proceedings.

 

Subsequent to the April 2nd ruling, on April 16th, 2018, Southwestern filed an Application for Reargument with the Superior Court of Pennsylvania.  A number of third parties then filed Briefs of Amicus Curiae in support of Southwestern’s Application for Reargument.  However, on June 8th, 2018, the Superior Court of Pennsylvania denied Southwestern’s Application for Reargument.  Per Pa.R.A.P. 1113(a), Southwestern may file a Petition for Allowance of Appeal to the Supreme Court of Pennsylvania within thirty (30) days from the entry of the order denying reargument.

 

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