Under Pressure: A Recent Pennsylvania Decision Breaks with Texas Law and Opens the Door to Trespass Liability When Fracking Across Lease Lines

*Photo courtesy of Doug Duncan, USGSA recent Pennsylvania case on hydraulic fracturing has placed oil and gas operators themselves under pressure. In Texas, operators may hydraulically fracture and produce from adjacent, unleased acreage without trespass liability, as long as the wellbore itself stays within lease lines and is otherwise legal.[1]  But, a Pennsylvania Superior Court decision released last month adopted the opposite rule, opening the door to trespass liability for Marcellus operators. In Briggs v. Southwestern Energy Production Company, the Pennsylvania Superior Court held:[H]ydraulic 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. [2]In addressing whether subsurface fracturing that crosses boundary lines constitutes a trespass, the court relied heavily on two other jurisdictions that have addressed the issue, Texas and West Virginia.[3] The Texas Supreme Court in Coastal Oil & Gas Corporation v. Garza Energy Trust held that the rule of capture precluded operator liability for fracking across lease lines, but Justice Johnson’s dissent became the foundation for the Northern District of West Virginia’s opinion in Stone v. Chesapeake Appalachia, LLC, and now the Pennsylvania Superior Court’s Briggs opinion. Briggs reasons that two important premises are not present in unconventional reservoirs: (1) the fugitive nature of hydrocarbons that results from naturally permeable rock formations, and (2) the availability of full recourse to neighboring mineral owners (or their lessees) through drilling offset wells.The defendant urged the court to apply the rule of capture, a fundamental premise underpinning oil and gas law, so as to preclude liability. The rule of capture holds that a mineral owner (or his lessee) owns the production from a well bottomed on his property, even if the well is producing hydrocarbons that originally existed beneath the property of another. A major justification for the rule has been the practical difficulties of determining the location of hydrocarbons as they exist and migrate throughout producing reservoirs.[4] The Briggs court conceded that the rule of capture is supported in conventional drilling contexts because of the fugitive nature of hydrocarbons in a conventional reservoir that results from naturally occurring rock permeability. Indeed, the court acknowledged that Pennsylvania has followed the rule of capture in the vertical context since at least 1889.[5]  But the court differentiated hydraulic fracturing in the horizontal context, even citing the defendant’s own website to do so, which noted that “[n]atural gas discoveries ‘are made in tight, relatively impermeable rocks, and natural gas will not flow easily from these tight reservoirs without some assistance.’”[6] Accordingly, when hydraulic fracturing targets acreage that is not owned by the lessee, the Briggs court would find that a trespass has occurred.  The distinction lies in the artificiality of the rock permeability, and the non-migratory nature of hydrocarbons in an unconventional reservoir, absent hydraulic fracturing.The Briggs court further noted that the prohibitively high cost of drilling and completing a horizontal well would inhibit small, neighboring mineral owners from drilling their own offset wells to protect their acreage.[7] This “go-and-do-likewise” mentality has historically been another justification for the rule of capture, but, according to Briggs, the rationale is less compelling in the horizontal context, given the high costs involved and technical ability required.  Moreover, the ability of the adjoining lessee to bypass the necessity of a lease agreement and withdraw natural gas from its neighbor would eradicate the incentive to lease from such a landowner.  In this case, the landowner would not have a lessee to sue for breach of the implied covenant to protect against drainage by a neighboring lessee. These factors leave such a mineral owner without recourse, so the court was inclined to impose liability.The impact of this decision is unknown; the defendant is currently waiting on a ruling for reconsideration in the Pennsylvania Superior Court and can appeal to the Pennsylvania Supreme Court. But, a trend can be found that breaks with Texas law: other states are willing to entertain subsurface trespass claims when hydraulic fracturing is producing an adjoining unleased landowner’s oil and gas. Moreover, the court’s analysis could be read to impose liability on even vertical wells that are fractured, if the fractures allow the operator to produce from neighboring unleased acreage. Operators in the Marcellus Shale should be aware of this decision, and conduct their horizontal completion programs with appropriate awareness of lease lines. [1]Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d 1, 17 (Tex. 2008) (“[W]e hold that damages for drainage by hydraulic fracturing are precluded by the rule of capture. It should go without saying that the rule of capture cannot be used to shield misconduct that is illegal, malicious, reckless, or intended to harm another without commercial justification, should such a case ever arise.”).[2] No. 1351 MDA 2017, 2018 WL 1572729, *9 (Pa. Super. Ct. Apr. 2, 2018).[3]Coastal Oil & Gas Corp., 268 S.W.3d at 1, and Stone v. Chesapeake Appalachia, LLC, No. 5:12-CV-102, 2013 WL 2097397, (N.D. W. Va. Apr. 10, 2013), order vacated, 2013 WL 7863861 (N.D. W. Va. July 30, 2013).[4]See Coastal Oil & Gas Corp, 268 S.W.3d at 16.[5]Briggs, 2018 WL 1572729, at *4. (“If an adjoining, or even a distant, owner, drills his own land, and taps your gas, so that it comes into his well and under his control, it is no longer yours, but his…. [T]he one who controls the gas—has it in his grasp, so to speak—is the one who has possession in the legal as well as in the ordinary sense of the word.”) (quoting Westmoreland & Cambria Natural Gas Co. v. De Witt, 18 A. 724, 725 (Pa. 1889)).[6]Id. at *8. (citation omitted; emphasis added).[7]Id. at *9.Conrad Hester and Aaron Powell with assistance from Javan PorterThompson & Knight LLP