The Pennsylvania Supreme Court this week handed what for now is a key victory to Appalachian producers, finding that in some instances they may not be held liable for subsurface trespass by extracting oil and natural gas using hydraulic fracturing (fracking).
The lawsuit, filed in 2015 in the Susquehanna County Court of Common Pleas by Adam Briggs, his wife and family members, alleged that Southwestern Energy Co. had for years been unlawfully extracting gas from the family’s unleased 11-acre parcel through an unconventional well on an adjoining property.
The state’s high court found that the rule of capture applied to unconventional development and said no physical intrusion had occurred on the Briggs property that would constitute a trespass. The rule is considered a fundamental principle in energy law that has been applied to conventional development from shallow reservoirs for more than 100 years, which prevents liability for draining migratory oil and gas from underneath private land.
The state Supreme Court found the law applies even if artificial stimulation is used to extract oil and gas, while an appellate court found it should apply only in cases of natural drainage.
“All drilling for subsurface fugacious minerals involves the artificial stimulation of the flow of that substance,” the Supreme Court justices said. “The mere act of drilling interferes with nature and stimulates the flow of the minerals toward artificially created low pressure areas, most notably, the wellbore...There is no reason why this precept should apply any differently to hydraulic fracturing conducted solely within the driller’s property.”
But the ruling does not necessarily close the door on future trespass claims and does not insulate unconventional development from such proceedings, as the justices indicated the record on the matter is incomplete.
For example, an operator could still be held liable if a wellbore deviates into an unleased property or if proppant is physically placed into fissures that cross property lines, said attorney Robert Burnett, chairman of the oil and gas practice group at Houston Harbaugh.
"The court made it pretty clear that if a plaintiff can demonstrate an actual physical intrusion the rule of capture will not apply," he told NGI’s Shale Daily. "To the extent the plaintiff can prove that during the fracking process, frack fissures were created and the proppants went into those fissures, remain in those fissures and kept open the fissures allowing gas to move out, that's a trespass."
In its petition to the state Supreme Court, Southwestern said the case attracted national attention because it had the potential to “disrupt” oil and gas exploration across the country.
The independent producer said Thursday it was satisfied with the opinion, noting that the justices “affirmed the time-honored rule of capture” and “left unchanged the long-standing requirement that the plaintiff bears the burden of proving the specific conduct alleged and any damages...This is an important outcome for Pennsylvania and the tens of thousands of its citizens who depend on the energy industry for power, for jobs and for royalty payments.”
While the plaintiffs did not specifically accuse Southwestern of trespassing, the justices rejected the state Superior Court’s conclusion that it had, noting that a physical intrusion doesn’t necessarily occur miles above or below the surface.
“By design, hydraulic fracturing creates fissures in rock strata which store hydrocarbons within their porous structure,” wrote Chief Justice Thomas G. Saylor for the majority. “On the state of the present record, this alone does not establish that a physical intrusion into a neighboring property is necessary for such action to result in drainage from the property.”
A trial court agreed with Southwestern's argument that the Briggs’ claims are barred by the rule of capture. On appeal to the Superior Court, however, the Briggs argued that there are significant differences between fracking and the “conventional process of tapping into a pool or reservoir of fluids.” They argued that gas in shale formations would remain trapped forever if not for the “forced extraction” through fracking.
The Superior Court agreed, issuing an opinion that reversed and remanded the case to the lower court to determine if Southwestern committed trespass with its shale wells. Had the case advanced, producers were concerned that they could be held liable if the rock fissures created by fracking deep underground stretched beneath unleased property and siphoned off oil and gas.
While the issue has been frequently litigated throughout the years, the Pennsylvania case has been watched closely given the lack of cases nationwide that have addressed it in the unconventional drilling era.
“The panel’s decision does not only affect Pennsylvania,” Southwestern wrote in a 2018 motion asking the Superior Court to reconsider the case. “Because hydrofracturing is the most economic and commonly used method of producing oil and gas across the country, and because Pennsylvania is the second largest natural gas producing state, this court’s decision unsettles the legal landscape for the entire industry.”
Burnett added that the Supreme Court’s opinion correctly put the focus on what constitutes a physical intrusion. “I think the Superior Court’s decision painted too broad of a brush to the extent it simply said rule of capture doesn’t apply to hydraulic fracturing,” he said.
While the justices vacated the Superior Court’s opinion, the case was remanded to the appellate court for further proceedings.
“The next logical step is that the Superior Court needs to remand it further back to the trial court and allow discovery to be completed,” Burnett said. “The record needs to be developed on the issue of an actual physical intrusion, and the Supreme Court hinted to that in its opinion.”
The high court also cautioned, however, that the state judiciary lacks the “institutional tools” necessary to untangle “the myriad of circumstances” likely to present themselves in trespass disputes involving landowners and oil and gas producers. Pennsylvania remains the nation’s second largest gas producer, with over 6 Tcf of annual volumes driven by the Marcellus, Utica and Upper Devonian shales.
“The legislative branch is not similarly constrained, and if the general assembly believes that additional measures are needed in favor of small landowners, it is in a better position to ascertain the need for such measures and to articulate their details,” Saylor wrote in the opinion.