A court in Pennsylvania ruled Monday that Seneca Resources Corp. owns the rights to oil and natural gas under about 3,650 acres in Venango County owned by the state Game Commission (PGC), but it said it was unclear whether the company also had the right to perform hydraulic fracturing (fracking) on some of the acreage.
In a 15-page ruling, the Pennsylvania Commonwealth Court said Seneca, the exploration and production subsidiary of National Fuel Gas Co., owned the oil and gas rights to property that is now part of State Game Lands 39 in Venango County (PA Game Commission v. Seneca Resources Corp., No. 89-MD-2013).
The court denied the PGC's request to transfer those rights to the commission.
According to court records, the Sancrik Lumber Co. transferred four tracts totaling about 3,171 acres to the PGC in 1928, but the deed specifically excluded the property's oil and gas rights; those were granted to the United Natural Gas Co. through a separate deed in 1929. Sancrik transferred another four tracts totaling about 483 acres to the PGC in 1932, and that deed also excluded the oil and gas rights.
The records also showed that Seneca had drilled an unconventional vertical test well on the property, which was transferred in 1932, and had received a permit from the state Department of Environmental Protection (DEP) to drill there. But the PGC complained after it said Seneca had begun plans to drill horizontal wells from multiple well pads on the property.
"The [PGC] contends that since modern horizontal drilling methods and [fracking] were not developed at the time of the property transfers, Sancrik could not have contemplated nor intended to reserve the right to burden the surface estates with the wells, well pads, water impoundments and water usage necessary for those processes," Commonwealth Court Judge Anne Covey wrote.
In response, Seneca argued that the PGC could only allege that the company had plans to drill wells on the property, and that those claims were not enough to warrant action by the court. The company also argued that although it had a DEP permit to drill a well, it was for drilling on adjacent property.
The court disagreed with Seneca, citing previous case law and the state's Declaratory Judgments Act.
"While it is true that Seneca has not yet begun drilling operations, and could decide never to drill, Seneca has admitted that it holds a well permit for property located adjacent to [the 1932 property] for the purpose of extracting oil and gas from under the property," Covey said. "Seneca clearly has tools in place threatening imminent invasion of the [PGC's] purported rights, thereby creating an actual controversy."
According to the court, even if the PGC's allegations against Seneca were true, it did not have the authority to declare that the commission owned the oil and gas rights in question. "There is nothing in any of the deeds that allows the oil and gas rights to revert to the [PGC] under any circumstances," Covey said. "The question remains, however, whether Seneca's extraction of its oil and gas underlying the property is limited to technology existing at the time the deeds were executed."
The court said that since the 1932 deed did not contain any language limiting oil and gas extraction to the technological methods used at the time, "there is no question that Seneca may extract its oil and gas...by horizontal drilling and [fracking]..."
But the court added that it found language from the 1928 deed "ambiguous," leaving it unable to either convey the oil and gas rights to the PGC or sustain Seneca's objection that the PGC's complaint is without merit.
"We therefore direct Seneca to file an answer...within 20 days of this court's order, after which a status conference will be scheduled to permit the parties to engage in discovery in preparation for further proceedings, including the filing of dispositive motions, if appropriate," Covey said. "This litigation will proceed on the limited issue of whether the 1928 deed restricts Seneca's extraction methods."
Seneca spokesman Rob Boulware told NGI’s Shale Daily that the court’s ruling “certainly is an interesting position.
“We’re pleased with the Pennsylvania Commonwealth Court’s decision,” Boulware said Tuesday. “Obviously there were other issues there, so we will continue to defend our position.”
Asked if Seneca plans to eventually drill horizontal wells from multiple pads on the property, as the PGC alleged, Boulware said the company would “wait to get this cleared up before we make those decisions.”
Venango County is not exactly a hotbed of oil and gas activity, according to DEP data. There were only seven unconventional wells on record from January 2012 through June 2013, and only two of those were on production. All seven recorded wells were spud before 2013, although other wells may have been drilled in 2013.
The PGC owns some, but not all, of the mineral rights to the 1.4 million acres it manages in Pennsylvania. The agency receives no appropriations from the state general fund and operates mostly on licenses, federal grants and revenue from its natural resources.