By Paul R. Yagelski, Esq.
On April 2, 2018, the Pennsylvania Superior Court rendered a decision in Briggs v. Southwestern Energy Production Company, 2018 WL 1572729 (Pa. Super April 2, 2018). If this decision is not appealed or if it is upheld in an en banc hearing by the Superior Court, it can have significant impact on the Marcellus Shale/Utica Shale development in Pennsylvania. In short, the case holds that the rule of capture does not preclude liability for trespass due to hydraulic fracturing.
By way of background, Adam Briggs, Paul Briggs, Joshua Briggs and Sarah Briggs (collectively “Briggs”) own an 11.07 acre parcel of land in Harford Township, Susquehanna County, Pennsylvania. Southwestern Energy Production Company (“Southwestern”) is the lessee of oil and gas rights on a tract of land adjoining Briggs’ property. Since 2011, Southwestern continuously operated gas wells, known as the Innes Gas Unit and the Folger Gas Unit, on the property adjacent to Briggs’ property. Southwestern engaged in hydraulic fracturing to extract natural gas from the Marcellus Shale formation through wellbores located on the Innes and Folger Gas units. Southwestern does not have an oil and gas lease for Briggs’ property.
On November 5, 2015, Briggs filed a Complaint against Southwestern, asserting claims of trespass and conversion and requesting punitive damages. Briggs alleged that Southwestern, in its operation of the drilling units located on the adjoining property, unlawfully extracted natural gas from beneath Briggs’ property. Briggs also alleged that Southwestern’s actions constitute a past and continuing trespass.
Southwestern filed an Answer and New Matter asserting, among other things, that Briggs’ claims were barred by the rule of capture. Southwestern also filed a counterclaim for declaratory relief, requesting that the trial court confirm that Southwestern did not trespass on Briggs’ property. Southwestern filed a motion for summary judgment and brief in support thereof asserting, among other things, that Briggs’ trespass claim must fail because Southwestern had not entered Briggs’ property and the rule of capture bars damages for drainage of natural gas due to hydraulic fracturing. Additionally, Southwestern requested summary judgment as to its counterclaim for declaratory judgment. The trial court agreed with Southwestern that, as a matter of law, the rule of capture precluded recovery by Briggs.
On appeal to the Superior Court, Briggs argued that the extraction of natural gas from beneath their property is a trespass, despite the lack of physical intrusion by Southwestern. Briggs pointed to the differences between hydraulic fracturing and the “conventional process of tapping into a pool or reservoir of fluids that flow according only to high and low pressure . . . .” Briggs argued that in the context of conventional oil and gas extraction, the rule of capture is a rule of necessity caused by the inability to determine the ownership of natural gas or oil located in an underground pool. Briggs asserted that natural gas contained in shale formations would remain trapped there forever if not for the “forced extraction” through hydraulic fracturing. According to Briggs, it is possible to measure the source of natural gas obtained through hydraulic fracturing, and therefore, the rule of capture should not apply.
Southwestern argued that it cannot be held liable for trespass because it has never entered or drilled any gas wells on Briggs’ property. Southwestern also contended that Briggs’ trespass claim is precluded by the rule of capture. Southwestern asserted that the rule of capture should be applied to natural gas obtained through hydraulic fracturing, which it described as a mechanical method of increasing the permeability of rock, and thus, increasing the amount of oil and gas produced from it.
The Superior Court reviewed the history of the rule of capture as it has been applied in the context of conventional oil and gas extraction. The Superior Court noted that Pennsylvania courts have not yet considered whether subsurface hydraulic fracturing, which extends into an adjoining landowner’s property and results in the withdrawal of natural gas from beneath that property, constitutes an actionable trespass. Based upon its review of the relevant case law and the principles underlying oil and gas extraction, the Superior Court concluded that hydraulic fracturing is distinguishable from conventional methods of oil and gas extraction. Traditionally, the rule of capture assumes that oil and gas originates in subsurface reservoirs or pools, and can migrate freely within the reservoir and across property lines, according to changes in pressure. Unlike oil and gas originating in a common reservoir, natural gas, when trapped in a shale formation, is non-migratory in nature. Shale gas does not merely “escape” to adjoining land absent the application of external force. Instead the shale must be fractured through the process of hydraulic fracturing; only then may the natural gas contained in the shale move freely through the “artificially created channels.”
The Superior Court was not persuaded that a landowner can adequately protect his interest by drilling his own well to prevent drainage to an adjoining property. Hydraulic fracturing is a costly and highly specialized endeavor, and the traditional recourse to “go and do likewise” is not necessarily available for an average landowner.
In light of the distinctions between hydraulic fracturing and conventional gas drilling, the Superior Court held that the rule of capture did not preclude liability for trespass due to hydraulic fracturing. Therefore, hydraulic fracturing may constitute an actionable trespass where subsurface fractures, fracturing fluid and proppant cross boundary lines and extend into the subsurface of 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.
The Superior Court concluded that Briggs’ allegations were sufficient to raise an issue as to whether there was a trespass, and thus, the entry of summary judgment in favor of Southwestern was premature. It therefore reversed the summary judgment order and remanded the case to the trial court for further proceedings. On remand, Briggs was to be afforded the opportunity to fully develop their trespass claim. Moreover, the Superior Court directed that because the trial court concluded that Briggs’ conversion claim was precluded by the rule of capture, Briggs must also be afforded the opportunity to develop their conversion claim on remand.
Assuming that Briggs becomes established law, a number of questions arise. For the landowner under whose property the trespass occurs, these questions could include, among other things: how or in what manner will the landowner know when a trespass occurs under his property, is there a method or mechanism that can detect the trespass, and can the gas that is lost, due to hydraulic fracturing, be measured?
For the oil and gas company, these questions could include, among other things: how or in what manner the oil and gas company will be able to tell that a fracture produced by hydraulic fracturing has extended under the non-leased landowner’s property, can the oil and gas company insure that hydraulic fracturing will not take place under the non-leased landowner’s property, what methods will the oil and gas company use to insure that this does not happen, what will be cost involved and how will it be paid?
The foregoing are only some of the questions that may arise if the Briggs ruling stands. If it becomes established law, it appears that it will have far-reaching consequences.