Pennsylvania Superior Court Holds "Rule of Capture" Does Not Preclude Liability for Trespass Due to Hydraulic Fracturing
The seemingly well-settled legal principle that an operator in Pennsylvania cannot be held liable for trespass for extracting gas from beneath another’s property, as long as the wellbore does not cross through the owner’s property line, has been overturned with respect to unconventional drilling operations. On April 2, 2018, in Briggs v. Southwestern. Energy Prod. Co., No. 1351 MDA 2017 (Pa. Super. Ct. Apr. 2, 2018), the Pennsylvania Superior Court held that, because of the distinctions between hydraulic fracturing and conventional gas drilling, the “rule of capture” does not preclude liability for trespass due to hydraulic fracturing.
The rule of capture is “[a] fundamental principle of oil-and-gas law holding that there is no liability for drainage of oil and gas from under the lands of another so long as there has been no trespass and all relevant statutes and regulations have been observed.” Rule of Capture, Black’s Law Dictionary (10th ed. 2014). In Pennsylvania, the rule of capture has long been applied in the context of conventional oil and gas drilling. Prior to Briggs, however, no Pennsylvania appellate court had specifically addressed whether this rule applies to preclude trespass liability for hydraulic fracturing operations, although that proposition was widely believed to be case.
In Briggs, a family of landowners (Briggs Family) brought an action for trespass and conversion1 against Southwestern Energy Production Company (Southwestern). The Briggs Family owned an 11.07 acre parcel of land that was adjacent to two gas units operated by Southwestern. Southwestern did not have an oil and gas lease with the Briggs Family. After approximately four years of operations, the Briggs Family filed a complaint alleging that Southwestern had committed trespass by extracting natural gas from beneath their property through hydraulic fracturing operations in its adjacent gas units. In its decision on Southwestern’s motion for summary judgment, the trial court held that the Briggs Family was precluded as a matter of law from recovery for trespass because the rule of capture bars damages for drainage of natural gas from an adjacent property.
The Briggs Family appealed the trial court’s decision to the Pennsylvania Superior Court. In reversing the trial court’s decision, the Superior Court relied heavily on the dissenting opinion from Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d 1 (Tex. 2008), in which the Texas Supreme Court held that the rule of capture does apply to bar trespass liability resulting from hydraulic fracturing operations. The main concerns raised in that dissenting opinion were: (1) that the gas at issue in hydraulic fracturing operations does not migrate by natural occurring pressure changes as it does with conventional drilling; (2) the rule of capture as applied to hydraulic fracturing would “reduce the incentives for operators to lease from small property owners because it effectively allows a lessee to change and expand boundary lines of its lease by unilateral action – fracturing of its wells – as opposed to paying for new lease lines;” and (3) a landowner cannot adequately protect itself by drilling its own well to prevent migration of gas from its property.
Echoing the concerns of the dissenting opinion in Garza, the Superior Court held that the rule of capture does not apply to hydraulic fracturing operations because hydraulic fracturing is distinguishable from conventional methods of oil and gas extraction. As the Court explained:
Traditionally, the rule of capture assumes that oil and gas originate 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… 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 channel[s]…
The Court also agreed that an average landowner cannot adequately protect itself by drilling its own well to prevent drainage to an adjoining property, noting the U.S. Energy Administration’s estimation that the average Marcellus Shale well cost over $6.1 million in 2015. Finally, the Court also expressed concern that precluding trespass liability based on the rule of capture would “nearly eradicate a mineral lessee’s incentive to negotiate mineral leases with small property owners, as the lessee could use hydraulic fracturing to create an artificial channel beneath an adjoining property, and withdraw natural gas from beneath the neighbor’s land without paying a royalty.”
Based on this reasoning, the Court reversed the trial court’s decision and held that “hydraulic 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.” The court remanded the case to afford the Briggs Family the opportunity to fully develop their trespass claim by providing evidence of the extent to which fractures and fluid had extended into their subsurface property.
The decision in Briggs, if it stands, has the potential to significantly impact unconventional oil and gas drilling in Pennsylvania. Landowners that were previously barred from asserting trespass claims will likely begin asserting such claims in much larger numbers. At least for now, operators should consider the risk of an actionable trespass claim when planning wellbores that are located near unleased property lines.
Pursuant Rules 1112 and 1113 of the Pennsylvania Rule of Appellate Procedure, Southwestern may petition the Pennsylvania Supreme Court for allowance of an appeal within thirty days of this decision. It is within the Pennsylvania Supreme Court’s discretion whether to accept or reject the appeal. However, given the wide-ranging implications and issues of first impression raised in Briggs, there is a strong possibility that the Supreme Court will grant this petition if filed.