Revised projections of the viability of the Marcellus Shale have led experts to estimate that it contains hundreds of trillions of cubic feet of recoverable natural gas. A more recent study conducted by the United States Information Administration in its Annual Energy Outlook 2012 found that even though these early estimates were overstated, 141 trillion cubic feet of gas is available for recovery. This has created an inevitable race in Pennsylvania to acquire the rights to as many potentially viable gas deposits as possible, giving birth to competing interests and unavoidable conflicts.
This harsh truth is most apparent when the rights to a given parcel of land have been severed, separating the surface rights of the property and the underlying gas rights. Such a severance, especially when a surface owner receives no royalty benefit from the mineral estate, can create antagonistic concerns for each rights holder that can escalate to the point of a zero-sum game. Up until this point, Pennsylvania common and statutory oil and gas law had adequately evolved to deal with these inimically opposing interests. Though clearly not perfect, controlling law managed to create a balanced rubric aimed at the overarching goal to “permit the optimal development of the oil and gas resources of Pennsylvania consistent with the protection of the health, safety, environment and property of the citizens of the commonwealth,” as in Pennsylvania’s Oil and Gas Act, 58 Pa. Cons. Stat. Ann. §3202.
However, the advent and improvement of the same technology that launched the Marcellus Shale boom, horizontal drilling, may also have completely changed the landscape for the severed surface rights owners. In a sense, the unintended consequence of increased prosperity raises foundational questions related to its creation.
Current Rights of Severed Surface and Mineral Estates
In Pennsylvania, the long-standing rule is that ownership of a subsurface mineral estate carries with it the right to use a severed surface estate for the purpose of extracting the oil or gas contained in that mineral estate. (See Appeal of Norris , 64 Pa. 275, 282 (1870).) Moreover, the mineral estate is dominant and the surface estate is servient. The seminal case in Pennsylvania addressing this issue is Chartiers Block Coal Company v. Mellon , 25 A. 597 (Pa. 1893). In Chartiers , the Pennsylvania Supreme Court enunciated the rule, which has been followed in the commonwealth ever since, that the owner of the mineral estate has the right to occupy so much of the surface as may be necessary to operate his or her estate, such right to be exercised, however, with due regard to the owner of the surface.
Nonetheless, the necessary use of the surface estate is not unfettered. In Babcock Lumber Co. v. Faust , 39 A.2d 298, 300 (Pa. Super. 1944), the court addressed the balance that must be considered when weighing severed surface rights: “Easements are not limitless and do not confer upon [mineral rights owners] a roving commission to subject any remote part of the surface lands to occupation at their pleasure. ‘Where an easement is granted in general terms without definitely fixing its location or limits, so that the land affected by the exercise of the right cannot be ascertained from an inspection of the writing, the grantee does not thereby acquire a right to use the servient estate without limitation as to place or mode of use.’” (Quoting Pennsylvania Water & Power Co. v. Reigart , 193 A. 311, 314 (Pa. Super. 1937).)
In Gillespie v. American Zinc and Chemical Co ., 93 A. 272, 273-74 (Pa. Super 1915), the court explained that where two alternative methods of proceeding are available to the mineral operator, neither of which is of detriment to the mineral operation and one of which is detrimental to the surface owner, the rule of Chartiers requires the mineral operator to select the method that does not act to the detriment of the surface owner. In short, the owner of a mineral estate cannot occupy the surface estate in a manner that is unnecessary to mineral operations and detrimental to the surface estate. This restriction applies not only to the need to access the land, but also to the nature of activity on the land. See United States v. Minard Run Oil Co ., 1980 U.S. Dist. LEXIS 9570, at *19 (W.D.PA.1980).
As U.S. District Court Judge Sean McLaughlin for the Western District of Pennsylvania succinctly stated in his recent decision when the Minard case again came before him, “While my opinion recognized that mineral estates are dominant, it also specifically held that Pennsylvania law requires the owner of the dominant mineral estate to exercise due regard for the servient estate so as to avoid and prevent undue damage to the surface … Depending upon the unique circumstances of any given case, [a greater accommodation] may be entirely appropriate and necessary in order for the dominant and servient estate holders to engage in a meaningful and cooperative accommodative effort.” (See Minard Run Oil Co. v. U.S. Forest Serv ., 2012 WL 994641, at *2 (W.D.Pa. 2012).)
In 2009, the Pennsylvania Supreme Court revisited the issue of Chartiers and held once again that a deed’s grant of mineral rights to natural gas includes the right to reasonable possession of the surface to the extent necessary to extract the gas. (See Belden & Blake Corp. v. Dept. of Conservation and Natural Res ., 969 A.2d 528, 532-33 (Pa. 2009).) In addition, the court explicitly held that a surface owner “cannot unilaterally impose extra conditions on the subsurface owner beyond those that are reasonable.”
Despite the well-settled reasonable accommodation requirements, one aspect of the current framework of Marcellus Shale oil extraction has the potential to eviscerate the status quo: directional drilling. Though the controlling case law provided a useful framework for balancing the rights of severed estates, these cases were dealing with vertical mine operations. The importation of horizontal drilling not only made the Marcellus Shale commercially feasible, it drastically altered the necessity of entering onto a particular parcel of land. Unlike the previously used vertical drilling, which was proven far too costly for productive implementation on the Marcellus formation, horizontal drilling, which is now employed on a widespread basis, can be utilized for far more efficient natural gas recovery. On a basic level, this technique allows a more efficacious recovery of natural gas, both by allowing access to the vertical fractures inherent in the Marcellus Shale and by enabling a single well to have greater geographical reach.
A Marcellus well site is larger in surface area than a traditional well site, but it can support up to eight horizontal wells that span thousands of feet, reducing the number of surface tracts affected by natural gas operations. In addition, the utilization of horizontal drilling negates the base assumption that led to the development of Pennsylvania law relevant to the rights of owners of mineral and surface estates: For a mineral rights holder to realize a real value to his or her rights, the surface of a parcel of land must be drilled to access the mineral estate below. Horizontal drilling, which nullifies this outdated premise, allows for the access of gas underlying a property without actually entering the surface of the property. As currently constructed, a Marcellus well site with multiple horizontal wells could access many adjacent properties at one time from a central location. Further, drilling on any one of multiple parcels could provide the same opportunity to extract gas from a specific pocket or pockets.
This mutual availability of access to gas from multiple parcels provides the basis for an inevitable onslaught of court challenges. Chartiers and its progeny are based on the principle that a property may be drilled upon as long as that activity is reasonable and there are no less-detrimental alternatives. Now, virtually every surface owner can argue that, in relation to his or her interests, there are many less-harmful alternatives. In fact, as to his or her property, every other viable alternative would completely eliminate detriment to the surface owner’s interests.
This raises far more questions than can be answered. Does Chartiers require a mineral rights holder to ask permission from all surface rights holders of every adjacent property that overlies the mineral estate before picking a particular parcel to drill on? Does Chartiers require every other property owner to refuse entry before drilling on a single parcel becomes necessary? If a party chooses to drill on a particular parcel, is it really optimal that one surface estate bears all of the costs, when the adjoining surface estates were equally available? Does equity require that other adjacent property owners, or the mineral rights holder, compensate the owner of the “drilled” surface estate when there is nothing about that particular parcel that makes its use more ideal than others? Would the economic standing of a particular surface owner merit any consideration as to protect those least able to afford the burden?
As McLaughlin advised in Minard III, the “unique circumstances of any given case” must be considered when determining the interrelationship of these competing property rights. As future cases develop, it would appear that the “unique” will soon become the norm. •
Patrick C. Booth is a senior associate in the oil and gas group at Burns White and brings to the group his varied experience in transportation litigation, natural resources litigation, commercial litigation and business law matters. He can be reached at firstname.lastname@example.org.
Jeffrey D. Roberts is co-chair of the oil and gas group at Burns White, drawing from his diverse background in transportation law, business law and electronic discovery, as well as general, environmental and construction litigation. He can be reached at email@example.com.