Pennsylvania energy attorneys said the U.S. Court of Appeals for the Third Circuit’s recent ruling restricting the U.S. Forest Service’s regulatory authority over drilling in the Allegheny National Forest reaffirms the longstanding legal tenet that mineral rights owners have primacy over surface owners and could potentially apply more broadly to other federally-owned land.

Other attorneys said the ruling also provides guidance as to when the National Environmental Policy Act of 1969 (NEPA), which requires a lengthy environmental impact study, is triggered.

In a nonprecedential 10-page opinion issued September 26 in Minard Run Oil v. U.S. Forest Service — known as Minard Run IV — a three-judge panel essentially reaffirmed its own 2012 decision in Minard Run III that the Forest Service, which had purchased the surface rights to land in the Allegheny National Forest pursuant to the Weeks Act of 1911, has no regulatory authority over the mineral rights beyond whatever may have been explicitly stated in the original instruments of conveyance.

George A. Bibikos, a partner in K&L Gates’ energy practice who was not involved in the Minard Run litigation, said the ruling serves as another example of the “bedrock principle of oil and gas law” that a surface owner is subservient to a mineral rights or oil and gas rights owner, regardless of whether the surface owner happens to be the federal government.

“It reaffirmed the principle that an owner of a severed mineral estate has property rights and those property rights are the same even though the surface owner may be a government entity,” Bibikos said, pointing to a similar ruling by the state Supreme Court in the 2009 case Belden & Blake v. Department of Conservation and Natural Resources. “You can’t quite have a different rule for a government surface owner and a private surface owner.”

According to court documents, the dispute that led to the recent Minard Run IV decision originally erupted in 2009, when the Forest Service entered into a settlement with several environmental groups in which the agency agreed to suspend drilling operations in the forest until it could complete a multiyear environmental impact study (EIS) pursuant to NEPA.

Before that, court documents said, the Forest Service had been routinely issuing “notices to proceed” (NTPs) to drillers in the forest under a cooperative process in which mineral rights owners provided the agency with 60 days’ notice of their drilling plans.

That process had been put in place pursuant to the U.S. District Court for the Western District of Pennsylvania’s 1980 ruling in Minard Run I, finding that mineral rights owners have an “‘unquestioned right’” to enter land to extract minerals, subject to “‘minor restrictions which … should not seriously hamper the extraction of oil and gas.’”

But following the 2009 settlement, according to court documents, plaintiffs Minard Run Oil Co., the Pennsylvania Independent Oil and Gas Association, the Allegheny Forest Alliance and Warren County, Pa., subsequently sued the Forest Service and the environmental groups arguing that an EIS was not required, and U.S. District Judge Sean J. McLaughlin for the Western District of Pennsylvania issued a preliminary injunction, which the Third Circuit eventually upheld in the ruling that became known as Minard Run III.

In light of the Third Circuit’s affirmance, McLaughlin converted his original preliminary injunction into a declaratory judgment on the merits, which the Third Circuit, led by Judge Marjorie O. Rendell, recently upheld on appeal.

Joel R. Burcat, who chairs Saul Ewing’s oil and gas practice and was also not involved in the Minard Run litigation, said the Minard Run IV ruling, as it narrowly relates to the Allegheny National Forest, essentially reverts back to the process that was originally spawned by the Minard Run I ruling.

“It’s not one of these deals where Judge Rendell issues an opinion and it turns the law on its head,” Burcat said. “It essentially returns to the status quo that had been in existence for 30 years.”

But in order to understand the potential for the ruling to have broader applicability, Burcat said, some additional historical perspective is necessary.

According to Burcat, the Weeks Act authorized the federal government to purchase state land to be preserved as forest land.

When the Forest Service originally purchased the Allegheny National Forest land in the decades following the enactment of the Weeks Act, Burcat said, it only bought the surface rights and did not insert any language into the deeds to give the agency any more control over the mineral rights than a typical surface owner would have.

“Unless there was something written into the deed of the mineral rights owner at the time the land was purchased by Forest Service, there was no particular regulatory requirement imposed on mineral rights owners other than whatever Pennsylvania law requires,” Burcat said.

In light of Minard Run IV, Burcat said, the federal government may be restricted in regulating the mineral rights with regard to other land it similarly purchased under the Weeks Act.

In a joint press release by the defendants issued after the Minard Run IV decision, Bill Belitskus, board president of the Allegheny Defense Project, was quoted as saying the Third Circuit’s ruling created “two separate national forest systems.”

“On the one hand are the 154 national forests where the Forest Service can impose reasonable regulations to protect the national forest from private parties,” Belitskus said in the press release. “On the other hand is the Allegheny National Forest, where the oil and gas industry is allowed to drill as many wells as it wants virtually free from Forest Service regulation or public scrutiny.”

But Burcat said the Minard Run III and Minard Run IV rulings do not stand for unregulated drilling in the Allegheny National Forest.

“I think what the Third Circuit has done really is to try to return things to the status quo as it existed,” Burcat said. “Drillers are still obligated to comply with Pennsylvania law and other federal law.”

Megan E. Smith, an oil and gas and environmental attorney at Buchanan Ingersoll & Rooney who also was not involved in the Minard Run litigation, had a similar take.

“It’s not giving the farm away,” Smith said. “It’s not that these operators don’t have obligations to the surface owner, it’s that they have certain rights to extract [oil and gas] and the government isn’t entitled to regulate in such a way to preclude reasonable development within a reasonable timeframe.”

Smith added that the Minard Run litigation resulted in some much-needed guidance regarding when NEPA comes into play — an important question when one considers the long delays in development that can result when an EIS becomes necessary.

“When NEPA is triggered, it’s a detailed and lengthy process and it’s potentially a mechanism under which projects have been killed,” Smith said.

The Minard Run decisions stand for the premise that “unless the government has real authority to greenlight or control an activity, it’s not going to trigger NEPA,” Smith said.

Not every attorney The Legal spoke to saw the Minard Run litigation as having much of an effect outside the Allegheny National Forest, however.

Steve Saunders, a Scranton oil and gas attorney who represents landowners and was not involved in the Minard Run litigation, said he believes the case dealt with a narrow set of facts.
“I don’t see it applying to the run-of-the-mill dispute between a surface owner and a mineral rights owner,” Saunders said.

Zack Needles can be contacted at 215-557-2493 or zneedles@alm.com. Follow him on Twitter @ZNeedlesTLI.