Shepstone Management Company, Inc.
A PA Superior Court decision authored by a senior (retired) judge was a foolish attempt at policy-making threatening havoc over the rule of capture. SWN is suing.
Something very wrong happened in Pennsylvania’s Superior Court earlier this year as a mere two judges decided to get into policy-making and completely blew it on something called the rule of capture.
The Superior Court is an intermediary appeals court officially described as follows:
The Superior Court hears appeals in criminal cases and most civil cases from the Common Pleas Courts, including matters involving children and families.
Asking criminal and family law attorneys to decide oil and gas legal issues is a recipe for havoc and that’s what’s happened. Fortunately, Southwestern Energy (SWN) is challenging the result.
Superior Court Senior Judge John L. Musmanno (2007)
The author of the offending opinion was Superior Court Senior Judge John L. Musmanno whose workload, when he was a full member of the court, was 65% criminal or family law. It was, technically, a three-judge panel, but one of the judges didn’t participate, leaving only Musmanno and one commissioned (full) judge by the name of Susan Peikes Gantman, who was a family law specialist and now serves as President Judge of the Superior Court.
These two individuals with little or no experience in oil and gas issues made a decision voiding over a century of law on something very important called the rule of capture, which has heretofore been the general rule nationwide. Moreover, they did so based not so much on the record, but, rather, their own research (typically a no-no for judges). It’s outrageous and Southwestern Energy is appealing to the Pennsylvania Supreme Court for relief from this insanity.
The appeal may be found here and it’s quite readable, even for a subject as seemingly mysterious as the rule of capture. Key excerpts are offered below but, first, a lay explanation is in order. The rule of capture can be explained with a hunting analogy.
Consider two adjoining 20 acre tracts with a small herd of Whitetails frequenting both properties. Assume both properties also have apple trees, Parcel A has early apples and Parcel B has late season varieties. Assume further that Parcel B is leased to hunters, but Parcel A is not. Because deer hunting season is late in the year, the deer hang out a lot on Parcel B at that time to get the apples, but earlier in the year they can be found under the early apple trees on Parcel A, where they fatten up nicely. Nonetheless, they move around and later get harvested by Parcel B hunters. Is the the Parcel A owner entitled to a share of the lease revenue? Common sense says no for a host of reasons.
That’s the essence of what rule of capture is all about; whether an adjoining property owner is entitled to a share of the revenue from an enterprise conducted on his or her neighbor’s property if the enterprise involves the harvesting of something that moves around. Gas, of course, moves around through underground fractures, just as deer move around above ground and both can be stimulated by man-made activities.
That brings us to the Supreme Court challenge by SWN, key parts of which are as follows:
The Superior Court’s two-judge precedential decision, issued without the benefit of oral argument and representing the views of only one commissioned judge, rejects the continuing application of this rule to the most common method of oil and gas extraction used today—hydraulic fracturing. This decision conflicts not only with this Court’s precedents, but also with the only decision from a state court of last resort to address the precise application of the rule of capture at issue in this case,Coastal Oil & Gas Corp v. Garza Energy Trust, 268 S.W.3d 1 (Tex. 2008), a decision upon which the oil and gas industry both in Pennsylvania and throughout the nation has relied…
This Court should review the Superior Court’s significant (and unprincipled) departure from the clear and time-honored rule of capture, which sets Pennsylvania apart from other gas-producing states, threatens to disrupt this important industry, and has serious implications for other beneficial activities that occur below the surface of land…
Respondents Adam Briggs, Paula Briggs, Joshua Briggs, and Sarah H. Briggs are landowners who own property in Harford Township, Susquehanna County, Pennsylvania. Their property is adjacent to property that Petitioner Southwestern Energy Production Company (“SWN”) leases for natural gas extraction. The Briggses have not leased their property to SWN or any other entity for natural gas development.
SWN began producing natural gas in Pennsylvania in 2008 using hydraulic fracturing, and it has engaged in these activities on its leased property near the Briggses’ property since 2011. SWN conducts its natural gas extraction activities lawfully in accordance with leases, unit agreements, and governmental permits.
On November 5, 2015, the Briggses filed a complaint against SWN. The Briggses asserted counts of trespass, conversion, and punitive damages, alleging that SWN’s natural gas extraction activities conducted underneath SWN’s own leased property have caused natural gas to drain from below their property and into SWN’s production wells.
Id. The Briggses did not allege that SWN has drilled under and across their property line, nor did they allege that SWN’s activity on its property has resulted in vibrations, odors, noise, or other effects that interfere with their enjoyment of their property. Id. Their allegations solely relate to drainage…
Indeed, the Briggses acknowledge that their claims against SWN relate solely to their belief that SWN’s activities on or under SWN’s own property cause gas to drain from beneath the Briggses’ property (stating that the Briggses “believe that SWN is extracting natural gas from under their land”); (“I do believe that their well bore is close enough to my property to be extracting gas out from under my property.”)…
The trial court concluded that the rule of capture applies to the production of gas through hydraulic fracturing, and that because SWN had produced gas through wells drilled on and under its own land, it acquired title to all of the gas produced from those wells and could not be held liable for any drainage of gas from beneath the Briggses’ property…
In deciding the appeal, the two-judge panel did not confine its review to the record. Instead, it conducted its own independent research on hydraulic fracturing (citing the U.S. Environmental Protection Agency’s website and SWN’s website to describe hydraulic fracturing, and citing a U.S. Energy Information Administration report and a law review comment to support its conclusion that small landowners can more feasibly offset drainage caused by conventional drilling than by hydraulic fracturing).
The two-judge panel considered but expressly rejected the Texas Supreme Court’s decision on this same issue in Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d 1 (Tex. 2008). Coastal Oil held that a landowner cannot state a claim for trespass based solely on the possibility that fractures, fracing fluids, and proppants from a producer’s hydraulic fracturing activity may enter and cause oil or gas to flow from the landowner’s property. Coastal Oil is the only decision by a state court of last resort to address this specific issue, and it has been a key legal building block supporting the “shale revolution” of the last decade.
Instead of following Coastal Oil, the panel largely relied on a dissenting opinion in that case and a vacated opinion from the United States District Court for the Northern District of West Virginia…
The appeal also articulates the reasons the two-judge panel simply got it wrong:
• The Superior Court’s decision is a significant departure from a common law rule that this Court established and that has governed oil and gas production in this Commonwealth—and other states—for nearly 130 years.
• The Superior Court’s decision will upset property interests and reliance on established property rights.
• The Superior Court’s decision will burden the courts with speculative and unwieldy litigation.
• The Superior Court’s decision will have wide-ranging impacts on other types of land use.
• By changing the rights and liabilities associated with oil and gas production, the Superior Court’s decision will harm Pennsylvania’s economy and increase the cost of energy.
• The Superior Court’s decision is an encroachment into the legislative branch.
It is the last point that is most relevant. It’s up to lawmakers to create the rules that should apply here, not two individuals whose legal experience is largely confined to criminal and family law. Let’s hope the Supreme Court restores common sense and gets the courts out of the business of voiding 130 years of experience with the rule of capture and creating economic and legal havoc.
The post Superior Court’s Political Decision Voiding Rule of Capture Challenged appeared first on Natural Gas Now.
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