Normally, this blog discusses Texas court cases and decisions. However, occasionally, a court decision from one of our sister states is of interest. Such is the case with Briggs v. Southwestern Energy Production Co., 184 A.3d 153 (2018). In Briggs, the Pennsylvania Superior Court — equivalent to our Texas Courts of Appeal — held that a claim for subsurface trespass may be maintained as a result of hydraulic fracturing and that the “rule of capture” does not preclude the cause of action. This is, of course, directly at odds with the rule here in Texas established by Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d 1 (Tex.2008). As a reminder, the Coastal Oil decision was a 6-3 split decision by the Texas Supreme Court. As one might expect, the Briggs opinion discussed Coastal Oil at length but concluded that the dissenters in Coastal Oil had the better arguments.
Briggs is another example that oil and gas law is changing — slowly — to reflect the fact that extracting petrochemicals from shale formations is different from extracting petrochemicals from older, more traditional oil fields. In this respect, Texas law is changing, too, as is evidenced by the recent Supreme Court case in Adams v. Murphy Exploration & Production Co.- USA, Case No. 16-0505 (Tex. 2018). In Adams/Murphy Exploration — involving offset wells — the Court highlighted the differences between vertical drilling into an underground reservoir and horizontal drilling into and using hydraulic pressure to extract oil/gas from a shale formation. With a reservoir, oil and gas will migrate across property lines towards any low pressure area created by a production well. However, there is no such migration in shale formations. Partly because of this difference, the Adams/Murphy Exploration court ruled that an offset well satisfied the requirements of the pertinent lease.
Briggs: Facts of Case and Court’s Reasoning
The plaintiffs in Briggs owned an approximate 11-acre tract of land in Susquehanna County, Pennsylvania above what is called the Marcellus Shale formation. The defendant, Southwestern Energy Production Company (“Southwestern”), is the lessee of oil and gas rights on a tract of land adjoining the Briggs’ property. In 2011, Southwestern began operating gas wells using hydraulic fracturing to extract the natural gas from wells located on the neighboring tract.
In 2015, the Briggs sued Southwestern asserting claims of trespass and conversion, and requesting punitive damages. In particular, the complaint alleged that Southwestern had been extracting natural gas from beneath the Briggs’ property from their operations on the neighboring tract. Southwestern answered and asserted, among other legal defenses, that the Briggs’ claims were barred by the rule of capture doctrine. Eventually, the trial court agreed and granted summary judgment in favor of Southwestern. However, the Pennsylvania Superior Court reversed. As noted, the Briggs court discussed the Coastal Oil decision extensively, but was not persuaded by the majority opinion in that case.
The Briggs court offered several rationales for its ruling. First, the court highlighted the fact that hydraulic fracturing “… is distinguishable from conventional methods of oil and gas extraction.” Oil and gas does not migrate within a shale formation in the same manner as it does in reservoir-type formation. Just as importantly, there is no free, natural flow to the petrochemicals. In a reservoir deposit, the oil and gas flows freely — escapes — without human intervention based on relative pressures within the reservoir. While the pressure might be changed by drilling a well, beyond that, no other human intervention is required with respect to the flow of the oil and gas. By contrast, in a shale formation, human intervention is needed to cause the oil and gas to move. For these reasons, the Briggs court held that the rule of capture doctrine does not preclude a subsurface trespass claim when a shale formation is involved. Further, the court noted that drilling vertically into a reservoir can truly be said to NOT trespass onto an adjoining property. By contrast, the same cannot be said for injecting fluids and pressure into the ground. Those injected fluids can reasonably be expected to cross property lines as they “chase” the oil and gas to the wellbore.
The Briggs court also highlighted public policy reasons for its holding. First, the court expressed concerns the Coastal Oil rule encourages predatory behavior directed at neighbors and at small land-holders in particular. According to the Briggs court, the Coastal Oil rule encourages lessees to locate wells near the property lines in order to extract oil and gas from beneath the neighboring property. Such behavior would be particularly harmful for owners of small land-holdings who may not have the financial wherewithal to file suit and/or otherwise challenge the oil companies. Secondly, the court expressed reservations about whether small landowners would be able to protect themselves by drilling their own wells or by drilling offset wells. As the court stated: “Hydraulic fracturing is a costly and highly specialized endeavor, and the traditional recourse to ‘go and do likewise’ is not necessarily readily available for an average landowner.”
It will be interesting to see if claims of subsurface trespass will continue to be litigated despite the Coastal Oil decision. Recently, the Texas Supreme Court specifically declined to make a generalized ruling with respect to subsurface trespass claims. In Environmental Processing v. FPL Farming, 457 SW 3d 414 (Tex. 2015) the Court expressly declined to decide whether Texas law recognizes a trespass cause of action for deep subsurface water migration.