CHAPTER 14 SURFACE USE ISSUES IN PRODUCING AND GETTING TO MARKET NATURAL GAS FROM SHALE PLAYS
| Jurisdiction | United States |
(Dec 2010)
SURFACE USE ISSUES IN PRODUCING AND GETTING TO MARKET NATURAL GAS FROM SHALE PLAYS
Cassidy, Kotjarapoglus & Pohland
Greensburg, Pennsylvania
SEAN CASSIDY is an attorney in Greensburg, Pennsylvania. He received his Bachelor of Science degree in Mathematics from Carnegie Mellon University, and his Juris Doctorate degree from the University of Pittsburgh School of Law, where he served as Note Editor for the University of Pittsburgh Law Review. Mr. Cassidy is the author of "Title Defects and Their Cure", Eastern Min. L. Inst. ch. 2 (1981), "Preparation and Use of Title Opinions", Eastern Min. L. Inst. ch. 6 (1985), "Title Failure", Eastern Min. L. Inst. ch. 11 (1990), and "Horizontal Division of Oil and Gas Leaseholds", Eastern Min. L. Inst. ch. 20 (1994), and "Division of Royalties - Who Gets What?", Energy & Mineral Law Institute, ch. 12 (2009). He is the author of Oil and Gas Lease Negotiations, published as part of the Audioline Series of the Pennsylvania Bar Institute and has presented seminars on oil and gas leasing and oil and gas titles for the Pennsylvania Bar Institute. Mr. Cassidy is also a contributing author for The American Law of Mining, Second Edition, published by Matthew Bender & Co., Inc. Mr. Cassidy is a Trustee of the Energy and Mineral Law Foundation, formerly known as the Eastern Mineral Law Foundation, and previously served as President of the Eastern Mineral Law Foundation from 1990 to 1991. Mr. Cassidy's practice is concentrated on primarily on all title aspects of coal, oil and gas and minerals. Mr. Cassidy currently renders over 1,000 title certificates per year on coal, oil and gas and mineral properties. Mr. Cassidy is a member of the Pennsylvania Bar Association and the Westmoreland County Bar Association. Mr. Cassidy has been the recipient of a Pro Bono Award from the Pennsylvania Bar Association and in 2003 was named the Westmoreland County Bar Association "Pro Bono Lawyer of the Year". Mr. Cassidy is also active civically in the Westmoreland County community. For three years, he served as President of the Laurel Ballet Performing Company. He currently serves on the board of the Westmoreland Symphony Orchestra and is a board member and Treasurer of the Westmoreland Cultural Trust.
Sean Cassidy
Sean Cassidy & Associates, P.C.
118 North Main Street
Greensburg, PA 15601
724-836-4900
NOTE: This paper concerns primarily the common law of Pennsylvania in the areas addressed, with an emphasis on landmark cases, as well as some analysis of existing and proposed Pennsylvania statutes. While much of what is discussed here would be applicable to other states with Marcellus shale exploration and production, it is, of course, always prudent to conduct additional state-specific research.
Introduction
This paper will explore various legal topics pertaining to the use of surface lands in the exploration for and production of natural gas. This paper will discuss the ways that horizontal drilling and hydraulic fracturing, techniques essential to Marcellus Shale development, affect surface lands in ways that older exploration and production techniques and technologies (e.g. conventional Pennsylvania vertical shallow well) have not. This paper will discuss issues that are confronted as Marcellus Shale development begins to reach urban and suburban areas that are home to residents not accustomed to oil and gas operations in their immediate vicinity. These issues will be viewed in the context of relevant statutes and the common law.
Various estates in land
As we know, there are various estates in land, but for our purposes here we focus on surface lands and the natural gas underlying them.
Often, the owner of a tract of land will own the surface of that tract and the natural gas underlying it. Unless that owner happens to be a producer of natural gas, that owner will lease the gas underlying that tract, which results in the vesting of a leasehold interest in the gas lessee.
Practically, if the owner of a fee in the surface of a given tract is the owner of a fee in the natural gas underlying that tract, there is, of course, less conflict between the producer of oil and gas and the surface owner, as the owner of the surface is the owner of the oil and gas who benefits financially from the production of said oil and gas.
In other cases, title to the gas has been severed from the surface by virtue of either a
[Page 14-2]
conveyance or an exception and reservation in the prior chain of title. The severance document may or may not establish operating rights with express provisions. In the absence of express provisions the owner of the severed gas will own implied operating rights, being such surface rights which are reasonable and necessary for the production and marketing of the natural gas.
It is elemental and logical that the operation of severed gas requires the use of, and the drilling through of, the surface of land. Marcellus Shale gas production is no exception.
While it is true that a horizontal well bore can draw gas from under a surface tract of land with no use of the surface, every horizontal bore depends upon a wellsite. The subterranean distance spanned by a horizontal well bore can make the location of surface operations even more important in horizontal drilling operations than in conventional vertical wells.
A situation could arise where the natural gas owner (or lessee) owns a block of leases intended for a Marcellus shale unit. Let us assume that the proposed well pad is on a lease granted by a severed oil and gas owner with no express operating rights in the severance document. A claim could be raised that surface operations for the well pad should not be permitted on this tract if it could be shown that the well pad could be located on another parcel where the operator did have surface operating rights. Once again, implied operating rights are limited to those "reasonable and necessary". If the well pad could be practically located on another parcel, the operator would need to avoid the tract with only implied operating rights.
While Marcellus Shale well sites are larger in surface area than traditional vertical well sites, they regularly support multiple horizontal wells. While this reduces the number of surface tracts affected by natural gas operations, it creates a greater impact on the surface of the land where the well pad is located.
I. THE RIGHTS OF AN OWNER OF A SUBSURFACE ESTATE AS TO THE OVERLYING SURFACE ARE OFTEN (BUT NOT ALWAYS) DEFINED BY THE TERMS OF AN INSTRUMENT:
a. A severance deed;
b. A lease, or
c. An agreement between a surface owner and a subsurface owner (such as a release of damages or surface use agreement).
[Page 14-3]
It is well settled Pennsylvania law that, generally, the owner of or entity possessed of a leasehold in gas underlying a tract of land has the right to enter onto the surface of that land and use that portion of it that is reasonably necessary to produce the gas.
Two notable exceptions:
Where a grant conveying a fee simple interest in the gas underlying a tract of land specifically prohibits the future use of the surface of that tract of land for the exploration for or production of natural gas, by operation of law, the language of the grant controls, and the gas owner is left to either purchase the surface or obtain an easement to use it.
Where a natural gas lease expressly prohibits surface activity by the lessee, the lessee is left to unitize that lease with contiguous lands and reach the gas underlying the leased premises by a horizontal well bore. This scenario is somewhat common in the Marcellus Shale play. An exception would exist where the lessor or the lessor's successor in interest should subsequently amend and ratify the lease to allow surface activity.
An oil and gas lease or fee conveyance of oil and gas can limit surface usage by the oil and gas lessee or oil and gas owner short of a full prohibition of surface activities in many ways, but chief among them are:
The requirement of lessor (in the case of an oil and gas lease) or surface owner (in the case of a fee conveyance of oil and gas) approval of wellsite location. Often a per well payment by lessee to lessor (or oil and gas owner to surface owner) is also provided for.
The requirement of lessor (in the case of an oil and gas lease) or surface owner (in the case of a fee conveyance of oil and gas) approval of road location.
An agreement that wells will not be drilled on certain areas of the subject tract. Such an agreement could contemplate, for example, that no wells be drilled within a predetermined radius of a house, barn, etc., or that an area described by metes and bounds or on a plat be avoided.
The placement of meters, compressors, hydraulic fracturing fluid pits, etc. can be prohibited or limited by specific language in the oil and gas lease or fee grant instrument.
There is no comprehensive rule as to what implied operating rights are granted when an oil and gas lease or oil and gas fee conveyance is silent as to some or all surface rights to
[Page 14-4]
be enjoyed by the producer of oil and gas, but the following surface rights are generally implied by law unless an oil and gas lease or fee conveyance specifically prohibits them:
a. the right to explore for oil and gas by conducting reasonable surveys and testing;
b. the right to produce oil and gas by the locating and drilling of a well or wells on the surface of the leased tract (once again, the location must be reasonable and necessary);
c. the right to clear a well pad of size reasonably necessary to drill, fracture, and maintain a well;
d. the right to locate and construct a road (in a reasonable and necessary location) sufficient for production vehicle traffic to that well;
e. the right to secure the well site by the construction of a fence;
...f. the right
To continue reading
Request your trial