CHAPTER 5 A PRACTITIONER'S VIEW OF SUBSURFACE RIGHTS IN THE APPALACHIAN BASIN: I KNOW WHERE I WANT TO GO, BUT HOW DO I GET THERE IF I CAN'T CALL UBER--DRILLING THE CITY OF PITTSBURGH

• Jurisdiction: United States

Oil and Gas Agreements: Surface Use in the 21st Century (May 2017)
CHAPTER 5
A PRACTITIONER'S VIEW OF SUBSURFACE RIGHTS IN THE APPALACHIAN BASIN: I KNOW WHERE I WANT TO GO, BUT HOW DO I GET THERE IF I CAN'T CALL UBER--DRILLING THE CITY OF PITTSBURGH
Donald T. Dulac, Jr.
Principal
Barnes Dulac Watkins
Pittsburgh, PA

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DONALD T. DULAC, JR. is a principal in the Pittsburgh law firm of Barnes Dulac Watkins, and concentrates his practice in the areas of oil and gas law and real estate. He is a 1978 graduate of the University of Pittsburgh School of Law and a 1975 graduate of the College of Arts and Sciences at the University of Pittsburgh. Upon graduating law school, Mr. Dulac was first involved in representing coal operators in Pennsylvania, Maryland and West Virginia and by 1980, began to represent independent oil and gas operators in the Appalachian Basin areas of Pennsylvania, West Virginia, Ohio and New York. In 1982, Mr. Dulac began representing independent oil and gas operators in Texas, Arkansas, on and offshore Louisiana, New Mexico and Colorado. Mr. Dulac's principal office has always been in Pittsburgh, Pennsylvania, but he has maintained a satellite office in Dallas, Texas since 1984. He is licensed to practice only in Pennsylvania. Mr. Dulac has previously presented papers to the Energy & Mineral Law Foundation and has spoken at Pennsylvania Bar Association and Allegheny County Bar Association CLE programs dealing with both coal and oil and gas operations. Mr. Dulac was born and raised in McKeesport, Pennsylvania and today resides in Franklin Park, Pennsylvania.

Table of Contents

1. Introduction

2. Overview of Property Ownership and Subsurface Rights

3. The Mineral Estate

Ohio

West Virginia

Pennsylvania

Texas

4. Conclusions

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Biography

Donald T. Dulac, Jr. is a principal in the Pittsburgh law firm of Barnes Dulac Watkins and concentrates his practice in the areas of oil and gas law and real estate. He is a 1978 graduate of the University of Pittsburgh School of Law and a 1975 graduate of the College of Arts and Sciences at the University of Pittsburgh.

Upon graduating law school, Mr. Dulac was first involved in representing coal operators in Pennsylvania, Maryland and West Virginia and by 1980, began to represent independent oil and gas operators in the Appalachian Basin areas of Pennsylvania, West Virginia, Ohio and New York. In 1982, Mr. Dulac began representing independent oil and gas operators in Texas, Arkansas, on and offshore Louisiana, New Mexico and Colorado.

Mr. Dulac's principal office has always been in Pittsburgh, Pennsylvania, but he has maintained a satellite office in Dallas, Texas since 1984. He is licensed to practice only in Pennsylvania.

Mr. Dulac has previously presented papers to the Energy & Mineral Law Foundation and has spoken at Pennsylvania Bar Association and Allegheny County Bar Association CLE programs dealing with both coal and oil and gas operations.

Mr. Dulac was born and raised in McKeesport, Pennsylvania and today resides in Franklin Park, Pennsylvania.

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Mr. Dulac wishes to acknowledge his appreciation for the help provided to him in connection with this paper by Kenneth J. Witzel, Esq., Jason P. Webb, Esq. and Alison L. Andronic, Esq. of Barnes Dulac Watkins. Mr. Dulac also wishes to acknowledge Matt Weinreich, Vice President of Geology, Laurel Mountain Energy LLC; Greg Wrightstone, principal at Wrightstone Energy Consulting and Curt Tipton, Vice President for Business Development, Range Resources - Appalachia, LLC for their assistance, time, thoughts and advice. Messrs. Weinreich and Wrightstone graciously authorized Mr. Dulac to use their company's slides in his PowerPoint presentation accompanying this paper when delivered to the Rocky Mountain Mineral Law Foundation Special Institute on Surface Use in the 21^st Century, held on May 17 and 18, 2017, in Westminster, Colorado.

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INTRODUCTION

This paper explores existing case law in the principal shale producing States of the Appalachian Basin - Ohio, Pennsylvania and West Virginia - with a brief discussion of emerging Texas law, concerning the scope of subsurface rights and the interrelationship between subsurface rights and the rights of surface owners and the owners or lessees of affected mineral estates, whether coal or oil and gas.¹ In the not-so-distant early days of acquiring a resource play in the Appalachian Basin, a lessee-operator could acquire a significant acreage position comprised more or less of contiguous lands. While there was always some competition for leases, there was plenty of acreage available and an operator's exploration and production activities rarely impacted another operator. Wellbore lengths² were significantly shorter than they are now, well pads only contained a couple of wells and an operator could conduct its activities with relative autonomy. But as oil and gas development in the Appalachian Basin, or at least in certain parts of the Appalachian Basin, has matured, operators are finding that parts of its oil and gas reserves are becoming inaccessible unless the operator can obtain access to those reserves through subsurface strata and mineral formations the operator does not own or lease.³ Not only does the operator not own or lease the third party property needed to access the operator's reserves, more likely than not the oil and gas underlying the third party property are

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leased to one or more other operators (who are competitors for leases). In many cases, drilling multiple laterals of significant length off of a single well pad forces the operator to start the next lateral in a direction that can be 180 degrees from the geographical location of the targeted reserves, in an effort to "go around" the existing laterals drilled off of the same well pad or to access more of the minerals comprising the targeted reserves. In going around these other laterals, the new lateral may need to penetrate and traverse subsurface strata the minerals underlying which are not included in the applicable production unit or subsurface strata that the operator neither owns nor leases. With the advent of producing some Upper Devonian shale zones of lesser depth than the Marcellus Shale, and the increasing practice of dividing and owning leases into different producing formations, an operator may find that it needs to penetrate all Upper Devonian formations and possibly the Marcellus, in order to reach its targeted Marcellus reserves. To make matters worse, in order to reach its targeted reserves, an operator may have to penetrate as many as five seams of mineable coal under the third party property. It's not unusual in Pennsylvania to find that each seam is owned or leased by a different coal operator.

This paper is written from a practitioner's viewpoint.⁴ This paper will provide a brief survey of existing case law in Ohio, Pennsylvania and West Virginia on subsurface rights and the relationship between subsurface rights and the rights of surface, other mineral owners and other holders of subsurface rights. And the discussion will be brief - if only because of the dearth of case law on this subject matter. And because no paper discussing oil and gas rights would be

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complete without some discussion of Texas law, this paper will also touch briefly on a couple of cases from that jurisdiction that may start to provide some insight into how case law on this subject matter might develop.⁵

The right and ability of a wellbore to pass through the subsurface to access oil and gas reserves is perhaps the most important consideration in acquiring oil and gas reserves. If an operator can't access its reserves, they are of little value to it. Because of the lack of case law discussing the narrow question of who can grant subsurface rights, the conclusion of most practitioners when faced with the question of what subsurface rights an operator must obtain and from whom those rights should be obtained when traversing third party property, is to simply advise the client that easements, consents or waivers (or some combination of all three) must be obtained from the surface owner and all other parties owning any interest in any subsurface rights or minerals in the adjoining property.⁶ There is no case law in the producing Appalachian Basin states that discusses in depth the relative rights, responsibilities, or liabilities, of the surface owner, the mineral owner and the holder of subsurface rights in the same property or the power of a surface owner to grant an operator the right to traverse the subsurface in cases where a third party owns some or all of the minerals underlying those surface lands in order to permit

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the operator to access minerals under other property (i.e., property that the surface owner does not own). Traditional property law concepts - such as the right to exclude others from your property, the right to use and exploit your property for your own purposes and whatever is left of the ad coelom doctrine⁷ - as well as the avoidance of malpractice claims, or at least not being shown to be wrong, provide strong reasons for a practitioner to conclude that an operator must obtain easements, consents or waivers from everyone owning any interest in the subject property.

OVERVIEW OF PROPERTY OWNERSHIP AND SUBSURFACE RIGHTS

Traditional American property rights are based on two over-arching principles. The first is that private ownership of property, whether real or personal, is a fundamental right in the United States, protected by the United States Constitution and most State constitutions, as well as various other laws. While there may be limitations on the use and development of private property, both publicly (e.g., zoning) and privately (e.g., common law of nuisance), our government cannot appropriate private property unless (i) the property is needed and used for a...