Recognizing the shared ownership of subsurface resource pools.

Author:Gerhart, Peter M.
Position:Introduction to I. Correcting the Conventional Views of the Law of Subsurface Resource Pools C. Responses to the Migratory Nature of Subsurface Resource Pools: Malicious Interference, Waste, and Unreasonable Exploitation 3. Unreasonable Exploitation of Subsurface Resource Pools, p. 1041-1068 - The Law and Policy of Hydraulic Fracturing: ...
 
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CONTENTS INTRODUCTION I. CORRECTING THE CONVENTIONAL VIEWS OF THE LAW OF SUBSURFACE RESOURCE POOLS A. Conventional Views of the Law of Subsurface Resource Pools: Ferae Naturae, Ad Coelum, and "Drill, Baby, Drill!" B. Response to the Hidden Nature of Subsurface Resource Pools: Disrupting Subsurface Resource Pools is Damnum Absque Injuria. C. Responses to the Migratory Nature of Subsurface Resource Pools: Malicious Interference, Waste, and Unreasonable Exploitation 1. Malicious Interference with Subsurface Resource Pools 2. Waste of Subsurface Resource Pools 3. Unreasonable Exploitation of Subsurface Resource Pools II. UNDERSTANDING THE LAW OF SUBSURFACE RESOURCE POOLS THROUGH THE SHARED PROPERTY PARADIGM A. Conventional Views Apply Private and Commons Paradigms 1. The Ferae Naturae View and Commons Property 2. The Ad Coelum View and Private Property 3. Why the Old Shoes Do Not Fit B. Subsurface Resource Pools Are Shared Property and Surface Owners Are Tenants in Common Without Accounting Rights 1. Common Law Coordinates More Decision Making Among Shared Owners than Decision Making Among Neighbors 2. Surface Owners Share Ownership of Subsurface Resource Pools Because the Resources are Migratory 3. Rights of Shared Owners of Subsurface Resource Pools Are Limited (Not Eliminated) Because the Resources Are Hidden 4. The Shared Ownership of Subsurface Resource Pools Is Constitutionally Significant III. PRIVATE GOVERNANCE OF SHARED PROPERTY CONCLUSION INTRODUCTION

An important function of legal theory is to provide a framework for understanding the common law and its regulatory substitutes. Now that horizontal slickwater fracturing has renewed popular and academic interest in the governance of subsurface resource pools, it is helpful to apply property theory to understand the law's response to issues concerning resources that lie under, or can be extracted only by going under, more than one piece of property. If property theory is to be helpful, it ought to sharpen our ability to correctly diagnose the social problems addressed by the law and to identify the coherence of, and justification for, the law's response to those problems.

By this measure, property theory has underserved our understanding of both the problem of subsurface resource pools and the law's response to that problem. Property theory was ill-equipped to address the problem of subsurface resource pools because it had only two paradigms for identifying and addressing the problem: a paradigm of private property and a paradigm of commons property. Because neither paradigm adequately addresses the problem of subsurface resource pools, the law applicable to water, oil, and gas has been misunderstood and mischaracterized.

In this Article, we argue that property theory, appropriately understood, shows that subsurface water, oil, and gas ought to be treated as shared property that can be exploited, if it is to be exploited at all, by the coordinating agreements of owners of the surface property, or their licensees, supervised by common law courts. We therefore offer the paradigm of shared property as the appropriate analysis for thinking about the law's approach to rights in oil and natural gas. We also argue that the shared property paradigm is largely consistent with the common law's approach to subsurface resource pools, even though conventional understanding of the law vacillates between the private property and commons property paradigms.

Much of this Article is revisionist. We argue, unconventionally, that the common law embraced the paradigm of shared property in much of its regulation of subsurface resource pools because it essentially treated those resources as owned by tenants in common, as modified by the common law nuisance exception for injuries to subsurface resource pools. Under this reading, the special common law rules regarding subsurface resource pools have been misunderstood either as providing for (1) commons property treatment of subsurface resource pools underground followed by private property treatment after the resources are extracted from the subsurface pools or (2) private property treatment of the resources even while underground but subject to loss of title if the resources crossed property boundaries. Under our reading of the cases, when interpreted against the paradigm of shared property, the common law consistently recognized shared ownership of subsurface resource pools yet limited surface owner's rights to quiet enjoyment of subsurface resource pools based solely on courts' own perceived incapacity, because the resources are hidden, to understand the causal relationship between land use and disruption of enjoyment of subsurface resource pools. But this limit did not prevent courts from coordinating the exploitation of subsurface resource pools between surface owners by recognizing causes of action for malicious interference, waste, and unreasonable exploitation.

This analysis supports our claim that the property issues inherent in today's concerns over horizontal slickwater fracturing can be addressed under private agreements that are subject to judicial supervision. (1) Moreover, because we now have the seismic technology to understand resource location and flows, the common law's reluctance to provide common owners of shared property with an accounting should dissipate.

Part I examines in detail the common law of subsurface resource pools. Part II demonstrates this common law of subsurface resource pools is an application of the shared property paradigm. Part III suggests that judicially supervised private governance regimes can ensure that subsurface resource pools are exploited efficiently and fairly.

  1. CORRECTING THE CONVENTIONAL VIEWS OF THE LAW OF SUBSURFACE RESOURCE POOLS

Analytically, subsurface resource pools of oil, gas, and water pose distinctive problems for courts because of two distinguishing characteristics. First, subsurface resource pools are not visible from the surface. Second, these resources are fluids that are susceptible to movement across property lines or that (as in the case of horizontal slickwater fracturing) can be extracted only by activities that are not confined within property boundaries. The common law courts responded to these characteristics in two opposing ways. On the one hand, emphasizing the hidden nature of the resource, common law courts have consistently held that interference with a surface owner's enjoyment of the resource is generally not actionable. On the other hand, common law courts responded to the migratory character of subsurface resources by recognizing actions for malicious interference, waste, and unreasonable exploitation. The hidden character limited the law's protections for the quiet enjoyment of subsurface resource pools, whereas the migratory character gave rise to causes of action that coordinated uses between owners.

These two characteristics gave rise, in other words, to legal approaches that varied with the question courts were considering. These variations, in turn, made it difficult for theorists to pin down a theory of subsurface resources that adequately described the range of decisions that courts were making. Moreover, theorists were limited in the paradigms around which they could organize their interpretation of legal doctrine. In Part I.A, we summarize the conventional theoretical approaches and explain their inadequacy.

  1. Conventional Views of the Law of Subsurface Resource Pools: Ferae Naturae, Ad Coehum, and "Drill, Baby, Drill.!"

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