Oil and Gas Update
Pennsylvania Supreme Court Affirms Application of Rule of Capture to Hydraulic Fracturing
January 29, 2020
By: Matthew F. Chase
On January 22, 2020, the Supreme Court of Pennsylvania reached a long-awaited decision regarding hydraulic fracturing and affirming the principle known as the “rule of capture.” In Briggs v. Southwestern Energy Production Company, the Supreme Court concluded that the rule of capture is applicable where hydraulic fracturing is utilized, and that said use, absent evidence of physical invasion, is not a necessary precondition in all cases for drainage to occur from underneath another property. No. 63 MAP 2018, 2020 WL 355911 (Pa. Jan. 22, 2020).
Oil and gas, unlike coal and other minerals which have a fixed situs, “are fugacious in nature - meaning that they tend to seep or flow across property lines beneath the surface of the earth.” Id. at 1-2. Such fugacious minerals are subject to the “rule of capture.” The “rule of capture” is “a fundamental principle of oil-and-gas law holding that there is no liability for drainage of oil and gas from under the lands of another so long as there has been no trespass…” Id. at 2 (citation omitted). Although the Supreme Court had applied the rule of capture to incorporate technological advancements in conventional oil and gas drilling, it had never applied said principle to hydraulic fracturing that utilizes the injection of fluids to create, and keep open, fractures within rock formations where said minerals reside.
In Briggs, Adam Briggs and Paula Briggs, his wife; along with Joshua Briggs and Sarah Briggs (the “Plaintiffs”) filed suit against Southwestern Energy Production Company (“Southwestern”) for trespass and conversion. The Plaintiffs alleged that Southwestern’s oil and gas operations utilizing the process of hydraulic fracturing on an adjoining tract of land to the Plaintiffs’ property resulted in the unlawful extraction of natural gas from Plaintiffs’ property; however, Plaintiffs did not provide any evidence of physical intrusion by Southwestern. In response, Southwestern filed a Motion for Summary Judgment alleging that the trespass claim must fail because Southwestern had not entered Plaintiffs’ property, and that the rule of capture barred damages for drainage of natural gas as a result of hydraulic fracturing. The trial court ruled in favor of Southwestern’s Motion for Summary Judgment agreeing that, as a matter of law, the trespass and conversion claims were precluded by the rule of capture. The Plaintiffs appealed to the Superior Court of Pennsylvania which held that the “rule of capture” would not preclude liability for trespass of oil and gas operations due to hydraulic fracturing because drainage as a result of hydraulic fracturing does not occur through the operation of “natural agencies.” The Superior Court remanded the case for further factual development relating to the allegations of “cross-boundary intrusions.”
Southwestern subsequently sought review by the Supreme Court. The Supreme Court vacated the Superior Court’s order and remanded the matter for further consideration, broadly criticizing the Superior Court’s inference that “a natural-versus-artificially-induced flow litmus should be employed to determine whether the rule of capture applies in a given situation.” Id. at 30. First, the Supreme Court found that “all drilling for subsurface fugacious minerals involves the artificial stimulation of the flow of that substance,” including hydraulic fracturing. Id. at 22. If no physical invasion of the Plaintiffs’ property occurred, then the rule of capture should be applicable in the same manner even though the drainage stems from less “‘natural’ means than conventional drainage.” Id. at 24. Second, the Supreme Court disagreed with the Plaintiffs’ argument that “any time natural gas migrates across property lines resulting, directly or indirectly, from hydraulic fracturing, a physical intrusion into the Plaintiff’s property must necessarily have taken place.” Id. at 22. Said Court reasoned that the existence of fissures wholly unrelated to hydraulic fracturing possibly exist which could give rise to drainage of hydrocarbons from adjacent parcels. Such physical possibilities are factual questions that require expert evidence and not, as the Superior Court inferred, impossible assumptions. The Supreme Court noted that the Plaintiffs only first contended that Southwestern physically intruded upon their subsurface property in their brief to the Supreme Court. Thus, in vacating the order of the Superior Court, the Supreme Court remanded the matter for further proceedings consistent with its opinion.