Monday, August 26, 2013

Superior Court holds fresh water impoundment incident to oil and gas lease grant

On August 20, 2013, the Pennsylvania Superior Court found that surface storage of fresh water used for hydraulic fracturing was granted incident to an oil and gas lease because the hydraulic fracturing process is necessary to extract gas from the Marcellus shale and uses large amounts of fresh water. Humberston v. Chevron USA, 2013 WL 4429159 (Pa. Super. Aug. 20, 2013). In April 2006, the Humberston’s (landowners) entered into an oil and gas lease with the Keeton Group. Chevron holds current interest in the lease and hired Keystone as contractor to construct a freshwater impoundment that covered eleven acres of the lease. The “leasing clause” of the disputed lease granted well operators the “exclusive rights as may be necessary and convenient” to explore, develop, produce and market oil and gas extracted from the lease. The lease did not restrict the well operator to use current technology to exercise these rights.

At trial, the Fayette County Court of Common Pleas granted the well operators preliminary objections and dismissed the landowner’s claims on demurrer. The Superior Court upheld the lower court decision. It held that the well operator was granted the right to construct the fresh water impoundment facilities because the hydraulic fracturing process, which was “reasonably necessary” for the operator to exercise its exclusive right to develop the lease, required large amounts of fresh water. In its opinion, the Superior Court explained the lease contemplated the use of hydraulic fracturing because its language did not limit the well operator to extraction techniques used when the lease was executed. Rather, it was inclusive of any “methods and techniques” the well operator could use to effectuate its rights under the lease. Additionally, the use of parol evidence was unwarranted because the lease was unambiguous and contained an integration clause. Therefore the court agreed with the trial court’s ruling that well operator was granted the right to build a fresh water impoundment facility under the lease.

Written by: Garrett Lent, Research Assistant
Agricultural Law Resource and Reference Center
August 2013

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