Shale Law in the Spotlight – West Virginia Supreme Court Rules that Surface Landowners Are Not Substantially Burdened by Off-Site Horizontal Drilling Activities

Written by Chloe Marie – Research Specialist

Within the last month, the West Virginia Supreme Court has decided two cases that impact the relationship between surface owners and mineral owners in split-estate situations. In a prior article, we addressed EQT Production Co. v. Crowder, 2019 WL 2414728 (W. Va. June 5, 2019), where the court ruled on the ability of a split-estate mineral owner to use the surface estate for the development of adjacent properties. In this article, we will address Andrews v. Antero Resources Corp., 2019 WL 2494598 (W. Va. June 10, 2019), where the court ruled on the related issue of a split-estate mineral owner’s right to access the minerals through horizontal drilling from an adjacent parcel.

Case Summary: Robert L. Andrews, et al. v. Antero Resources Corporation and Hall Drilling, LLC, Docket No. 17-0126

Antero Resources Corp. (Antero) is the owner of several horizontal Marcellus shale wells located on six well pads in the Cherry Camp area of Harrison County, West Virginia. Antero holds the rights to explore for or exploit the underlying mineral estate through severance deeds dating back to the early 1900s. A 1905 deed granted the mineral owner “the right to drill, bore and operate for [oil and gas]” while a 1903 deed retained for the mineral estate owner “all the oil and gas underlying the land herein conveyed together with the privilege of operating for and marketing same.” Antero contracted with Hall Drilling, LLC, for the construction of well pads and roads, well drilling, and the operation of wells and gathering lines.

The plaintiff property owners – Robert and Deborah Andrews, Rodney Ashcroft, and Greg McWilliams – are surface owners of severed estates that are burdened by Antero’s mineral estate ownership.  Five of the six well pads owned by Antero are located within the close vicinity of the property owners’ properties, but the wells are not located on them. The property owners filed a complaint in 2013 before the Circuit Court of Harrison County (docket 13-C-434-3) arguing that “the activities of Antero and Hall in relation to their development of the Marcellus shale have caused the Property Owners to lose the use and enjoyment of their properties due to the annoyance, inconvenience, and discomfort caused by excessive heavy equipment and truck traffic, diesel fumes and other emissions from the trucks, gas, fumes and odors, vibrations, noise, lights, and dust” and therefore alleged claims for “private temporary continuing abatable nuisance and negligence” against the companies.

In November 2014, the court transferred the property owners’ claims to the Mass Litigation Panel of West Virginia as their case was assigned to the “Harrison County Cherry Camp Trial Group.” Antero and Hall filed separate motions for summary judgment following discovery, and the property owners later withdrew their negligence claims, recognizing that there was no damage to property; however, their claims for nuisance remained pending.

On October 11, 2016, the Panel granted summary judgment in favor of Antero and Hall after it found that there were no disputed issues of material fact and that Antero and Hall had the implied rights to use the property owners’ surface estates to develop the mineral estate underlying them. The Panel “declined to apply principles of nuisance law, and instead ruled on the summary judgment motions based upon Antero’s contractual and property rights” and came to the conclusion that “the activities complained of were reasonably necessary to the production of the mineral estate and did not exceed the fairly necessary use thereof or invade the rights of the surface owner[.]”

The property owners filed a motion to alter or amend the Panel judgment pursuant to W. Va. R. Civ. P. 59(e), but the Panel denied such request on January 11, 2017. Consequently, the property owners filed an appeal with the Supreme Court of Appeals of West Virginia.

According to the property owners, “a mineral owner does not have the right to extract natural gas using methods that were uncontemplated when the operative severance deeds were executed, where those uncontemplated methods are not necessary to the extraction of the minerals and substantially burden the surface.” In this regard, the property owners relied on a variety of cases where the court did not allow certain uses of surface estates utilizing advanced technology where such advances could not have been reasonably anticipated by the parties at the time the severance deeds were executed. Antero and Hall countered that the severance deeds give Antero the implied easement to use the property owners’ surface lands “to the extent reasonable and necessary to develop its mineral household.”

The Supreme Court did not accept the property owners’ interpretation of prior case law and determined that the property owners did not correctly understand the significance of these cases. The court noted that “in this line of cases, [this] Court considered various deeds that did not expressly grant the mineral owner a right to destroy the surface, and rejected methods of removing minerals that caused such destruction when they did not exist at the time of the execution of the deed and could not possibly have been within the contemplation of the parties to the severance deed.”

Interestingly, the court noted that the property owners in the case at hand likely would have anticipated a burden on the surface estate through vertical drilling, which was considered the traditional drilling practice at the time the deeds were executed. Through the use of the advanced technology – horizontal drilling – the potential burden on the surface estate actually can be minimized. The court recognized that horizontal drilling is the optimal means for developing the Marcellus shale “because it requires fewer well than vertical drilling and thereby generally minimizes the disruption to nearby surface estates.” Thus, the court agreed with the Panel’s observation that “the burden on the surface estates created by horizontal drilling that is taking place .42 mile to 1 mile away from the subject property is not materially different from the burden that would be endured from the placement of traditional vertical wells directly on Property Owners’ land, along with the construction of an associated well pad, lease road, and pipeline for each well, which is within Antero’s rights.”

Furthermore, the court explained that, in the cases relied upon by the property owners, the use of the surface by the mineral owner resulted in such destruction and loss of the surface that was entirely incompatible with any use the surface owner might have expected as a future surface use. The court also pointed out, in the case at hand, the property owners did not establish any damage or destruction to their surface estates. Consequently, the Supreme Court found that the property owners failed to prove any burdens on their surface estates of having to deal with Antero’s off-site horizontal drilling activities.

The Supreme Court then proceeded to address a two-prong test laid out in Buffalo Mining Co. v. Martin, 165 W. Va. 10, 267 S.E.2d 721 (1980), to determine the balance of rights between the surface owner and mineral owner in relation to implied uses of the surface estate. First, the proposed activity must be reasonably necessary, and second, it must not cause a substantial burden upon the surface owner.  The court held that the property owners did not satisfy the first prong because the property owners did not offer adequate evidence “to establish … what is reasonable and necessary to develop the underlying minerals, other than self-serving assertions that [Antero’s] activities … are excessive.” As to the second prong regarding the burden upon the surface owner, the court stated that “[t]he concept of what amounts to a substantial burden to a surface owner does not lend itself to a precise definition. Instead it requires an examination of uses of the surface that have either been reserved by a severance deed or otherwise implied from the circumstances presented, and further examination of how that use of the surface is impacted by the mineral owner.” In this case, the court found that the property owners did not demonstrate a substantial burden to their surface estates, mainly due to the fact that the horizontal wells were not located on their properties and caused no damages to their surface estates.

Consequently, on June 10, 2019, the West Virginia Supreme Court of Appeals affirmed the Panel’s prior decision granting summary judgment in favor of Antero and Hall.

References:

Robert L. Andrews, et al. v. Antero Resources Corporation and Hall Drilling, LLC, No. 17-0126 (W. Va. June 10, 2019)

Additional Resources:

Shale Law in the Spotlight – West Virginia Supreme Court Rules that Owner of Severed Mineral Estate Cannot Use Surface Estate to Develop Minerals from Neighboring Properties (June 26, 2019)

This material is based upon work supported by the National Agricultural Library, Agricultural Research Service, U.S. Department of Agriculture.

Shale Law in the Spotlight – West Virginia Supreme Court Rules that Owner of Severed Mineral Estate Cannot Use Surface Estate to Develop Minerals from Neighboring Properties

Written by Chloe Marie – Research Specialist

In the current month, the West Virginia Supreme Court has decided two cases that impact the relationship between surface owners and mineral owners in split-estate situations.  In this article, we will address EQT Production Co. v. Crowder, 2019 WL 2414728 (W. Va. June 5, 2019), where the court ruled on the ability of a split-estate mineral owner to use the surface estate for the development of adjacent properties.  In our next article, we will address Andrews v. Antero Resources Corp., 2019 WL 2494598 (W. Va. June 10, 2019), where the court ruled on the related issue of a split-estate mineral owner’s right to access the minerals through horizontal drilling from an adjacent parcel.

Case Summary: EQT Production Company v. Margot Beth Crowder, et al., Docket No. 17-0968

Mr. Wentz and Ms. Crowder (Plaintiffs) own the surface estate to a portion of the 351-acre Carr Tract located in Doddridge County, West Virginia. EQT Production Company (EQT) holds a 1901 oil and gas lease over the Carr Tract allowing it to drill wells to extract oil and gas from beneath Plaintiffs’ surface estate. In 2012, EQT sought permits for the drilling of horizontal wells on Plaintiffs’ surface estate to extract Marcellus Shale gas from underneath neighboring properties. Plaintiffs’ attorney wrote in June 2012 to EQT advising the company that it had rights to use Plaintiffs’ surface lands only “as are reasonably necessary to extract the severed minerals from beneath the Carr tract …” and that it did “not have the right to burden, damage and otherwise occupy the Crowder/Wentz property for the purpose of extracting minerals from other mineral tracts.” In February 2013, nonetheless, EQT entered upon Plaintiffs’ surface estate without their permission and started building the necessary infrastructure for the extraction of shale gas.

Plaintiffs filed a complaint before the Circuit Court of Doddridge County, West Virginia, challenging EQT’s use of their surface estate to drill horizontal wells for the purpose of extracting shale gas from beneath neighboring properties. Interestingly, even though Plaintiffs recognized that EQT had the right to enter and reasonably use their surface lands under the 1901 lease to extract from the mineral estate beneath their surface lands, they argued that EQT trespassed on their surface estate because they “did not have the right to enter on, burden, damage, or otherwise occupy Plaintiffs’ surface” to the extent that such entry was to extract shale gas from other neighboring mineral tracts.

Plaintiffs filed a motion for partial summary judgment on the basis that there was no genuine dispute about the fact that EQT did enter their surface lands without proper authorization for the purpose of drilling for and producing shale gas from neighboring mineral estates. In response, EQT filed a separate motion for summary judgment arguing that “horizontal drilling is reasonable and necessary to the production of natural gas in the shale formations under the Carr Tract; accordingly, it was reasonable and necessary to extend that drilling under neighboring properties to produce natural gas from beneath those properties.”

On February 19, 2016, the Circuit Court of Doddridge County decided in favor of Plaintiffs, holding that EQT indeed trespassed on their lands after considering that EQT had an implied right to use Plaintiffs’ surface estate to build access roads, well site infrastructure, and pipelines for the production of natural gas, but only from the mineral tract underlying the Plaintiffs’ surface estate. The Circuit Court further stated that “EQT had no express or implied right to enter or use the plaintiffs’ surface lands to drill into and produce gas from neighboring mineral tracts.” A jury awarded Plaintiffs damages in the amount of $190,000.00 on September 26, 2017.

EQT filed an appeal with the Supreme Court of Appeals of West Virginia to challenge the Circuit Court’s order in favor of Plaintiffs and the jury’s damage award. In its appeal, EQT maintained that there was substantial evidence to show that drilling into neighboring mineral tracts from the Plaintiffs’ surface estate was “reasonably necessary, and that the plaintiffs failed to rebut that evidence.” EQT further argued that the real issue was whether a mineral owner and/or a lessee using the surface of a tract to extract both the minerals below the surface and the minerals under neighboring tracts was “reasonably necessary.” According to Plaintiffs, however, this was not a valid question “because EQT had no right to develop those minerals from the plaintiffs’ surface lands in the first place.”

On June 5, 2019, the West Virginia Supreme Court affirmed the Circuit Court’s order as well as the jury’s award of damages. The Supreme Court emphasized that the severance of a mineral estate from a surface estate provides the owner of the mineral estate with an implied easement to go onto the surface and use it for the exploration and development of the underlying minerals because otherwise there would not be much point to the ownership of the mineral estate. The court, however, further noted that such right was “limited only to uses of the surface that are demonstrably reasonable, necessary, and which can be exercised without substantial burden on the surface owner.” As a result, the Supreme Court weighed whether EQT had exceeded its implied rights at the expense of Plaintiffs’ rights as surface estate owners.

In deciding this case, the Supreme Court never addressed the specific question of law raised by the parties. Rather, it declared that “precedent from this Court has repeatedly noted that a mineral owner does not have an implied right to use the overlying surface lands to benefit mining or drilling on other property.” In addition, the count found that a review of other jurisdictions indicated that “the contemporary position is that the mineral owner is not entitled to use the surface for the benefit of other mineral ventures without express permission.” Furthermore, the court relied upon scholars who also have reached a similar conclusion and found common law to establish “a rather strict general rule that in the absence of contractual permission, the holder of the minerals underlying a tract of land will not be permitted to use the surface thereof in aid of mining operations on adjacent, adjoining, or other tracts of land.” Consequently, the court held that a mineral owner and/or lessee cannot use the surface of a tract to benefit mining or drilling operations in order to access minerals underlying other lands without an express agreement from the surface owner permitting those operations on his or her land.

Applying that law to the present case, the court concluded that, pursuant to the 1901 mineral lease, “EQT only had a right to conduct operations on the plaintiffs’ surface lands to explore for and extract oil and gas from beneath the Carr Tract. EQT had neither an express agreement with the plaintiffs … nor an implicit right to use the plaintiffs’ surface lands to benefit its drilling operations on neighboring lands.” At the end of its ruling, the court added that this “opinion merely restates a bright-line rule founded long ago in the common law that surface owners and mineral owners can easily navigate.”

References:

EQT Production Company v. Crowder & Wentz, No. 17-0968 (W. Va. June 5, 2019)

This material is based upon work supported by the National Agricultural Library, Agricultural Research Service, U.S. Department of Agriculture.