Energy Alert
(by Timothy Miller and Mychal Schulz)
The West Virginia Supreme Court issued an opinion in Andrews v. Antero Resources Corp. and Hall Drilling, LLC, No. 17-0126 (W. Va. June 10, 2019), an eagerly-awaited decision arising out of the In re: Marcellus Shale Litigation, in which hundreds of lawsuits have been filed against E&P and midstream oil and gas companies alleging that activities related to the production, compression, and transportation of natural gas represented a private nuisance.
The Property Owners in Andrews, which represented the first trial group in In re: Marcellus Shale Litigation, alleged that the fracking operations of Antero and Hall Drilling “in relation to their development of the Marcellus shale have caused 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.” They filed a complaint alleging claims for “private temporary continuing abatable nuisance and negligence” against Antero and Hall Drilling arising from their “natural gas exploration, extraction, transportation and associated activities in close proximity to [Property Owners’] properties.”
Eventually, the Property Owners voluntarily dismissed all claims for (1) property damages, (2) physical or medical injury, and (3) negligence. By the time the Mass Litigation Panel (MLP) addressed the motions for summary judgment filed by Antero and Hall Drilling only the Property Owners’ private nuisance claims remained.
While the MLP granted Antero’s and Hall Drilling’s motion for summary judgment, it “declined to apply principles of nuisance law, and instead ruled on the summary judgment motions based upon Antero’s contractual and property rights.” Specially, the MLP’s Order stated that “[b]ecause the Court resolves summary judgment based upon Antero’s contractual and property rights, it does not address the issues to which common law private nuisance principles would be applied. The Court, therefore, reaches no conclusion regarding whether Antero’s actions would otherwise meet the legal definition of a nuisance.” In doing so, the MLP relied upon the fact that the Property Owners owned the surface of their respective properties only, as the minerals had been severed in the early 1900s and the latest mineral deed for each property had given Antero “leasehold rights to develop the oil and gas underlying the properties that are the subject of [Property Owners’] complaint. Those development rights were retained by the oil and gas mineral owners in the severance deeds separating the surface estates from the mineral estates.” As such, the MLP found that the severance deeds constituted an easement and that the activities of Antero and Hall Drilling did not exceed the scope of that easement.
In a 3-2 decision, Justice Evan H. Jenkins, writing the majority opinion, affirmed the summary judgment granted by the MLP based on “contract and property rights.” The Court found that the mineral leases in question permitted the use of the surface for operations to remove the oil and gas, and it rejected the Property Owners’ argument “that 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.”
Having determined that the Property Owners’ properties were all subject to mineral leases that allowed the reasonable use of the surface to develop the minerals underneath, the Court acknowledged that none of the Property Owners’ surface properties were actually being used to access the minerals: “Reportedly, five of the six well pads at issue were located within a range of .42 mile to 1 mile from Property Owners’ properties.” As a result, the Court turned to the “standard for balancing the rights of surface owners and mineral owners in relation to implied uses of the surface estate” as outlined in Buffalo Mining Co. v. Martin, 165 W. Va. 10, 267 S.E.2d 721 (1980), where the Court held that “[i]n order for a claim for an implied easement for surface rights in connection with mining activities to be successful, it must be demonstrated not only that the right is reasonably necessary for the extraction of the mineral, but also that the right can be exercised without any substantial burden to the surface owner.”
Noting that the MLP found that the Property Owners “did not offer evidence ‘to establish . . . what is reasonable and necessary to develop the underlying minerals, other than self-serving assertions that Defendants’ activities . . . are excessive[,]’” the Court determined that “Property Owners have failed to develop an argument to show the existence of a material fact as to whether or not Antero’s activities to develop its mineral estate are reasonably necessary.” Thus, the Property Owners failed to satisfy the first part of the test in Buffalo Mining.
The Court also determined that the Property Owners failed to present evidence to satisfy the second part of the test in Buffalo Mining; i.e., that the “right can be exercised without any substantial burden to the surface owner.” In doing so, the Court noted that where a severance deed “severs the mineral and surface estates and plainly allows for the extraction of the mineral estate, certain uses of the surface by the mineral owner are necessarily implied.” The Court noted that cases which found more modern methods of mineral extraction to be a “substantial burden” to the surface owner focused on the destruction of the surface owners’ ability to use the surface (such as strip mining or auger mining), which contrasts with evidence that horizontal fracking actually results in less surface disturbance because it uses fewer well pads and was less intrusive than traditional vertical drilling that required numerous wells. As a result, the Court determined that “it was incumbent upon Property Owners to present evidence to establish how the burdens resulting from the off-site horizontal drilling of which they now complain (i.e., dust, traffic, lights, noise, and fumes) has prohibited them from using their land in any way that would be compatible with the physical presence of vertical wells directly on their land. They have failed to do so.” The Court listed the Property Owners’ complaints about the activities in detail, and determined that none of those activities arose to the level of “substantial burden to the surface owner.”
While this is an important win for Antero and Hall Drilling that will generate a considerable amount of attention, the long-term impact is less clear. First, the Court emphasized that its decision was based “upon Antero’s contractual and property rights” and not on principles of nuisance law. In fact, Justice Elizabeth D. Walker filed a concurring opinion to emphasize what the majority opinion does not do.
“The Court does not decide whether Respondents’ activities on Petitioners’ surface estates created a nuisance. And, the Court does not answer the broader question of whether the owner of mineral rights underlying Surface Estate A may or may not create a nuisance on Surface Estate A to develop the minerals below Surface Estate B. The Court does not decide those issues because this particular case did not present the opportunity to do so.”
Justice Jenkins also noted in the majority opinion that “Petitioners did not challenge on appeal the Panel’s decision to apply contract and property law, rather than principles of nuisance law, in deciding Respondents’ motions for summary judgment. Instead, they argued that the Panel applied the wrong contract and property law.” In reaching this conclusion, the Court acknowledged that “Property Owners reference the term ‘nuisance’ in two assignments of error that we decline to address” because “they have not raised as an assignment of error the MLP’s failure to apply principles of nuisance law in reaching its summary judgment decision.”
Second, the Court’s analysis focuses on situations where a party owns the leasehold right to develop the mineral estate under the property of a surface owner who brings claims related to the party’s activities on the surface to extract the minerals. While this may be the case for companies involved in horizontal drilling activity, midstream companies generally do not own leasehold rights to develop the mineral estate around compressor stations or gas processing facilities.
Third, an unanswered question specifically identified in Justice Walker’s concurrence centers on whether an activity on the surface of Property A may by a “reasonable use” of the surface of Property A to develop the mineral estate of Property A and Property B, but is nonetheless a “nuisance” to the surface owner of Property B. The MLP avoided this question when it granted summary judgment on the Property Owners’ nuisance claims by focusing on the contractual and legal principles, which the Property Owners did not adequately challenge on appeal.
Finally, the Court’s decision in Andrews stands in stark contrast to its recent opinion in Crowder v. EQT, No. 17-0968 (June 5, 2019), in which the Court held that “a mineral owner or lessee does not have the right to use the surface to benefit mining or drilling operations on other lands, in the absence of an express agreement with the surface owner permitting those operations.” In reaching this conclusion, the Court emphasized that a mineral owner’s right to “reasonably use” the surface to extract minerals extended only to the minerals underneath the surface subject to the mineral lease. That right does not extend to using the surface to extract minerals from adjacent parcels regardless of how reasonable the use may be. The result is that absent an express agreement to the contrary with the surface owner of the property on which a well pad is located, an operator could be liable to the surface owner for trespass, yet the same activities would not give rise to trespass or negligence claims by adjacent surface owners.
If you have any questions about the Andrews decision or its impact on the oil and gas industry, please contact Timothy Miller at (681) 265-1361 or tmiller@babstcalland.com, or Mychal S. Schulz at (681) 265-1363 or mschulz@babstcalland.com.
