Energy and Natural Resources

Court to Mull Whether 1920s Deed Contemplated Fracking

, The Legal Intelligencer

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The Commonwealth Court has cleared the way for a suit over whether hydraulic fracturing is allowed under a land deed that was executed decades before the oil and gas extraction method was developed.

In Pennsylvania Game Commission v. Seneca Resources, an en banc panel of the court unanimously ruled to allow the Pennsylvania Game Commission to proceed with its suit seeking to ban driller Seneca Resources from fracking on state game lands in Venango County, Pa., pursuant to a 1928 land deed.

According to Judge Anne E. Covey, writing for the majority, the commission had argued that Seneca was banned from fracking on the land because it's a modern form of extraction not contemplated by the 1928 deed, which expressly excepted and reserved "'all the oil and gas in or under the herein described lands, with the right to operate for same by ordinary means now in use.'"

Instead, the commission claims, it owns the rights to extract oil and gas through fracking, according to Covey.

Covey said the question the court must now consider is whether the 1928 deed limits oil and gas extraction on the land to the technology in existence in 1928.

In Pennsylvania Game Commission, a company called Sancrik Lumber transferred the land at issue to the commission under the 1928 deed, according to Covey.

Sancrik then conveyed the land's oil and gas rights, which had been reserved under the 1928 deed, to Seneca's predecessor, United Natural Gas, under a 1929 deed, Covey said.

United Natural Gas eventually merged with Seneca, which drilled a vertical test well for unconventional natural gas on the land, prompting the commission to file preliminary objections with the Commonwealth Court, arguing that Seneca is prohibited from fracking because Sancrik could not possibly have contemplated that method of extraction in the 1928 deed, nor could it have intended to subject the land to the wells, well pads, water impoundments and water usage the process requires, according to Covey.

Because the rights to frack the land were not reserved by the 1928 deed, the commission argued that it has retained those rights, Covey said.

But Covey said the language of the deed is "ambiguous" and directed Seneca to file an answer to Count I of the commission's complaint within 20 days of the Jan. 27 ruling.

"This court could interpret the 1928 deed as intending that extraction methods used before the deed was executed (such as blasting) were no longer permitted, and that Seneca may extract its oil and gas as modern technology allows; or, as the commission contends, that Seneca is precluded from using the more modern extraction processes," Covey said. "Even accepting as true all of the commission's well-pled material allegations, and drawing all inferences in the commission's favor, this court cannot declare, as the commission requests, that 'the [commission] has ownership of the ... development rights associated with extracting gas using the horizontal drilling method and hydrofracking process, future methods of oil and gas production and such other relief as may be deemed just,' because it is uncertain whether the commission owns the alleged development rights and, therefore, is entitled as a matter of law to the same."

Covey was joined by President Judge Dan Pellegrini and Judges Bonnie Brigance Leadbetter, Renée Cohn Jubelirer, Robert Simpson, Mary Hannah Leavitt and P. Kevin Brobson.

In framing the question of whether the 1928 deed limits oil and gas extraction to methods available at the time it was executed, Covey pointed to the Pennsylvania Superior Court's 2013 ruling in Humberston v. Chevron USA, in which the court acknowledged that the state Supreme Court has held as a general rule that "'when anything is granted, all the means of attaining it and all the fruits and effects of it are also granted.'"

In addition, Covey cited the Supreme Court's 2009 decision in Belden & Blake v. Department of Conservation and Natural Resources, which held that a "'surface owner cannot unilaterally impose extra conditions on the subsurface owner beyond those that are reasonable.'"

But Covey also noted that the Superior Court held in the 2005 case Consolidation Coal v. White that "'effect must be given to all the language of the instrument, and no part shall be rejected if it can be given a meaning.'"

While Covey said it remains to be determined whether fracking is prohibited under the 1928 deed, she found that a 1932 deed, under which Sancrik transferred additional land to the commission, clearly and unambiguously allows Seneca to engage in all methods of extraction.

Unlike the 1928 deed, according to Covey, the 1932 deed did not contain the "'ordinary methods now in use'" language.

"Rather, the 1932 deed generally permitted 'prospect[ing] for, drill[ing] and bor[ing] for, produc[ing] and remov[ing] the same,'" Covey said. "Because the language is unrestricted, it unambiguously grants Seneca 'all the means of attaining' the oil and gas subject to the 1932 deed. Thus, there is no question that Seneca may extract its oil and gas underlying the land conveyed in the 1932 deed by horizontal drilling and hydrofracturing or by any other generally accepted means, while respecting the commission's surface estate as the law requires."

Therefore, Covey said, the commission failed to state a claim with regard to the 1932 deed.

A spokesman for the commission declined to comment on ongoing litigation.

A spokesman for Seneca could not be reached.

Zack Needles can be contacted at 215-557-2493 or zneedles@alm.com. Follow him on Twitter @ZNeedlesTLI.

(Copies of the 15-page opinion in Pennsylvania Game Commission v. Seneca Resources, PICS No. 14-0113, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •

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