Commonwealth v. Seneca Resources , PICS Case No. 14-0113 (Pa. Commw. Jan. 27, 2014) Covey, J. (15 pages).

COMMONWEALTH COURT

The Legal Intelligencer

ENERGY AND NATURAL RESOURCES

Hydrofracturing • Gas Shale Formations • Injunctive Relief

Commonwealth v. Seneca Resources , PICS Case No. 14-0113 (Pa. Commw. Jan. 27, 2014) Covey, J. (15 pages).

The Pennsylvania Game Commission sought injunctive and declaratory relief against Seneca Resources relative to its use of hydrofracking to develop of oil and natural gas under state lands in which Seneca holds oil and gas rights. Seneca's preliminary objection that the claims in the commission's complaint are not justiciable was overruled. Seneca's objection that the complaint fails to state a cause of action was sustained in part and overruled in part.

Seneca holds oil and gas rights in game commission land deriving from deeds in 1928 (Contract L-81), 1929 and 1932 (Contract L-368). Seneca drilled a vertical well targeting unconventional shale gas formations in Contract L-81. The commission contended that since modern horizontal drilling methods and hydrofracking were not developed at the time of the property transfers, the deeds could not have contemplated or intended to reserve the right to burden the surface estates with the wells, well pads, water impoundments and water usage necessary for these purposes. The commission sought a declaration from the court that the commission owned the oil and gas development rights associated with modern extraction of oil and gas subject to the 1928 and 1932 deeds. The commission also sought to enjoin Seneca from engaging in conduct that would unreasonably interfere with the property.

Seneca filed preliminary objections to the complaint arguing that the claims were nonjusticiable because the commission merely alleged that Seneca planned on drilling wells. Seneca maintained that although it had a permit for a well, the permitted well it drilled was not on the property in question, merely adjacent to it. Seneca maintained that it could access its oil and gas interests from this adjacent well by drilling under the property.

While it was true that Seneca had not yet begun drilling operations on the property, it admitted that it held a well permit for property adjacent to Contract L-81 for the purpose of extracting oil and gas from under the property and drilled a vertical test well targeting unconventional gas shale formations on Contract l-81. Seneca clearly had tools in place threatening imminent invasion of the commission's purported rights, thereby creating an actual controversy. Thus, the claims set forth in the complaint are justiciable.

However, to the extent that the complaint sought a declaration that the commission had any right to the oil and gas under the property, it failed to state a cause of action and Seneca's objection was sustained. Despite the commission's claims that the rights in the deed gave ownership to Seneca only to the extent that oil and gas could be extracted by methods in use at the time of the conveyances in 1928 and 1932, there was nothing in any of the deeds allowing the oil and gas rights to revert to the commission under any circumstances.

The 1932 deed contained no limitations on the removal of oil and gas and Seneca could extract its oil and gas by horizontal drilling and hydrofracturing or by any other generally accepted means. The extraction methods language ("ordinary methods now in use") used in the 1928 deed was ambiguous. Therefore, further proceedings were appropriate.

Seneca's challenge to the commission's request for a permanent injunction preventing Seneca from developing the oil and gas was sustained. The oil and gas underlying the property belonged to Seneca in all circumstances and whether the commission had any development rights was uncertain. Since the commission could not establish a clear right to relief, not all the requirements for a permanent injunction could be met.