Energy Alert
(by Timothy Miller and Paul Atencio)
On June 5, 2019, the West Virginia Supreme Court issued its opinion in EQT Production Company v. Crowder affirming a decision of the circuit court of Doddridge County, holding that a surface tract cannot be used to produce minerals from neighboring lands in the absence of an agreement with a surface owner, even if the mineral owners/lessees agreed to pooling and unitization.
At the time that the century-old lease was executed, the lessor owned both the surface and minerals in fee. The minerals were later severed from the surface as subdivided tracts were conveyed as “surface only.” The plaintiff surface owners challenged use of their lands to drill horizontal wells extending beyond the limits of their property to produce and transport oil and gas to/from adjacent tracts.
The Circuit Court of Doddridge County agreed with the plaintiffs and entered an order granting partial summary judgment, finding EQT trespassed to the extent it used the plaintiffs’ surface lands to conduct operations under neighboring mineral estates.
The Court held that the long recognized implied right of a lessee to use so much of the surface as “reasonably necessary” to produce the minerals, was limited to use for production under the surface tract only; not neighboring lands, even if the mineral lessees had signed lease modifications allowing pooling and unitization. The appeal resulted from a trial court order finding that production companies do not have the right to produce pooled production through a surface drill tract without an express reservation in a severance deed or surface owner consent.
In its opinion the Court noted it did not decide the case on the “excessive use” claim, but limited it holding to trespass and property law claims. The court relied on a number of coal mining cases which have limited the right of operators to use leased tracts to transport coal from neighboring lands in the absence of an express agreement to do so.
A key takeaway from this decision is that an operator cannot rely on implied rights to use a surface owner’s property for development of minerals produced from pooled and unitized tracts when the surface and minerals are separately owned. This issue can be resolved by a carefully drafted surface use agreement containing language granting surface and subsurface easements for the development of oil and gas.
The Court’s decision regarding the right to produce oil and gas via pooling through a surface drill tract in the absence of an express grant or reservation to use the surface could create additional hurdles and costs for oil and gas operations, and will likely result in increased litigation.
For more information or to discuss implications of this decision, contact Timothy M. Miller at (681) 265-1361 or tmiller@babstcalland.com or Paul J. Atencio at (412) 253-8816 or patencio@babstcalland.com.