PITTSBURGH - A state appeals court decision is likely to influence development and investment decisions made by companies that use hydraulic fracturing to extract natural gas.
The Superior Court has ruled in favor of a landowner who claimed that a "fracking" company operating on adjacent land engaged in unlawful trespass. Southwestern Energy Company (SWN) argued that its inadvertent draining of gas was covered by "capture," the long held rule that there is no liability if the energy source migrates freely from under one property to another.
But the court found that this rule did not apply because the gas extracted using fracking, as compared to conventional drilling, cannot move freely in the low permeability of the Marcellus Shale formation. It needs the artificial force of hydraulic fracturing to extract the gas.
Further, under the rule of capture, it is assumed that an adjoining landowner can drill his or her own well to offset the actions of others. This is not feasible in the case of fracking because it is a “costly and specialized endeavor," according to the court, which also denied a request by SWN for a full court, or en banc, hearing.
Poe Leggette, co-head of energy law at Baker Hostetler, said he is concerned about the ruling.
"Texas and Pennsylvania, the only states that have directly addressed this issue and ones that provide 40 percent of all the gas produced in the US, reached opposite conclusions," Leggette told the Pennsylvania Record.
Leggette argued that the landowner objecting does have the ability to drill, by selling a lease to a company that has capital to do so.
The issue can go one of two directions: The company could ask the court to allow an interim review before final judgment, or the state Supreme Court may be pressed to hear the case, Leggette explained
Leggette predicted the impact of the decision, if it stands at the end of all challenges, will be "highly significant," and impose a restraint on development, if this particular neighbor-against-neighbor scenario happens a lot. And that is possible, he said.
"The west is very large, but land in Pennsylvania, from colonial days, was divided up into smaller and smaller units, a lot of family tracts, lot of boundaries," said Leggette.
"As good as industry is at getting it right, fracking is not perfect," he added. "And if (companies) are concerned about liability, they may shorten the bore well and not be free to develop a field."