The notion that an oil and gas producer can commit a trespass by engaging in hydraulic fracturing gained traction on April 9, 2013, when U.S. District Judge John Preston Bailey of the Northern District of West Virginia denied a motion for summary judgment filed by oil and gas producer defendants Chesapeake Appalachia, LLC, Statoil USA Onshore Properties, Inc. and Jamestown Resources, Inc. in Stone v. Chesapeake Appalachia, LLC. In this case, Chesapeake Appalachia drilled a horizontal Marcellus Shale well with a vertical well bore within 200 feet of the plaintiffs’ property and a horizontal well bore within “tens of feet” of the plaintiffs’ property. Although Chesapeake Appalachia maintains a lease for the oil and gas underlying the plaintiffs’ property, plaintiffs’ lease does not authorize pooling or unitization of the Marcellus formation.
Defendants urged the court to follow the ruling in Coastal Oil & Gas Corp. v. Garza Energy Trust, in which the Supreme Court of Texas held that a landowner’s claims of trespass where the operator extended hydraulic fracturing underlying the landowners’ property were barred by the rule of capture, the highly regulated nature of oil and gas in Texas and other reasons. The court declined to do so, explaining that under the rule announced in Garza, oil and gas companies would be able to dictate that a landowner either sign a lease on the producer’s terms or the producer will hydraulically fracture under the property and take the oil and gas without compensation. Observing that under West Virginia law, trespass is an entry on another person’s property without lawful authority, and doing some damage, however inconsiderable, to his real property, the court predicted the West Virginia Supreme Court of Appeals would find that hydraulic fracturing under the land of a neighboring property without that person’s consent is not protected by the rule of capture, but rather constitutes an actionable trespass. Although not expressly stated, it appears that the trespass claim rests on plaintiffs’ allegation that the hydraulic fracturing fluid entered the subsurface of plaintiffs’ property.
The court also denied the defendants’ motion for summary judgment on plaintiffs’ claim for breach of the implied covenant to protect against drainage. The defendants relied on Croston v. Emax Oil Co., in which the West Virginia Supreme Court found that the defendant’s offer to allow the plaintiffs to become part of the pool constituted a good faith effort to avoid violation of the implied covenant against drainage. Here, the court found no evidence that the lease offered to the plaintiffs was consistent in terms with the leases of other members of the pool.
Finally, the court noted that the plaintiffs sufficiently pled a breach of contract against the defendants, which sustains the tag-along claim for a breach of the covenant of good faith and fair dealing.
This decision may pose a potential problem for oil and gas producers in West Virginia if trespass by hydraulic fracturing is a viable cause of action. Ultimately, the West Virginia Supreme Court may have the last word.