The Fine Print Of Natural Gas Property Rights: Cautionary Lessons From Western Ohio And New York

Much of the discussion about hydraulic fracturing has focused on the environmental, health and other community risks allegedly posed by the process. While these perceived risks have taken center stage in the media, fracturing stakeholders need to be aware of other risks that arise long before a well is drilled—in the deeds, leases and other property-related documents that give stakeholders the right to access and develop natural gas in the first place. This article briefly discusses two such risks.

"Through and Under," and Perhaps Out of Business Altogether

Because developing and operating a hydraulically fractured well requires enormous capital investment, the economic viability of a well often depends on being able to reach natural gas resources located not only beneath the parcel of land where the well is physically located, but also beneath adjacent parcels for which the well operator has acquired mineral rights. The ability to use a single well to reach natural gas trapped in bedrock below several adjacent parcels is made possible by horizontal drilling and hydraulic fracturing technologies. Employing these technologies, an operator can use fewer wells to access more natural gas that, just a few years ago, was entirely unobtainable. Fewer wells means fewer disruptive surface activities (e.g., road building, pad construction, well drilling), fewer air emissions from well stacks and fewer of the other environmental risks associated with individual well operations.

Essential to this one-well/multi-parcel approach, of course, is the operator's ability to move all of this natural gas horizontally beneath adjacent parcels, then upward through the vertical well shaft to the surface. Indeed, surface access is so essential to developing most natural resources that, historically, most coal companies, oil drillers and other mineral rights developers have ensured such access by purchasing the surface estate(s) that overlaid their mineral grants—or, at minimum, purchasing the surface estate of the particular parcel of land where they intended to bring the resource aboveground. Even where surface access could not be purchased or leased, mineral rights holders long have enjoyed some legal protection: in most states, subsurface mineral rights carry an implied grant of reasonable access to the surface estate for purposes of exercising the mineral rights.

This implied right to access worked fine for the myriad coal and oil projects that were the hallmark of resource development last century. But its application to today's hydraulic fracturing operations—particularly the use of single wells to horizontally access natural gas resources beneath multiple parcels—has become more problematic.

At the center of Jewett Sportsmen Club v. Chesapeake Exploration, LLC, which is pending in the Court of Common Pleas in Harrison County, Ohio, is a dispute over an approximately 177-acre parcel of Western Ohio land the plaintiff purchased from the North American Coal Corporation (NACC) in 1959, which its members have since used for various outdoor activities. The plaintiff acquired only the surface estate of this parcel, with the NACC retaining all subsurface mineral rights pursuant to a comprehensive mineral rights reservation in the deed. Those mineral rights were sold by NACC to Chesapeake several decades later.

Chesapeake intended to construct a single well-pad on the...