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NewsSupreme Court rules for industry in case against DCNRPITTSBURGH, PA (5/1/2009) - The following is from the law firm K&L Gates: In a landmark decision – one that should foster a more orderly development of oil and gas reserves underlying government lands – the Pennsylvania Supreme Court recently concluded in Belden & Blake v. Pennsylvania Department of Conservation and Natural Resources that the state can neither control nor precondition access to or development of privately held oil and natural gas estates underlying state-owned surface areas. The decision is significant and timely given the substantial increase in development initiatives on state and federally owned forest and park lands throughout the Commonwealth and the resistance producers have faced when attempting to access and develop their privately held oil and gas interests underlying those lands. In Pennsylvania, the Commonwealth (through its Department of Conservation and Natural Resources (“DCNR”)) owns the surface area of millions of acres of land but does not own the oil or gas interests underlying a substantial portion of those areas. The natural resources underlying government-owned surface areas often remain privately owned (either by production companies or other private parties who may then lease their interests to production companies). For well over a century, the law in Pennsylvania has been clear that an owner or lessee of oil or natural gas interests holds a vested property right to access the surface area as reasonably necessary in order to develop its oil and gas interests. These interest holders need not comply with any preconditions of surface owners in order to use the surface estate. Instead, the right to use the surface is implied. If the surface use turns out to be unreasonable, then the landowner may request that a court address the claimed unreasonable use. Otherwise, the landowner may not prevent access to or development of the underlying mineral estate or request damages resulting from reasonable use of the surface area. In Belden & Blake v. Pennsylvania Department of Conservation and Natural Resources, Docket No. 35 MAP 2007, 2009 Pa. LEXIS 664, __ A.2d __, (Pa. 2009), a production company owned or leased (from a private party) oil and gas interests underlying land in Oil Creek State Park. Before accessing the well sites to begin operations, the producer obtained the required well-drilling permits from the Pennsylvania Department of Environmental Protection (“DEP”), as well as other regulatory approvals, and notified DCNR of its intended operations which, by necessity, included the removal of some trees obstructing the access route to the well sites. The producer coordinated with DCNR officials to minimize the impact its operation might have on the state park. DCNR thereafter sought to “require” the producer to execute a right-of-way agreement that imposed a host of preconditions to the use of the surface of the state park. Among other things, DCNR required the producer to (1) execute the right-of-way agreement and comply with all its terms; (2) pay $75,000 to the Commonwealth for the timber removed from the access route and well sites, which represented twice the fair market value of the timber; (3) post a $10,000 bond for each of the well sites, in addition to the bonds already posted to DEP; (4) forgo the ability to assign its interests; and (5) give up the right to judicial review of any of DCNR’s actions. Represented by K&L Gates lawyers, the producer successfully challenged DCNR’s unlawful preconditions in the Commonwealth Court. The court: (1) declared that the producer had an implied right to use the surface of the state park as reasonably necessary in order to access and develop its privately held oil and gas interests; and (2) enjoined DCNR from imposing any preconditions to access and develop the oil and gas estates privately held by the producer. DCNR appealed. The Pennsylvania Supreme Court decided the following question on appeal: When the Commonwealth is the surface owner but does not own the oil or gas below, may it precondition access to and development of privately owned or leased oil and natural gas interests underlying the surface of state-owned lands? The Court’s answer: a decisive no. In reaching that conclusion, the Supreme Court laid down clear rules governing the relationship between the Commonwealth as surface owner and the owners or lessees of privately held oil and natural gas rights underlying state lands. The key aspects of the decision include the following:
The Belden & Blake decision[1] is a major pronouncement by the Pennsylvania Supreme Court addressing the relative interests of government as a surface owner and owners/lessees of privately held oil and gas interests underlying government lands. Notes: Contacts: |
