On March 28, 2013, Federal Judge Irene Keeley certified the following question to the West Virginia Supreme Court of Appeals “May a mineral owner or lessee, whose rights are expressly limited by deed to surface rights for the production of oral and/or gas within an underlying the subject tract, none the less use, occupy and burden the surface for the production of oil and/or gas that is not within an underlying the subject tract?” The certified question comes from a federal case in the Northern District of West Virginia filed by Marion County property owner Richard Cain against XTO Energy, Inc.

Mr. Cain owns 105 acres in Marion County, including the surface covering a 138.05 acre oil and gas estate which was severed from the surface in a 1907 deed. In that deed, the oil and gas owner retained the right on the surface to do what is “necessary and convenient” to obtain the oil and gas within the underlying tract. In his lawsuit, Cain alleges that West Virginia law permits the mineral owner to perform activities that are “fairly necessary” to produce gas and oil, “so long as the surface use was in the contemplation of the parties to the agreement.” Cain argues that XTO Energy, Inc. can use the 138.05 acres of oil and gas, but cannot use the surface to extract oil and gas from neighboring mineral tracts outside of the 138.05 acre tract, despite the fact there is a pooling agreement in effect. Pooling agreements are common in Marcellus and Utica Shale leases and permit the energy companies to combine leases that are in geographic proximity to each other in order to draw oil and gas from a larger area or pool.

Mr. Cain argues that “almost all of the production portions of the wells are outside of his property and the 138.05 acre tract of oil and gas rights. He further argues that in 1907, people could not have understood the extent of surface damage caused by horizontal drilling because it did not exist in those days. According to Mr. Cain, unlike the traditional shallow wells where a small drilling site would obtain the oil and gas from directly below the rig, horizontal drilling permits owners of neighboring surfaces to receive large royalty payments, while he will receive no payments and have the surface of his property used up, leaving him with “mostly steep hillsides.”

Recognizing the wide ranging implications of the certified question, Judge Keeley stated “further, the Court is well aware that the resolution of this question could have far-reaching legal and economic implications for the State of West Virginia. Such important and unsettled issues of state law should, in the first instance, be decided by West Virginia’s highest Court.”

What It Means to You

As the first lot of horizontal drilling lease litigation works its way through the West Virginia courts, the Supreme Court’s decisions in Cain will most likely lead to a whole new set of landowners’ claims.