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Oil & Gas Lessees Retain Important Rights in W.Va.
September 26, 2013
The Fourth Circuit Court of Appeals’ recent decision in Whiteman v. Chesapeake Appalachia, LLC, affirms the right of a mineral estate lessee to construct impoundments for the disposal of drilling mud, drill cuttings, and flow-back on the surface estate as being reasonably necessary for the operation of oil and gas wells.1

Natural gas operators should be pleased with the Fourth Circuit’s decision. First, the court reaffirmed that the plaintiff, who is generally the surface owner, bears the burden of proof on claims against an operator. Second, the court clarified West Virginia case law that had been a source of confusion and a potential obstacle to operators’ use of the surface. Third, the court strongly suggested that surface impoundments (and, presumably, closed-loop systems) are a reasonable use of the surface for which operators will not bear liability, although the court did note that these types of cases are fact-specific. And fourth, the court held that an operator’s use of the surface must only be reasonably necessary, rather than absolutely necessary as argued by the plaintiff. An important consequence of this fourth point is that operators will retain latitude to make site-specific decisions, such as the decision to use surface impoundments or closed-loop systems for drilling wastes.

In the above case, the Whitemans were the surface owners of 101 acres in Wetzel County, West Virginia, and alleged that the mineral rights lessee, Chesapeake Appalachia, had committed actionable trespass when it used 10 surface acres to store and dispose of drilling mud, drill cuttings and flow-back from wells located on the Whitemans’ surface property. The Northern District of West Virginia entered summary judgment for Chesapeake Appalachia, and the Whitemans appealed.

At issue were the rights of a mineral estate lessee to use of the surface estate. A line of West Virginia precedent, relying upon the seminal case of Martin v. Brewster Iron Mining Co.,2 held that a mineral estate lessee has “an implied right to use the surface in such manner and with such means as would be fairly necessary for the enjoyment” of the mineral estate.3 However, the Supreme Court of Appeals of West Virginia had also held in Buffalo Mining Co. v. Martin,4 that, in some cases, the mineral estate lessee’s right to the surface must not only be fairly necessary, but also capable of being exercised without “substantial burden” to the surface owner. The Whitemans argued that Buffalo Mining required Chesapeake Appalachia to show that its surface impoundment was fairly necessary and did not constitute a substantial burden on the surface.

The Fourth Circuit rejected both of the Whitemans’ legal arguments. First, the court held that nothing in Buffalo Mining altered the traditional burden of proof in trespass claims; as the plaintiffs, the Whitemans bore the burden of proof to show that Chesapeake Appalachia’s use of the surface was not fairly necessary and was a substantial burden. Second, the Fourth Circuit distinguished the Supreme Court of Appeals’ holding in Buffalo Mining from its holdings in Porter and Adkins. The Fourth Circuit held that where a mineral estate lessee engages in activity that disturbs the surface – even if permanently and negatively – that activity may be implied if it is fairly necessary. However, where a mineral estate lessee seeks to engage in activity “totally incompatible with the rights of the surface owner,” this is a substantial burden that generally will be disallowed absent a specific deed provision.5 Accordingly, a surface owner who brings a trespass claim against a mineral estate lessee must show either that (1) the mineral estate lessee’s activity is a substantial burden on the surface that is not authorized by a specific deed provision or (2) the mineral estate lessee’s activity is not fairly necessary.

Turning to the facts, the Fourth Circuit rejected the Whitemans’ claims that the surface impoundment was a substantial burden because they had failed to present sufficient evidence. Moreover, the Fourth Circuit rejected the Whitemans’ argument that surface impoundments were not reasonably necessary in light of Chesapeake Appalachia’s use of closed-loop systems in other regions. The Fourth Circuit noted that the “fairly necessary” analysis is fact-intensive and does not amount to absolute necessity; rather, the common use of surface impoundments in the industry and in West Virginia made reasonable a finding that surface impoundments were fairly necessary to Chesapeake Appalachia’s enjoyment of the mineral estate. Accordingly, the Fourth Circuit affirmed the Northern District of West Virginia’s entry of summary judgment.

1 No. 12-1790, 2013 WL 4734969 (4th Cir. Sept. 4, 2013).
2 Martin v. Brewster Iron Mining Co., 5 N.Y. 538, 1874 WL 11019 (1874)
3 Porter v. Mack Mfg. Co., 65 W.Va. 636, 64 S.E. 853 (1909); see also Adkins v. United Fuel Gas Co., 134 W.Va. 719, 61 S.E.2d 633 (1950).
4 Buffalo Mining Co. v. Martin, 165 W.Va. 10, 267 S.E.2d 721 (1980)
5 Whiteman *6  (quoting Buffalo Mining, 267 S.E.2d at 725).