American Oil and Gas Reporter - November 2023 - 63

absence of broad grants of all minerals
to claim drilling in formations that were
not specifically leased constitutes a willful
trespass, " it notes. " Claims like these
need to be identified in the leasing and
pre-drilling process, and where possible,
corrective instruments or ratifications
should be obtained. "
Meanwhile, it continues, much of the
basin's royalty litigation stems from West
Virginia's 2006 Estate of Tawney ruling
that undermined the traditional rules of
contract construction regarding post-production
costs. Since that ruling, lessees
have tended to draft leases that attempt
to carefully detail post-production costs
and deduction calculation methods, but
litigation continues to proliferate, Babst
Calland says.
The report details a couple cases as
examples and concludes, " 17 years after
Tawney, numerous challenges to every
variation of lease royalty clauses continue
to be filed. "
Turning to operational methods, the
report points to the basin's longstanding
rules regarding the " rule of capture " and
operators' discretion under the " prudent
operator " standard. Nevertheless, the firm
notes, lessors in a growing number of
cases are challenging how units have
been formed, how wells were drilled,
and whether wells from adjoining units
or properties may be causing gas to
migrate away from the lease.
" One such suit alleges damages even
though a well has been drilled and the
lease is held by production, " the report
notes. " The lessor alleges the operator
should have nevertheless drilled all the
potential laterals on the lease at the
outset of lease operations to avoid the
possibility that the reservoir pressure
may be reduced by other units and wells
on adjoining or nearby properties. While
the lessor has asserted in amended pleadings
claims that there has been some
physical damage to the reservoir from
fracturing on the adjoining properties,
the claims appear to be a back-handed
challenge to the rule of capture and operator
discretion rules.
" While these cases would seem to
clearly run afoul of longstanding jurisprudence
in the basin, the search for new
claim theories and test cases seems to be
increasing, " Babst Calland assesses.
Regarding infrastructure lawsuits, the
report predicts the basin's multifaceted
legal challenges to pipelines, compressors
and other infrastructure will continue.
" Only due to provisions in the Fiscal
Responsibility Act has the Mountain
Valley Pipeline been able to resume construction, "
it notes. " Efforts to prevent
construction of infrastructure include
use of local governments to try and
enact ordinances or regulations which
have the effect of preventing construction
of wells, compressor stations and related
facilities. Climate-change-based advocates
will continue to challenge every
fossil fuel related project. "
As for private lawsuits that attempt to
bypass regulatory authorities, the report
acknowledges that operations regulated
by state statutes and subject to state
agency enforcement powers rarely give
rise to private civil action enforcement.
Nevertheless, it observes, litigants seeking
novel ways to bring claims are asserting
that state agencies have failed to fulfill
their duties.
" An example are cases filed in Pennsylvania
and West Virginia seeking to
have declared that wells allegedly nearing
end of life must be plugged and
abandoned even though the state regulatory
agencies with jurisdiction over
enforcement of plugging and abandonment
obligations have allowed the continued
operation of the wells, " the report
illustrates. " The determination of
whether a well is at the end of its useful
life is typically an operator and agency
determination, but private lessors now
seek to bypass the state agencies' decisions
that have been made and impose
plugging and abandonment obligations
by judicial decree. "
Nongovernmental organizations and
other parties who disagree with regulators'
decisions have made similar claims in
coal mining and other energy fields, the
report indicates. " These cases are on the
upswing and are being filed in venues
where the claimants feel they have the
most favorable chances of success, " Babst
Calland maintains.
" In short, " the firm says, " there are
sophisticated parties and law firms asserting
new claims and theories testing
the boundaries of traditional energy law
in the basin, and clients are encouraged
to be vigilant to detect and be prepared
to defend these cases. "
❒
NOVEMBER 2023 63
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American Oil and Gas Reporter - November 2023

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