Court affirms that surface rights owners, even Uncle Sam, are subservient

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Pennsylvania energy attorneys said a recent appeals ruling restricting the U.S. Forest Service's regulatory authority over drilling in the Allegheny National Forest reaffirms the long-standing legal tenet that mineral rights owners have primacy over surface owners -- and could apply more broadly to other federally owned land.

Other attorneys said the U.S. 3rd Circuit Court of Appeals ruling also provides guidance as to when the National Environmental Policy Act of 1969, which requires a lengthy environmental impact study, is triggered.

In a nonprecedential 10-page opinion issued Sept. 26 in Minard Run Oil v. U.S. Forest Service -- known as Minard Run IV -- a three-judge panel essentially reaffirmed its own 2012 decision in Minard Run III.

The decision said the Forest Service has no regulatory authority over the mineral rights beyond whatever may have been explicitly stated in the original instruments of conveyance.

George A. Bibikos, a partner in K&L Gates' energy practice who was not involved in the Minard Run litigation, said the ruling serves as another example of the "bedrock principle of oil and gas law" that a surface owner is subservient to a mineral rights or oil and gas rights owner.

"It reaffirmed the principle that an owner of a severed mineral estate has property rights and those property rights are the same even though the surface owner may be a government entity," Mr. Bibikos said, pointing to a similar ruling by the state Supreme Court in the 2009 case Belden & Blake v. Department of Conservation and Natural Resources.

"You can't quite have a different rule for a government surface owner and a private surface owner."

According to court documents, the dispute that led to the recent Minard Run IV decision originally erupted in 2009, when the Forest Service entered into a settlement with several environmental groups in which the agency agreed to suspend drilling operations in the forest until it could complete a multiyear environmental impact study.

Before that, the Forest Service had been routinely issuing "notices to proceed" to drillers in the forest under a process in which mineral rights owners provided the agency with 60 days' notice of their drilling plans.

That process had been put in place pursuant to the U.S. District Court for the Western District of Pennsylvania's 1980 ruling in Minard Run I, finding that mineral rights owners have an "unquestioned right" to enter land to extract minerals, subject to "minor restrictions which ... should not seriously hamper the extraction of oil and gas."

But following the 2009 settlement, according to court documents, plaintiffs Minard Run Oil Co., the Pennsylvania Independent Oil and Gas Association, the Allegheny Forest Alliance and Warren County, Pa., subsequently sued the Forest Service and the environmental groups arguing that an environmental study was not required.

The U.S. District Judge Sean J. McLaughlin for the Western District of Pennsylvania issued a preliminary injunction, which the Third Circuit eventually upheld in the ruling that became known as Minard Run III.

That preliminary injunction became a declaratory judgment, which the Third Circuit, led by Judge Marjorie O. Rendell, recently upheld on appeal.

Joel R. Burcat, who chairs Saul Ewing's oil and gas practice and likewise was not involved in the Minard Run litigation, said the Minard Run IV ruling, as it narrowly relates to the Allegheny National Forest, essentially reverts back to the process that was originally spawned by the Minard Run I ruling.

"It's not one of these deals where Judge Rendell issues an opinion and it turns the law on its head," Mr. Burcat said. "It essentially returns to the status quo that had been in existence for 30 years."

But in order to understand the potential for the ruling to have broader applicability, Mr. Burcat said, some additional historical perspective is necessary.

The Weeks Act of 1911 authorized the federal government to purchase state land to be preserved as forest land.

When the Forest Service originally purchased the Allegheny National Forest land in the decades following the enactment of the Weeks Act, Mr. Burcat said, it bought only the surface rights and did not insert any language into the deeds to give the agency any more control over the mineral rights than a typical surface owner would have.

So, in light of Minard Run IV, the federal government may be restricted in regulating the mineral rights with regard to other land it similarly purchased under the Weeks Act.

In a joint news release by the defendants issued after the Minard Run IV decision, Bill Belitskus, board president of the Allegheny Defense Project, was quoted as saying the Third Circuit's ruling created "two separate national forest systems."

"On the one hand are the 154 national forests where the Forest Service can impose reasonable regulations to protect the national forest from private parties," Mr. Belitskus said in the press release. "On the other hand is the Allegheny National Forest, where the oil and gas industry is allowed to drill as many wells as it wants virtually free from Forest Service regulation or public scrutiny."

marcellusshale - legalnews

Zack Needles: or 1-215-557-2493. Read more articles like this at First Published October 7, 2013 4:00 AM


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