Gas operators have been drilling gas wells throughout this Commonwealth for over a hundred years. As a result, the Pennsylvania countryside is littered with tens of thousands of gas wells. Many of these older wells, unfortunately, are no longer producing gas and have long been abandoned by the gas operator. To make matters worse, the gas operator has disappeared or is no longer in business. Who owns these older, non-producing wells? More importantly, who now owns the remaining natural gas underlying the surface estate? A recent decision of the federal court in Pittsburgh suggests that the mere passage of time will not vest ownership of an unproductive formation in the surface owner.
In Hoffman v. Arcelormittal Pristine Resources, Inc., 2011 WL 1791709 (May 10, 2011 W.D. Pa.), the plaintiff sought a declaration that she was the rightful owner of all oil and gas located beneath a 97 acre tract in Washington County. The plaintiff had purchased the surface estate in 1971. Her deed, however, specifically stated that the conveyance was subject to all “prior instruments” in her chain of title. Plaintiff did not own the oil/gas rights – they were severed from the surface in 1928. Nonetheless, plaintiff entered into three (3) separate gas leases in 1971, 1986 and 2006. No drilling operations were ever conducted on the property by the plaintiff or anyone else.
In February 2011, the plaintiff filed an action to quiet title based on “adverse possession”. Plaintiff argued that because she openly “leased” the underlying oil/gas between 1971 and 1986 and the mineral owner never objected or contested her efforts, she acquired title to the underlying gas formation. The defendants, the successors-in-title from the 1928 deed, opposed the suit on the grounds that a surface owner cannot acquire oil/gas rights through adverse possession without actual production and drilling. Since the plaintiff had never drilled any wells, defendants argued that the plaintiff acquired no rights in the underlying gas formations.
Adverse possession is an extraordinary doctrine which permits one to achieve ownership of another property by operation of law. A party claiming title to real estate by adverse possession must prove that he or she had actual, continuous, exclusive and hostile possession of the land for twenty-one (21) years. Recreation Land Corp. v. Hartzfeld, 947 A. 2d 772, 774 (Pa Super 2008). The adverse possessor must actually “possess” the subject real estate for twenty-one (21) years and treat the property as his own. See, Glen v. Shuey, 595 A. 2d. 606, 610-611 (Pa. Super. 1991) (“Broadly speaking, actual possession of land is dominion over the land; it is not equivalent to occupancy”). While the word “hostile” has been held not to mean ill will or hostility, it “does imply the intent to hold title against the record title holder.” Tioga Coal Co. v. Supermarkets General Corp., 546 A. 2d 1, 3 (Pa. 1988); Sutton v. Miller, 592 A.2d 83, 90 (Pa. Super. 1986) (the adverse possessor “always claims in derogation of the right of the true owner, admitting that the legal title is in another”).
In Hoffman, the plaintiff argued that her execution of three oil/gas leases between 1971 and 1986 constituted “exclusive and hostile possession” of the underlying oil/gas rights. The trial court disagreed and noted that a majority of jurisdictions that have addressed this issue have held that actual possession of the mineral estate must occur:
“ . . . the possession of the surface estate will not become adverse possession of the mineral estate unless there is an actual entry upon and use of the underlying minerals for the requisite time period.”
See, Hoffman, 2011 WL 1791709 at 7. In the case of oil/gas, the Hoffman court further explained that “actual possession” means drilling and production. Since no drilling had ever taken place, the Hoffman court concluded that plaintiff never “possessed’ the oil/gas estate and, therefore, no rights or title were acquired by the mere act of signing leases:
“ . . . the material facts as set forth by the plaintiff demonstrates that she has merely leased this property . . . Therefore, plaintiff fails to meet the first element required under the law of adverse possession: that there be actual possession on some part of the land at issue”
See, Hoffman, 2011 WL 1791709 at 7. The Hoffman decision is consistent with other oil/gas jurisdictions. Generally, these courts have been held that mere possession of the surface will not constitute “adverse possession” of the minerals. The purported adverse possessor must actually commence drilling operations in an open, obvious and continuous manner. See, Natural Gas Pipeline Co. v. Pool, 124 S.W. 3d 188 (Tex 2003) (the surface owner must engage in “drilling and production of oil and gas ”); Monhoma Oil Co. v. Ambassador Oil, 474 P. 2d 950, 960 (Okla. 1970) (the surface owner must take “actual possession of the minerals by opening and operating mines . . .”); Schaneman v. Wright, 470 N.W. 2d 566 (Neb. 1991) (“An actual, public, notorious and uninterrupted working of the minerals for the statutory period is generally required”); Thomas v. Rex A. Wilcox Trust, 463 N. W. 2d 190, 192 (Mich. Ct. App. 1990) (the surface owner must take “actual possession of the mineral estate”); Kriss v. Mineral Rights Inc., 911 P.2d 711, 714 (Colo. App. 1996) (“one must take actual possession of the minerals under the surface or so exclude the owner that he or she cannot enter upon the land to drill for oil or gas”); Frank v. Fortuna Energy, 856 N.Y.S. 2d 322 (N.Y App. Div. 2008) (plaintiff did not “gain title to subsurface minerals through adverse possession based on longstanding residential use of the property”).
Hoffman was correctly decided and is good news for all Pennsylvanians. Valuable mineral rights should not be “lost” by virtue of a phantom lease executed by someone who does not even own those rights. By emphasizing the need for actual development and drilling, the Hoffman court clarified an important area of Pennsylvania oil/gas jurisprudence. Surface owners must engage in open and continuous drilling operations for twenty-one (21) years before the concept of adverse possession even becomes relevant. Given this heightened level of proof, it is unlikely that mineral estates will be at risk for adverse possession.
The Independent Petroleum Association of America estimates that approximately 325,000 oil and gas wells have been drilled in Pennsylvania since 1859. DEP only has records for 88,300 operating wells and 44,700 plugged wells.