E-Alert Case Updates
Preliminary Injunction Granted, Allowing Oil and Natural Gas Company to Conduct Horizontal Drilling Underneath Surface Land Owner’s Property
SWN Production Company, LLC v. Edge, et al
In SWN Prod. Co, LLC. v. Edge, plaintiff filed for a preliminary injunction and declaratory judgment concerning its rights under a lease. Plaintiff asserted that it had leased rights to undertake oil and gas operations on the defendants’ property, but that defendants had denied plaintiff entry to conduct its operations. Plaintiff sought to enjoin defendants from restricting its access to the property.
The plaintiff is a Texas limited liability company, solely owned by a Delaware corporation, with a principal place of business in Texas. Defendants are West Virginia residents who, collectively, received approximately eighty-seven (87) acres of land from Harold and Dorothy Fisher ("the Fishers") in 1980. The defendants' deed reserved the oil and gas rights for the Fishers. In 1977 the oil and gas rights were leased to the Columbia Gas Transmission Corporation for a term of thirty-five (35) years. After the 1977 lease and 1980 deed transfer, the Fishers granted an oil and gas lease to NPAR, LLC in 2010. This lease granted NPAR, LLC the exclusive right to explore, drill, develop, and conduct oil and gas operations, "plus all other rights and privileges that are necessary or land covered thereby." The 2010 lease applied to land that included the defendants' property. The plaintiff obtained the leasehold granted to NPAR, LLC and the lease was renewed in 2015. Plaintiff also obtained a permit to operate an oil and gas well on the property from the West Virginia Department of Environmental Protection. Plaintiffs allege that they spent over $750,000 preparing to operate the well, which was scheduled to begin operation in October 2015.
In late July 2015, defendants denied plaintiff's personnel entry onto the property. Defendants asserted that plaintiffs were permitted to use the surface of their property to engage in horizontal drilling into neighboring lands for the purpose of oil and gas extraction.
The Court began by emphasizing that preliminary injunctions are far-reaching and extreme measures, only to be used in limited circumstances. The Court referenced the equitable factors that the Fourth Circuit established for evaluating the propriety of a preliminary injunction, abandoning the four-factor test that had been used until 2008. The equitable factors require a plaintiff to establish the following: (1) that he is likely to succeed on the merits, (2) that he is likely to suffer irreparable harm in the absence of preliminary relief, (3) that the balance of equities tips in his favor, and (4) that an injunction is in the public interest.
Upon evaluating the aforementioned equitable factors, the Court determined that plaintiffs had satisfied the requirements for the Court to issue a preliminary injunction. First, the Court found that the plaintiff was likely to succeed on the merits. The issue for the Court to resolve in this regard was whether the 1977 and 2010 leases combined with the 1980 deed provided the plaintiff with the express right to use the land to drill horizontally into neighboring lands. Under West Virginia law, an oil and gas lease is both a conveyance and a contract, and its interpretation is governed by principles of contract law. The Court found that the 1980 deed clearly referenced the 1977 lease, which reserved the rights to access and produce oil to the Columbia Gas Transmission Corporation. Defendants argued that the 1977 lease expired, and when it expired, any reservation of or leased gas and oil rights expired as well. Plaintiff argued that the 1980 lease did not incorporate by reference the terms of the 1977 lease. Rather, the 1977 lease was referenced in the 1980 deed to demonstrate the thin scope of the oil and gas rights that the plaintiffs reserved. Under West Virginia law, mere reference to another writing in one document is not enough to incorporate that other writing. The Court thus concluded that the 1980 deed clearly did not incorporate by reference the 1977 lease. The 1980 deed merely mentioned the 1977 lease.
Second, the Court next found that plaintiff was likely to suffer irreparable harm absent preliminary relief. The Court noted that the harm must be actual and immediate, not remote or speculative. It is well established under West Virginia law that interference with a real property interest is grounds for an injunction. Specifically, West Virginia law explicitly provides for an injunction where a surface landowner unlawfully resists and obstructs the legitimate use of the surface by the owner of mineral rights. Given this legal framework, plaintiff made a clear showing of irreparable harm.
Third, the Court found that balance of equities tipped in favor of the plaintiff. In balancing the respective equities, the Court noted that it would consider: (1) the relative importance of the rights asserted and the act sought to be enjoined; (2) the preservation of the status quo; and (3) the balancing of damage and convenience generally. As for the relative importance of the rights asserted by the parties, the Court noted that West Virginia public policy clearly favors the development of the state's natural gas resources. This outweighs the right in the property asserted by defendants - their commercial and recreational use of the property. The importance of defendants' interest in the property is tempered by the fact that defendants possess a legal remedy, under West Virginia law, for any surface damage plaintiff may cause. Plaintiff, by contrast, has no similar remedy to prevent defendant from infringing on its right to conduct drilling operations. Balancing the equities, the Court concluded that the benefit to plaintiff of granting a preliminary injunction would not be disproportionate to any injury caused to defendants.
Fourth, the Court found that a preliminary injunction was in the public interest. The Court reiterated that the public policy of West Virginia favors responsible development of the state's oil and gas resources, in a manner similar to that proposed by the plaintiff. The Court also noted that the public has interests in ensuring that parties to leases comply with those leases and in ensuring that valid property rights are respected. The Court reiterated its earlier finding that the defendants were violating the rights conferred to the plaintiff in the 2010 lease by denying entry onto the property to engage in oil and natural gas operations. The Court acknowledged that plaintiff's proposed horizontal drilling technology was controversial. The Court reasoned, however, that concerns over the plaintiff's proposed extraction method, standing alone, was not a sufficient basis to deny the preliminary injunction. Based on its above findings, the Court concluded that public policy supported the granting of a preliminary injunction.
Accordingly, the Court granted the plaintiff's motion for a preliminary injunction. The Court subsequently entered an order enjoining defendants from denying the plaintiff access to the eighty-seven (87) acre parcel of land at issue and from otherwise interfering with the plaintiff's rights and privileges associated with producing, withdrawing, storing in above ground containment, transporting and marketing the oil and gas it extracts.
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