Oil and Gas and other Natural Resources

As we discussed in the last subchapter, minerals and other natural resources that are embedded in the ground beneath property inherently belong to the owner of the surface property above.

However, an interesting issue arises regarding natural resources that are not necessarily embedded under a particular property, but that are in a pool that lies beneath several parcels of property. Of course, the most common application of this phenomenon relates to the presence of a pool of oil beneath several parcels of property belonging to several different people. For example:

Six adjacent parcels of property are owned by Antonio, Barbara, Cal, Debra, Evan and Francine, respectively. Debra set up a drilling and pumping apparatus on her property. The drill is operated exclusively within her property. Nevertheless, her pumping the oil from the pool will naturally drain the oil from underneath the other five parcels. In fact, Debra could conceivably empty the entire pool of oil, all while operating exclusively within the confines of her own property.

Interestingly, the “rule of capture,” which we discussed in chapter one of this course, has been applied to oil and gas subterranean resources. That is, courts have generally ruled that oil and gas are “fugitive resources,” which naturally flow from beneath one person’s land to beneath another person’s land. The rule regarding fugitive resources is that while they are in one’s property, they may be claimed by the property owner. Thus, the owner of land can drill on his or her land and capture oil and gas even if pumping the oil and gas from his or her land drains the reservoir of oil or gas from under someone else’s land. Thus, in the above case, the general rule would be that Debra would be allowed to pump all the oil that she can, even though in so doing, she deprives the others of that resource. See Barnard v. Monongahela Natural Gas Company, 216 Pa. 362 (1907). 

Naturally, all of the other property owners are likely to build their own drills as soon as oil is discovered and compete with Debra for the oil. This phenomenon, in fact, is one of the reasons behind this rule. Allowing each person to drill and to keep whatever oil can be captured through such drilling encourages such drilling. If each party had to share the oil among all the property owners, it would discourage other individuals from taking the initiative and investing the time and money necessary to commence the drilling operation. Each land owner would simply wait until the neighbor drills and then share in the profits. The rule allowing any party to keep the oil that he or she pumped encourages the exploitation of the oil resource.

However, two caveats should be noted:

First, a land owner is not allowed to drill a well on his or her land that extends to territory that is under someone else’s land. In other words, one land owner cannot drill diagonally so that the well starts on his or her land and ends under someone else’s property. The well or pump must start and end on the driller’s property. For example:

Mike owns property that is adjacent to Jenny’s property. He sets up an oil drill. However, his path of excavation is diagonal so that he actually accesses a part of the reservoir that is under Jenny’s property. 

Not only will Mike not be able to keep all of the oil that he pumps, but he has also committed a trespass on Jenny’s property. Because of this trespass, Jenny will probably be able to keep all of the oil that is drilled, since the drilled oil represents a profit that came as a result of the trespass onto her property.

Second, the rule of capture does not protect a land owner if he or she negligently builds a well that damages the common reservoir beneath that property and the neighboring property. If the land owner negligently drills a well that damages the common reservoir, the neighboring land owners are entitled to damages. For example:

Debra drills a well that starts and ends beneath her own property in order to draw oil from a common pool that runs beneath her property and the adjacent properties. However, Debra negligently drills the well and a massive oil fire results that destroys the entire well and causes property damage to all the surrounding lots. In this case, even though Debra built the well entirely on her own property, she will be liable to the surrounding property owners for the damage that the fire caused.