Landowner Protection from Coal Bed Methane Development

PFB policy:
        Supports changes in law to:

• Prohibit operators of coal bed methane wells from accessing private property or performing any activity related to the development, construction, or operation of coal bed methane wells on private land without the surface landowner’s written consent.
• Cause coal bed methane rights not covered by a valid lease to revert to the landowner.
• Apply where appropriate the requirements of the Bituminous Mine Subsidence and Conservation Act to coal bed methane wells and development.

Background:
The combination of improved prices for natural gas, advances in technology for drilling and extracting methane gas from coal seams, and a 1983 Pennsylvania Supreme Court decision interpreting “coal” rights has caused serious problems for many landowners who no longer own coal rights under their property.

In situations involving the drilling and extraction of natural gas on private property, persons other than the landowner have no legal ownership of the gas underneath the property, and have no legal rights to come onto property to drill or take gas.  In order to be able to drill and operate natural gas wells on private property, a gas company would be required to obtain consent and agreement from the landowner through a gas lease.  And the landowner has the ability to negotiate with the gas company and control in the lease agreement the locations where wells may be drilled, the types and location of activities the company may perform on the landowner’s property, the compensation that company must pay the landowner, and other terms and conditions that the landowner is particularly concerned about.

For drilling and extraction of methane gas in coal seams, however, the legal rights and protections for landowners who do not own coal rights underneath their property are entirely different, and for the most part nonexistent.  This is because of the Pennsylvania Supreme Court decision in United States Steel Corp. v. Hoge.  In that case, the Court ruled that the person who obtained ownership of the coal beneath the surface also received ownership of the methane gas contained within the coal seam.

Because of Hoge decision, landowners who no longer own coal interests under their property have no ability to exercise any ownership rights with respect to the methane in coal seams.  More importantly, these landowners are powerless to prevent or impose any restrictions on a company that has obtained ownership rights in coal bed methane in drilling or operation of wells on the property or demand any compensation be paid to the landowner.

Landowners whose properties have been subject to methane well drilling and operation have been seriously harmed in their ability to manage their farms and lands, maintain their water supplies, and maintain reasonable peace and enjoyment in their homes.

Legislation to protect landowners from unchecked methane drilling must not itself go too far to become an unconstitutional “taking of property” from owners of coal bed methane rights.

The Hoge decision, unfortunately, is the law of the land for Pennsylvania, and Pennsylvania’s governing principles for property ownership with respect to coal bed methane.  Legislation to protect landowners from excessive coal bed methane development must not place such restrictions on the property rights of well operators to have “reasonable access” to coal bed methane reserves as to constitute a “taking of property” from which the Commonwealth would be required to pay compensation.

Legislation moving in the General Assembly:

Senate Bill 275 (Prime Sponsor – Don White) and House Bill 539 (Prime Sponsor – Dave Reed) would provide landowners with a simpler, less costly and more timely alternative to court litigation to dispute and resolve issues related to the location of coal bed methane wells and access roads:

• The bill would create an independent Coal Bed Methane Review Board to help surface landowners and coal bed methane well operators resolve disputes, or if disputes cannot be fully resolved, make decisions on disputed matters.  Either party could appeal the Board’s decision to the county court where the well is to be located.
• The alternative review process provided under the bill would be tied to the process for permitting that coal bed methane well operators must obtain under the state Oil and Gas Act.  A permit for a coal bed methane well could not be issued unless the well operator demonstrates he or she has properly notified the landowner and has given the landowner opportunity to participate in the bill’s alternative dispute resolution process.  If the landowner uses the alternative resolution process a decision on the well permit application could not be made until the process has been fully completed, including the county court’s decision on appeal.
• The bill would not change substantive legal rights and obligations between surface landowners and owners of subsurface rights to coal bed methane. Decisions by the Board would be based on existing legal principles.

House Bill 1155 (Prime Sponsor – Bud George) would provide statutory rights to surface landowners and statutory obligations and liability on gas and oil well operators:

• The bill would essentially require the gas/oil well operator to have an agreement with the surface owner on the location of wells, roads and other facilities to be constructed or operated on the surface owner’s property or enter into a lease that provides the surface owner at least one-eighth royalty from gas or oil extracted from wells on the property.
• The bill would also require the well operator to provide compensation to the surface owner for loss of agricultural production, timber production, land value and land and water use occurring as a result of the well construction, operation and maintenance activities, if the agreement does not provide the landowner a one-eighth royalty if the agreement fails to specifically address the area of compensation the bill requires the well operator to provide.
• The bill would also require the well operator to provide extensive notification, documentation and mapping, to allow the surface owner to evaluate the potential adverse effects from the proposed well’s drilling and operation.
• If there is no lease agreement that provides the surface owner with one-eighth royalty and no compensation agreement with the surface owner, the bill would require the well operator to post a surety bond equal to $250,000 or 120% of the operator’s best compensation offer to the surface owner to cover the compensation the bill would require be paid to the surface owner.
• DEP would be prohibited from issuing any well permits to a well operator who is not in compliance with the requirements to be imposed under the bill.
• The bill would provide the opportunity for attorney fees to be awarded to a surface owner in court actions for compensation required under the bill.
• A well operator would be required under the bill to restore or replace a public or private water supply that has been polluted or reduced by well operations, and provide an administrative procedure through the Department of Environmental Protection in which claims of water pollution or loss are filed, determined and enforced.  DEP would be responsible to make determinations and issue orders for restoration or replacement of water supplies within 45 days of the date the claim is initially filed.
• The bill would create a rebuttable presumption that pollution or reduction of water supply within 2,500 feet of a well site was caused by the well, if the pollution or loss occurred within six months after completion or alteration of the well, unless the affected landowner refused to allow the well operator to conduct predrilling or prealteration testing of the supply.

House Bill 1205 (Prime Sponsor – Tina Pickett) proposes to amend the Oil and Gas Act to provide better protection of water supplies:

• Would extend the zone of the Act’s rebuttable presumption that a gas or oil well caused pollution to a public or private water supply to include water supplies within 2,000 feet of an active well (currently 1,000 feet), and would extend the time period for which the rebuttable presumption would apply to 24 months after completion of well drilling or alteration (currently 6 months after completion).
• Would require gas and oil well operators to perform pre-drilling and 2-year-post-drilling water quality tests and provide results of tests to water supply users.

Current Status:

Senate Bill 275 was passed by the Senate.  Senate Bill 275 and House Bill 539 are currently in the House Environmental Resources and Energy Committee.
House Bill 1155 was reported from the House Environmental Resources and Energy Committee and is currently in the House Rules Committee.
House Bill 1205 was reported from both the House Environmental Resources and Energy Committee and the House Rules Committee, and is currently in the House Appropriations Committee.

Farm Bureau members should:

• Contact House members in the House Environmental Resources & Energy Committee and urge them to report Senate Bill 275 from committee.
• Contact House members in the House Appropriations Committee and urge them to report House Bill 1205 from committee.
• Urge all House members to support and work for prompt passage of legislation contained in Senate Bill 275, House Bill 539 and House Bill 1205.
• Urge Senate members to vote in favor of these bills if the Senate is given opportunity for legislative action.
• Urge House and Senate members to work for passage of legislation that imposes reasonable and constitutional requirements upon coal bed methane operators to protect the surface owner’s water supplies and land resources and ensure reasonably peaceful use and enjoyment of his or her property.