It wasn’t our case, but what a great verdict! In July, a Belmont County jury awarded $40 million to a landowner after finding that two oil-and-gas operators exceeded the vertical bounds of the lease. Reportedly, it is the largest jury verdict ever in Belmont County.
Typically, an oil-and-gas lease will grant the lessee (the oil-and-gas company) the right to extract oil and gas from anywhere under the surface of the lessor’s property (the landowner). However, with the advent of the shale revolution, some landowners negotiated leases that only granted this right for a portion of the earth beneath the property. The Earth is much like a layered cake, and some leases only permitted oil and gas to be extracted from one or two “layers of the cake.”
In this case, the landowner, Tera LLC, had only leased the Marcellus and Utica Shale formations to Rice Drilling, which eventually sold a portion of the lease to Gulfport. They drilled six wells and began producing gas—but from the Point Pleasant geologic formation. Judge John Vavra said that “They shouldn’t have gone past what the lease said.”
The landowner owner sued for common law trespass, known as a “tort” at common law. The jury, relying on expert testimony, awarded damages for the value of all of the oil and gas wrongfully taken from their property. The verdict accounted for the amounts already taken and for the value of the oil and gas that will be taken.
Check your lease. Does your lease restrict which formations may be developed? Also, the same principle applies if an operator drills too far horizontally into completely unleased property.
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