Mineral Rights +
Fracking

I.    INTRODUCTION

All living organisms, big and small, require energy to survive. Humans get their energy from food in the same way that civilizations and industries, in the 20th and 21st centuries, rely mostly on minerals to fulfill their energy requirements for growth and development. Trapped hundreds or thousands of feet beneath the ground, these minerals are known as fossil fuels. Given the needs of modern human societies, the extraction and development of these fuels play an essential role in structuring the economic system of most developed civilizations as well as in their general public and political discourse. In the United States, petroleum, both in its liquid and gaseous state, is the most prevalent of the available fuels. Gasoline fuels the cars that move people from one place to another, food and drinks are stored in petroleum-based plastic containers, and the lights in most homes are powered by electricity generated by burning natural gas and other fossil fuels. In the United States, fossil fuels and energy are omnipresent.

Oftentimes, technological advancements within the energy industry can have strong economic effects at both the global and national levels. One example in the context of oil and gas is the recent improvements in hydraulic fracturing technology. Popularly known as fracking, hydraulic fracturing is the process and technique of extracting previously unreachable oil and gas resources that are trapped in shale rock formations by injecting liquids at an extremely high pressure into the ground in an effort to fracture the rock. A mix of chemical propants is also injected to prop open the fractures, letting out the minerals. The effects of these improvements have led to what is being called an “energy renaissance” in the United States (Sutherland, 2014, p.5). However, many countries with known significant amounts of shale oil and gas have not been able to exploit their resources through fracking and thus have not enjoyed the benefits of this so-called “renaissance” (Ferguson, 2016, p.89). One thing that sets the United States apart in this respect is the existence of legal instruments and principles that developed from particular theories of ownership. These may act as a shield, preventing the severe bans and regulations that are being implemented in other countries rich in shale resources. This paper aims at illustrating a causal mechanism that contributed to the rise of the shale boom in the United States in an attempt to explore some of the effects of private ownership of mineral rights.

 

II.    RESEARCH DESIGN

 

A.    Methodology

    Throughout history, oil and gas law has been shaped by technological advancements, economic forces, and theories of ownership as courts’ decisions have responded to these factors. It is possible that a thorough survey of a small cluster of key court cases will give some valuable insight into the character of oil and gas law in the United States. Judges often refer to past cases when making a judicial decision themselves. This form of legal reasoning is known as appealing to precedent (Schauer, 1987). For this reason, a retrospective analysis into the stances that have been taken with consistency in the past may help in predicting a near future and understanding a perpetual present. 

Hydraulic fracking is becoming increasingly prominent and has given rise to the U.S. shale-boom (Sutherland, 2014). The roadblocks it has faced in some countries, although arisen from activist movements and public opinion, have been legal in their implementation. Conclusions reached through analysis of past U.S. court rulings and judicial interpretation of law could aid in solidifying a basic understanding of the role that legislature and the judicial system play in opening the door to fracking stimulation methods of extracting petroleum resources in the United States. 

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B.    Hypothesis

Private ownership of mineral rights leads to more efficient extraction of oil and gas resources. Because mineral rights in the United States are designed to protect societal economic imperatives,  American law promotes potentially harmful methods of extracting oil and gas in the United States.

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C.    Literature Review

Authors writing for the New York Times point out that recent developments in hydraulic fracturing (fracking) present potentially nocive risks to the environment and to public health. Because of this, many hold the opinion that fracking should be regulated or banned until further research proves otherwise. Still, they point out that given the lack of evidence, it may be beneficial for society and for the environment to encourage fracking. 

(Susan Brantley and Anna Meyendorff, The Facts on Fracking)   

Professor David P. Spence does not disagree that there are potential health and environmental dangers involved with fracking. He notes, however, that “what is missing from these legal and policy conflicts is any sense of the relative health, safety and environmental risks posed by fracking, and the opportunity costs of discouraging shale gas production on a national level”. He dives deeper into the relative environmental benefits that result from developing natural gas in shale formations and its implementation as an energy source instead of coal. 

(Backyard Politics, National Policies: Understanding the Opportunity Costs of National Fracking Bans)

John S. Lowe exposes succinctly the entire scope of U.S. oil and gas law, explaining how it has been developed and applied in the past by going over specific cases and the decisions that were reached in them as examples. He describes different theories of ownership as well as the rule of capture and its inherent limitations, further investigating how the law has been interpreted throughout history.

(Oil and Gas Law in a nutshell)

Author Kevin J. Lynch argues that regulating and/or banning hydraulic fracking techniques as a means of extracting previously unreachable oil and gas resources, in most cases, does not amount to a taking, or a federal government acquisition of private property for public use. He studies states where fracking has been banned (regionally or statewide), focusing on New York and Colorado, gathering evidence to prove his point that fracking can and should be banned in the United States. 

(Regulation of Fracking Is Not a Taking of Private Property)

Other authors explore a wide variety of very specific issues associated with fracking. Their papers focus on the management and disposal of frac flowback waters, investigate the effects of activism on the fracking movements, and seek ways to accelerate international shale development among other topics and issues. Some of these papers look briefly into the role that private ownership of mineral rights in the United States plays in the development of oil and gas resources as compared to other countries. However, a small percentage of the content in the literature focuses primarily on this comparison. 

(S.Scott Gaille, How Can Governments Accelerate International Shale Development; Douglas Sutherland, Making the Best of New Energy Resources in the United States; Denise P. Ferguson, Michael F. Smith, Bonnie Efird, Measuring The Impact Of Activism On Hydraulic Fracturing Policy Globally)

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D.    Significance of Study

There is public interest, resulting from the growing polemic, in the dynamics of the developing shale revolution and so-called energy renaissance that has stemmed from recent development in fracking technologies. Yet, there is very little literature aimed at a wide audience that goes into why this revolution has taken place almost exclusively in the United States. The country’s legal mechanisms that have prevented bans and moratoriums seen in other countries are seldom explained in the literature. There is an important link between the developed structure of oil and gas law in the United States and the current fracking boom that can only be illustrated through examples of past court cases, statements that have been made by judges, and comparisons with other countries that have outright banned the practice. This comparison is possible because of stark differences in the legal ownership of subsurface minerals between the United States and virtually the rest of the world (Gaille, 2015). The current political climate surrounding hydraulic fracking demands the filling of holes in the literature.

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E.    Scope and Limitations

    This paper is aimed at a wide audience with little knowledge of mineral rights, fracking, and the impact that these have on our society. The purpose is not to develop a previously unimagined, unexplored, or unthought of relationship between variables. Rather, the goal is to formulate an argument ultimately aimed at providing a comprehensible picture of the basic legal mechanisms that have resulted from U.S. theories of ownership in the context of oil and gas. Furthermore, the argument serves as an example of how this continues to have an effect in modern society. Hydraulic Fracturing was included as the outcome variable because of its significant economic impact and the polemical nature of the topic. Essentially, this paper is meant to function as an inviting and interesting opening of understanding into the world of Mineral Rights. The research, however, is time-limited and as such does not go into the uncountable mechanical pieces that contribute to the unfolding rise of the U.S shale boom. It is only a glance into how judicial interpretation of the law, as well as the law itself, facilitates the growth of fracking and its relevance in the energy industry.

 

III.    U.S. MINERAL RIGHTS & CASE ANALYSES

 

A.    Fundamentals of Private Mineral Rights Ownership

    For the purpose of this paper, it is necessary to focus on private ownership of mineral rights rather than public ownership. The United States fundamentally differs from the rest of the world in that valuable underground minerals are primarily privately owned (Lowe, 2009). In basically all other countries, the subsurface minerals are owned by the government (Ferguson, 2016). Up until the nineteenth century, when the first oil well was drilled in the United States, the accepted principle of land ownership was based on the  statement: Cuius est solum, eius est usque ad coelum et ad inferos (Lowe, 2009). Often referred to as the ad coelum doctrine, it roughly translates to: whoever owns the land, owns it all the way to Heaven and all the way to Hell (Lowe, 2009). This principle gave landowners ownership rights to whatever minerals were contained underneath the surface of their property. Courts have now established that the “doctrine has no place in the modern world” (United States v. Causby, 1946). Nonetheless, it is the foundational principle that gave rise to the unique U.S. concept of private ownership of minerals. Like real estate property, mineral rights can be sold or leased. This gives a considerable number of individuals the potential for large profits. Industry has the opportunity to negotiate terms to lease or purchase the mineral rights from any individual at any given time without dealing with the federal government. Private mineral rights ownership also gives smaller oil companies a greater potential to compete with larger companies, as it is in the interest of the lessor to quickly develop the resources. This is because leasing contracts for mineral rights are often based on royalty shares of the oil and gas extracted upon completion. Large oil companies that own hundreds or thousands of mineral rights at any given time, may take years to begin production of minerals in one’s property–if they ever even get to it. Therefore, the door is open for anyone to lease or purchase mineral rights. The law further developed during the period between the late 19th century and the early 18th century, when the United States government took a laissez-faire, hands-off, approach in terms of regulating industries.

There may be, however, a downside to the individual ownership of mineral rights in the United States. A focus on profit by companies and individuals can ignore the public good that government ownership would presumably focus on. Because the rights can be sold, leased, or transferred, a company could face complications tracking down mineral rights owners that have inherited fractions of the rights over generations. The possibility of a split inheritance can divide the land into areas too small to produce. Given these possibilities, private ownership has been preserved in the United States in the hope that it will generate more competition and encourage faster extraction. 

 

B.    The Rule of Capture

There are several aspects of oil and gas law as it pertains to ownership that aim at promoting efficiency in extraction. The law has historically developed almost from its inception to increase this efficiency. An early example that does an excellent job of illustrating the direction of this development is the rule of capture. Unlike other hard minerals like coal or gold, the nature of oil and gas interfered with the application of the ad coelum doctrine (Lowe, 2016). The physical state of oil and gas means they are not necessarily stationary and are contained in large pockets, often identified as anomalies, that can span the subsurface area of several surface properties (Lowe, 2016). A single well drilled in one of these properties can cause the minerals to migrate from adjacent properties and effectively extract the entire pool of resources from what, according to the ad coelum doctrine, is somebody else’s property. Adhesion to the doctrine would discourage mineral owners from extracting oil and gas as it would create fear of liability (Lowe, 2009). The rule of capture arose to counter this and, more important in the context of this paper, is the first policy in oil and gas law that developed as a means to encourage development of energy resources (Lowe, 2009). The rule can be described and applied as “both an ownership theory and a no liability rule”(Low, 2009, p.801). The rule is analogous with the legal concept of ferae naturae which says that if a wild animal is captured or killed in someone’s estate, then that animal becomes legal possession of that person (Lowe, 2009). Essentially, the rule of capture can be summed up as Robert E. Hardwicke stated, “The owner of a tract of land acquires title to the oil and gas which he produces from wells drilled thereon, though it may be proved that part of such oil or gas migrated from adjoining lands” (1935). The rule “developed from courts’ recognition of society’s need for energy sources, rather than from the logic of precedent” (Lowe, 2009,  p.10). This shows that early in the evolution of oil and gas law in the United States, a utilitarian direction was taken to promote the extraction of minerals. A mineral rights owner would be incentivized by the rule to produce the resources before his neighbors in an effort to extract as much oil as possible both from their property and neighboring properties. While this may be disfavorable for the neighbors, courts have recognized that it is in the interest of society to expedite the production of energy sources. In the past, courts have taken this stance and still do today. Now, there are many limitations to the rule of capture but (as it will be shown in the next section) it only protects activity that is consistent with the purpose of benefiting society through efficient extraction of oil and gas resources. 

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C.    Coastal Oil & Gas Corp. v. Garza Energy Trust

This is an extreme case that emphasizes the minimization of economic waste through the judicial interpretation of the rule of capture. In 2008 Coastal Oil Corporation organized a fracking operation that had been expected to fracture the ground underneath a neighboring property, the Salinas’ property (Coastal Oil & Gas corp. v. Garza Energy Trust, 2008). This allowed the hydrocarbons underneath the Salinas’ property to escape through the fractures into Coastal Oil’s property (Coastal Oil & Gas corp. v. Garza Energy Trust, 2008). Salinas argued that coastal trespassed into the property and caused injury by causing his minerals to escape (Coastal Oil & Gas corp. v. Garza Energy Trust, 2008). An appellate court ruled in favor of Salinas, arguing that “Coastal acted with malice and appropriated Salinas's property unlawfully, and should be assessed $10 million punitive damages”(Coastal Oil & Gas corp. v. Garza Energy Trust, 2008). However, the case was taken to the Texas Supreme Court where Coastal Oil & Gas Corp. was found to be innocent (Coastal Oil & Gas corp. v. Garza Energy Trust, 2008). This case is a great example because the rule of capture was referenced and interpreted differently by different judges. Their interpretations led to opposite conclusions on what the court should rule. The case’s main aim is to resolve a trespass through fracking claim. Coastal acted knowing that the operation would cause the petroleum resources to escape into the Salina’s property. At one point, before the operation took place, a Coastal employee referred to the Salinas’, in a report, as “illiterate Mexicans” that should not cause a title problem (Coastal Oil & Gas corp. v. Garza Energy Trust, 2008). The appellate jury saw this as clearly malicious (Coastal Oil & Gas corp. v. Garza Energy Trust, 2008). Without prior knowledge of the rule of capture, one might reach the same conclusion. Yet, the final ruling by the Texas Supreme Court was based on society’s need for energy resources and the majority of the court’s recognition that efficient extraction and minimum economic waste was the ultimate purpose of the rule of capture. The case’s documents are filled with comments that illustrate the court’s sentiment and position. Judge’s conclude that “energy production is extremely important to Texas and to the nation”, that “maximizing recover via fracking is essential”, that “above ground supply obstacles [...] exist, and this court should not be one of them”, and that the state’s goals are “preventing [economic] waste and conserving natural resources”(Coastal Oil & Gas corp. v. Garza Energy Trust, 2008). The goals of the legislature, and the judges adherence to these goals, is made clear by the language and character of these comments.

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D.  Larsen v. Wyoming Oil and Gas Conservation Commission

Protection of Correlative Rights is another aspect of oil and gas law that has played a role in promoting economic development of mineral resources with the same utilitarian justifications as the rule of capture. Correlative Rights protect the opportunity that mineral rights owners have to produce, “so far as it is reasonably practicable to do so without waste, his just and equitable share of the oil or gas” (Larsen v. Oil and Gas Conservation Commission, 1977). The court reached the conclusion that the Oil and Gas Conservation Commission did not have the power to space oil wells to prevent waste. A specific meaning of the term ‘waste’ was emphasized in the case’s documents:

The term `waste' in addition to its ordinary meaning, shall include: ... (5) the drilling of wells not reasonably necessary to effect an economic maximum ultimate recovery of oil or gas from a pool:... the drilling of unnecessary wells creates waste, such as wells create fire and other hazards conducive to waste, and unnecessarily increase production costs and thus also unnecessarily increase the costs of products to the consumer" (Larsen v. Oil and Gas Conservation Commission, 1977).

 Following the Wyoming Supreme Court’s decision of this case, state legislature amended the law to grant the Oil and Gas Conservation Commission power to set well-spacing rules in accordance of preventing economic waste (Lowe 2009).  This result is relevant for this paper because although the Oil and Gas Conservation Commission and the Wyoming Supreme Court were unable to promote efficient economic extraction, state lawmakers stepped in to change the Commission's powers to take into consideration economic matters when spacing oil and gas wells. This shows and reminds that the judicial branch’s interpretation of the law is affected by other forces and is not the sole factor pushing towards efficient production of these minerals. 

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E.    Continental Oil Co. v. Oil Conservation Commission 

    Another, similar example of certain legal mechanisms that promote efficient extraction is evident in some of the comments made in this case. It resolves a disagreement over acreage and deprivation of property between Continental Oil Companies and the Oil Conservation Commission. The Supreme Court of New Mexico decides against the Commission and, more importantly, goes into depth as to what its purpose is. Describing it as an entity created and limited by legislation to prevent waste and protect correlative rights. The court states that “the prevention of waste is of paramount interest, and protection of correlative rights is interrelated and inseparable from it” (Coastal Oil Co. v. Oil Conservation Commission, 1962).  The decision and comments made in this case show that although an administrative entity, like the commission, is given the power and responsibility by the legislative branch to prevent economic waste, the Judicial Branch has acted against the commission in protection of the goal. This example shows how courts make constant utilitarian decisions of these kind when energy is involved. 

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IV.    FRACKING: EFFECTS AND POSSIBILITIES

A.    Concerns Arising from Fracking

    When liquids are injected to fracture shale rock in an effort to extract oil and gas, there arises a considerable risk to people who reside near the location of drilling. The liquids that are used in the process of fracking contain harmful chemicals and acids that have previously infiltrated drinking waters from beneath the ground (Brantley and Meyendorff, 2013). The fracturing of shale rock has historically released methane gasses into the U.S. groundwater (Crockett, 2013). In some places the “tap water could even be lit on fire due to the natural gas that had migrated into the water supply” (Ferguson, 2016) For these and other environmental and public health reasons, fracking has gained a lot of traction in the media over the last few years. So much  in fact, that regardless of the beneficial economic effects that are known to follow from the extraction of  huge amounts of previously unrecoverable oil and gas resources contained in shale rock, several countries have banned it.

An activist movement that has been labeled as NIMBY (Not In My BackYard) has called for action against fracking from political leaders around the globe. France, one of the richest European countries in shale gas, was forced to put in place  a moratorium, or a temporary ban on the practice as a fracking operation was subject to strong public backlash. Bulgaria, another country with large shale reserves, was faced with protests and is among many countries that have made the move to ban fracking (Ferguson, 2016). There is a loud, global voice that is asking to be heard and that has legitimate reasons to oppose fracking. “Risks to health and safety, diminished property values, air and water pollution, as well as noise, traffic, and other annoyances” are more than enough reason to deserve a government response (Lynch 38). On top of that, much of the drilling is taking place in residential areas near parks and schools.  Opposition to fracking has become a controversial topic in popular culture and, putting aside the impacts that communities have to put up with, it is common  for people to be fearful or distrustful of new technologies. In the United States, although public opinion is split almost in half, the majority is not opposed to fracking (Bradshaw 2016). Still, the NIMBY movement has gained traction here as well and states like  New York, Maryland, and Vermont have made the move to ban fracking (Hurdle, 2017). New York permanently banned the method after a four year study period concluded that fracking has resulted in environmental impacts that could threaten public health, recognizing that further study is needed to reduce uncertainty (Lynch 48). During the 2016 presidential elections, candidates took a public stance on fracking, demonstrating their recognition of the public’s concern on the matter (McCown, 2016). The NIMBY movement has swayed public opinion and ultimately led to bans in France and Bulgaria. In the United States, the movement’s increasing presence within the public discourse and media coverage may result in a majority of the population becoming overwhelmingly concerned with the risks that fracking poses to public health. 

 

B.    Fracking and Takings

One factor preventing statewide or federal bans in the United States is that most of the oil and gas that can be extracted through fracking is privately owned. So opponents of bans and regulation argue that a ban on fracking would prevent mineral rights owners from producing what is legally theirs (Lynch, 2016). A taking occurs when the government takes or destroys an individual’s private property for public use. Mineral rights owners argue that the economic value of their mineral property is destroyed by regulation or bans on fracking (Lynch, 2016). Any government action that a court establishes to be a taking would require monetary compensation for the taken property. However, U.S. takings jurisprudence is “notoriously complex and inconsistent” (Lynch, 2016, p.52). The primary factor, in the oil and gas context, that would contribute to the legitimacy of a taking claim is the economic impact that a regulation or ban would have on an individual for the benefit of the public good (Lynch, 2016). This would be very difficult to figure out as the value of oil and gas is notoriously volatile. For this reason, takings-claims are evaluated only on a case by case basis (Lynch, 2016). Lynch, in his article, Regulation of Fracking is Not a Taking of Private Property, has established considerable evidence that supports the case that fracking would not amount to a taking. Yet, he agrees that the government is intimidated by the threat of takings claims and that this has resulted in under-regulating of the fracking industry (Lynch, 2016). 

Additionally, in past similar cases, the government has been legally obligated to compensate millions of dollars for a taking. Given the sizable number of people that own mineral rights and the case-by-case nature of regulatory takings law, the federal government faces what is at least a possibly big risk if fracking is banned. Mineral rights owners in the oil and gas industry are aware of this and use it as a form of intimidation that has proved to be effective (Lynch 2016). Regardless of the fact that the public is concerned with the effects of fracking, the practice is still permitted widely throughout the United States. 

 

C.    Relative Risks of Fracking

If fracking posed a significant danger to the U.S. population, as the NIMBY movement suggests, it should be banned regardless of the legal difficulties. The bottom line, and the root of disagreement, is that there is not enough research to prove fracking is completely harmful. There is only enough evidence to prove that it could be (Lynch, 2016). This uncertainty heats up the debate on fracking. Only more time and more research will lead to a definite conclusion. Professor David B. Spence, in the Yale journal of regulation, suggests that even though there are risks associated with fracking, the benefits far outweigh them at the national level (Spence, 2013, p.34). He suggests that widespread use of fracking may actually result beneficial to the health of the general public. Coal-fired power plants are being replaced by natural gas-fired plants that release much less CO2 into the atmosphere. This results from the abundance of natural gas that has been brought about by new fracking technologies (Spence, 2013). Spence states that “the environmental and health benefits of this transition–and the environmental and health costs of slowing it or foregoing it– are likely to be enormous”(Spence, 2013, p.35). This reason alone is enough to justify the benefits of permitting fracking and lending control to market forces. 

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D.     Contrast Between The United States and Other Countries

    The NIMBY movement and basically all other green activists have gained global traction. In Poland and England, drilling sites are being blocked by protesters, in Spain, protests have resulted in a “triple filter” of policy that  prevents fracking (Ferguson 2016). In Bulgaria and France, the two countries with the largest shale gas reserves in Europe, have banned fracking in response to the effect that these movements have had on public opinion (Ferguson 2016). One relevant difference between these countries and the United States is that, in countries where fracking has been banned, the government owns most if not all the minerals that can be recovered through fracking. Given that public opinion has been shifted, regardless of solid proof, democratic governments are obligated to follow the public’s overwhelming opinion (Ferguson, 2016). Failure to do this would risk re-election of government officials and given that subsurface minerals are completely their responsibility, it is expected that they ban fracking. In the United States, although the anti-fracking movement has not yet shifted public opinion–in the way that it has happened in France– if it did the effect would likely not be similar. Given that mineral rights are mainly privately owned, the United States Government and its officials are much less responsible for the production of said minerals. This keeps the government from interfering in the industry so long as there is no proven risk to public health from the introduction of a practice like fracking. 

 

V.    CONCLUSION

In recognition of society’s need for energy, courts have, in the past, taken a firm stance in defining oil and gas law as a mechanism primarily designed to minimize economic waste. A look into past court cases reveals that other government bodies, such as the legislative branch and  Conservation Commissions from a variety of states, have contributed to the governmental constant of acting in recognition of and in pursuit of fulfilling society’s need for available and affordable energy. Hydraulic fracking has proved to be essential in the efficient and economical recovery of oil and gas throughout the nation. Thus, fracking bans would be inconsistent with the character of U.S. law. Unless strong evidence is found proving that widespread use of fracking poses a considerable risk of harm to the public health, nationwide bans and strong regulations (akin to France’s government actions ) are highly unlikely.

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A.    Further Research

    The time and length constraints of this study leave a door wide open to further research. A thorough research and description of conservation laws would have definitely aided in the understanding and developing the argument. A deep dive into a wider variety of court cases at both the state and the federal level would have further illustrated the direction that courts have settled on in the past. Further research into the effects of activism on fracking, and the latter’s effect on the environment would definitely prove to be interesting and relevant. Ultimately, more time to develop a complete understanding of the details that are so important in shaping this topic would have allowed a more solid argument and a more concise paper. Overall this paper served as an introduction to property rights, fracking, law, and research that has provided possibilities and opportunities for further research.