Steptoe & Johnson

Owners and lessees of oil and gas underlying the surface owned by the state can explore, drill and produce with no greater burden than if the surface was owned by private party. The Supreme Court of Pennsylvania ("Court") recently upheld the rights of an oil and gas owner in a legal dispute with Pennsylvania's Department of Conservation and Natural Resources ("DCNR"). The Court held that oil and gas owners may reasonably exercise their property rights even when the surface is a state park and the owner is the DCNR. The Court specifically rejected DCNR's argument that it deserved special treatment as a surface owner because of its unique duty to protect Pennsylvania's state parks.

In a case decided Wednesday, April 29, 2009, the Court upheld the ruling of a lower court that held Belden & Blake Corporation ("Belden") had the right to access the oil and gas underlying three parcels of land whose surface rights were owned by the DCNR and were part of a state park. Belden had notified DCNR months in advance of its proposed drilling. Belden also met with the DCNR regarding the best way to protect the park and gave DCNR additional time to clear affected land and timber. Additionally, Belden offered to pay fair market value for timber extraction, provided maps of proposed wells, obtained a right-of-way across private property, filed the necessary permit and posted the required bond.

DCNR attempted to impose a "coordination agreement" on Belden as well as requiring additional bond money and charging twice the fair market value for the timber on the land before it would let Belden access the surface. Belden responded by filing a lawsuit against DCNR arguing that its oil and gas rights contain an implied easement to access the land and that the DCNR should be enjoined from prohibiting Belden's access to the surface to extract the minerals. Belden acknowledged that it was required to act in good faith to "use the surface area only in a reasonably necessary manner to extract the minerals."

DCNR countered with two separate arguments. It first argued that the legislature created the DCNR to conserve and maintain public parklands and thus it had broad discretion to deny Belden's access to the land. DCNR also argued that because the land was held by a public entity, the public trust doctrine should apply and favor the rights of the public over a private interest.

The Court rejected both of these arguments and relied on previous Pennsylvania rulings that stated that a subsurface owner's use of the surface must be reasonable. The Court found that Belden's use of the surface was reasonable in this case. The Court went on to hold that a subsurface owner's rights cannot be diminished because property later comes under the control of the government or other entity with statutory obligations. The Court did state that DCNR was different than a typical surface owner, but it still did not have a right to unilaterally impose conditions on a subsurface owner. Finally, the Court stated, "We reiterate that it is for the surface owner to challenge the subsurface owner's reasonable exercise of its rights, not the converse."