Oil and Gas are not Property, Part II…

Previously, I have argued that oil and gas should be subject to the public trust. I would posit further that oil and gas, in situ, is not really property. When someone references “oil and gas” or “all oil and gas” they are really talking about the bundle of rights that make up the rights to use the property to explore for and if found, produce and market oil and gas. This is because there is no way of knowing whether or not oil or gas exists. Even if it does exist, it is always subject to the Rule of Capture, that someone else in the same pool, or close enough to drain the pool, could capture the oil or gas first. Thus, there is no real ownership (and no real property) until oil or gas is reduced to possession.

Consider, then this real life scenario. Two exceptions are made in 1928 and 1932 respectively, of “…all the oil and gas in or under the herein described lands, with the right to operate for same by ordinary methods now in use” and “…all petroleum oil and natural gas together with the right to prospect for, drill and bore for, produce and remove the same.” The question is, whether these words were intended by the parties to the transactions to allow use of the modern horizontal drilling and hydrofracturing method for removal of oil and gas from under the properties being conveyed.

Clearly, the intent of the parties at the time of the severances was to limit the oil and gas estate to that which was capable of being extracted by the usual and ordinary methods in use in 1928. A limited exception introduced certainty into the transaction for the parties. The buyer would have had a reasonable expectation of the extent of the exception and, most significantly, the method by which encumbrance of the exception was limited. Both parties would have known the expected life of a well, the time it took to develop and market oil and gas and certainly would have known that – at some point – there would be no more oil and gas being produced, as the usual and ordinary methods at the time of the severance would have removed “all” of the oil and gas capable of being removed in that manner.

Finally, the second exception. This one was dated 1932 and stated “…all petroleum oil and natural gas together with the right to prospect for, drill and bore for, produce and remove the same.” This later exception and reservation contains language commonly understood at the time, such as drill and bore for, produce and remove. It does not, however, contain words such as “stimulate”, “rework” or “deviate”, which words could have been commonly understood at the time. It also does not contain the words “hydrofrack”, “laterally drill” or “horizontally drill.”

The issue is whether “oil and gas” or more specifically “all oil and gas” is a thing in and of itself, or whether it is made up of sticks in the bundle of rights. If made up of sticks, it can be split vertically, horizontally, breadthwise and also in time. So there are two differing interpretations. One views “all oil and gas” as being a whole thing embodying all rights necessary, even if not state. This follows the case of Belden and Blake v. Commonwealth, Department of Conservation and Natural Resources, 600 Pa. 559, 969 A.2d 528 (Pa. 2009) and demands the implication of the right of access pursuant to Chartiers Block Coal Company, 152 Pa. 286, 25 A.597 (Pa. 1893). A second viewpoint sees all oil and gas as being modified by the following phrase “with the right to operate for same by ordinary methods now in use”. By this view, only the oil and gas which could be operated for by ordinary methods in use in 1928 were conveyed. The rest of the sticks in the bundle were sold with the property. In addition, the second exception was also limited and did not allow certain modern techniques.

It is the intention of the parties at the time of entering into a transaction that governs and such intention is to be gathered from a reading of the entire deed. Stewart v. Chernicky, 439 Pa. 43, 266 A.2d 259 (1970); New Charter Coal Co. v. McKee, 411 Pa. 307, 191 A.2d 830 (1963); Wilkes-Barre Township School District v. Corgan, 403 Pa. 383, 170 A.2d 97 (1961). The primary function of a court is to ascertain and effectuate the intent of the parties at the time of the original conveyance of the property from the common grantor. Jedlicka v. Clemmer, III, 677 A.2d 1232 (Pa.Super. 1996). When a deed is capable of two constructions, the most reasonable construction should be the one adopted. Id. The nature and quantity of an interest conveyed must be ascertained from the instrument itself and cannot be orally shown in the absence of fraud, accident or mistake. Brookbank vs. Benedumtrees Oil Co., 389 Pa. 151, 131 A.2d 103 (1957).

The severances in this case were expressly limited. The oil and gas estate was limited by production methods then in use. One can argue that oil and gas is not property in and of itself, as it is incapable of being property until it is in actual possession. Otherwise, the Rule of Capture is illogical. Imagine, Exxon bought 1,000 acres and fully developed the Elk Sands. Thereafter, they farmout the production, removal, transportation and marketing of oil and gas to Shell. Years later, Exxon finds out there are shale gasses which can be accessed from an adjoining property. Exxon cannot simply drill from an adjoining property and ignore the rights they granted and intended to grant to Shell. Exxon only owns the oil and gas when it retrieves it from the subsurface strata in which it is held (the Rule of Capture). Until captured, the ownership issue is not an issue of ownership of “oil and gas”, but who owns what production rights to the oil and gas. It is a fact specific determination whether Shell’s rights are impacted. In effect, either no one “owns” the oil and gas or it is irrelevant who “owns” the oil and gas. Either way, Exxon does not have an implied right to ignore its previous contract with Shell. This is not an academic argument. All over the Commonwealth, different contracts, exceptions and deeds use different language at different times. There is no earthly reason why they should all be treated the same.

Rather, oil and gas is an estate consisting of a bundle of rights that allows the production and development of oil and gas. Texas law describes the oil and gas estate in this manner. French v. Chevron USA, Inc., 871 S.W.2d 276 (C.App. Tx. 1994) (“mineral estate possesses five essential attributes: (1) the right to develop; (2) the right to lease; (3) the right to receive bonus payments; (4) the right to receive delay rentals; and (5) the right to receive royalty payments.” at 277.) Texas has had much more oil and gas production for a much longer time period to deal with these esoteric issues of when oil and gas is reduced to possession, when it actually becomes property capable of being legally protected and what the nature of that property is at any given point in time. Even assuming, arguendo, that oil and gas in situ could be owned, it is at best one stick in the bundle of rights. The ability to develop the oil and gas estate was limited such that no owner could. proceed without the other’s acquiescence. To hold otherwise does not give effect to the plain language of the instruments in this case and defeats the intention of the parties to the original transactions.

Accepting recitation of Belden and Blake as providing all rights, regardless of the parties’ intent, disregards the ability of private parties to contract as they wish. Belden and Blake involved a public entity demanding rights which exceed than of a private landowner. If Belden and Blake preempts the rights of landowners to negotiate a contract, then it is an impermissible judicially created infringement upon the ability of landowners to contract for the sale of their property in the manner they see fit. Oil and gas in the ground is a finite resource. The total exercise by an oil and gas company of the rights a landowner claims to own, destroys any chance for the landowner to exercise those rights in the future, or in a different manner.

The Nature of Property Rights: Personal, Private and Public....

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I have been reading a lot of political economic theory lately.  Mostly Libertarian Socialist.  But it has gotten me thinking about the nature of property.   Sort of a little "hobby" of mine.  So I have been reading various textbooks, case law, and a little book by Proudhon called "What is Property?"  Some of you may have heard of it.  It is, unfortunately, not something you sit and read on a sunny afternoon, but something you read a page or two at a time and then try to assimilate. 

The first thing I did, even before reading a page of Proudhon's book, was to look for definitions of property. I turned to a hornbook where I read that “[w]hen an individual claim or interest receives recognition and protection by the state we say that the party concerned has a legal right in the matter under consideration.” So, for instance a right to be free in the possession and enjoyment of someone's land and chattels. The correlative is that there is a legal duty. Brown, Ray Andrews, The Law of Personal Property, Second Edition, ©1955 Callaghan and Company. p. 2.

“Legal rights are, however, not static things, but they may be created, transferred, and lost. This capacity in an individual of creating, transferring, and divesting himself of legal rights is known as a legal power.” Id., p.2. A person may have a legal power, but no right, as in a thief. But this still does not define “property” itself, but rather describes property “rights”.

Such legal rights have been divided in personam and in rem. Id., p. 3 In personam is a right which exists only against a person. p. 4 In rem is available against persons generally. p. 4. In personam, the correlative rights exist only with respect to a certain class of persons. With in rem correlative rights exist in persons generally. Again, useful ideas, but not a definition. So I delved further and did find the following:

In the popular sense of the word property is often used in reference to those tangible things, which are subject to the rights, which we designate by the term ownership. A man's property we say consists of lands, buildings, furniture, cattle, wagons, automobiles and the like. In the legal sense, however, property means not the thing itself, but the rights which inhere in it. Ownership, or the right of property is, moreover, nor a single indivisible concept but a collection or bundle of rights, of legally protected interests. The owner of a given piece of land or chattel has not only the interest of possession, and of enjoyment and user, but also that of transfer to another, and even of directing how it shall be disposed of upon his death.

Id. p. 6. Now, this truly is a definition! However, it is an interesting one because it does not define the thing itself, but rather the thing by our relationship to it. Sort of an “it's property because we say it is” type of definition. In fact, under this theory, you could own all the property rights and not a stitch of what any layperson would call property at all. And many people do.

The definition and concept of property is obviously more complicated. “Certain physical things, such as air, light, and running water are by their very nature incapable of being owned. It is impossible to exercise over them that power of exclusive control which is the very center of the concept of private property.” Id. p. 7. Looking at a hornbook on real property law, I found even less explanation of property. Rather there was a gradual presupposition that everything came from God, passed through the divine right of King's through their fall, through barbarian rabbles and came out the other end of a feudal system wholly intact.

Having said that, two concepts are worth repeating. First, “Proprietary rights in land are, we may say, projected upon the plane of time. The category of quantity, of duration, is applied to them.” Moynihan, Cornelius J., Introduction to the Law of Real Property, West Publishing Company, 1962. The second concept is how the philosopher Cicero (at least according to Proudhon) compared the earth to a theater. Each person is accorded a seat and holds that seat while they occupy it. When they leave it is free for someone else to occupy.

These statements hit upon an important truth.  There simply are different types of property with different qualities.  A tautology that can be quite helpful.  The real question is not whether there is or is not property.  Obviously there is some sort of property.  Different forces work upon different types to make them property or to cause them to retain value as property. It appears the definitions of property may change depending on the “plane of time” or how many seats are in the theatre and how many people want to see the show.

Proudhon seemed to think there were two different concepts:  private property and personal property.

There most assuredly is some sort of personal property.  My clothes, my house, etc.  These are - more or less - inviolate.  We as a society simply frown upon people ripping other people's clothes off.  No matter how outlandish they are.  And given the way many people would look without clothes, I can support this. But I have also learned that just because I possess something cannot be a basis on which I own it.  Otherwise, I would simply need to steal something to appropriate it.  Otherwise, I could own a person.  Last check, society still frowned on owning people.  In fact, in some circumstances we frown on "renting" people, owning some animals, owning some substances, etc.  

On the other hand, we discuss PRIVATE property also as a type of property.  So you can "own" land you have never seen and never visited.  It is possible you don't even know you own it, as you could have "purchased" it as part of an investment. It seems simple possession cannot be the basis for property. Perhaps put in a more modern context, you own what you create.  Again, to some extent this is obviously true.  I have created this text, I have created the thoughts, I "own" this.  I guess I could take ads and "sell" space, or try to copyright it as intellectual property.  I have done none of this.  But by the same token, what right have I to sell space on the sheet of paper (or the webspace) where you are reading this?  I created the text, but not the medium.  I did not create the computer on which I write.  These ideas are mine, but they are spawned by what I have read.  Nothing exists in a vacuum.  So if everything and everyone contributed to this blog - this so-called property - then everyone owns a little piece of it.  And if everyone owns it, then NO ONE owns it.  

Yet, as a society, we protect these two types of property equally. 

But should we?  Of course, no one should take your home.  But if you simply are not making productive use of something and someone else needs it, or can make productive use of it, then what is the purpose of protecting your inchoate interest?  Protection of such an interest serves only to perpetuate the tendency of money to make money, but serves no useful purpose to society other than to increase capital.  In fact, it could be argued by taking away the ability of someone else to use the property, we have actually decreased productivity. 

Do not take this question as meaning that all retirement savings or other investments should be socialized or that private property should necessarily be abolished.  The aggregation of money for investment is extremely important for large projects and can serve the public interest. 

However, is it not also possible that we should recognize the distinction between what is essentially a human need for personal property that is inviolate and preserved to them as the fruits of their labors and the private property that is nothing more than property as exists on paper?  Such a distinction could have profound impacts on the way we view the environment, agriculture, energy, and all consumer goods.  I don't suggest an answer, but let's have the debate.

There is a false and mistaken division between private and public property in the United States today.  There is also a lack of respect for personal property.  This false division and lack of respect leads to a flaw in society.  A small number of self interested individuals make a lot of decisions for a large number of individuals about what is best for everyone.  By understanding (and perhaps abolishing) the "public versus private" distinction, we can start down a path of reinventing our society and decision making to benefit all persons.

My research indicates that laws and governments - states - spend a lot of time "protecting" private property.  In many cases or places, this is defined by its juxtaposition to "public property".  In this definition, public property is that which is owned by the state, and private property is everything else.

Following these definitions, the Complaints of the Declaration of Independence and the protections of the Fifth Amendment to the United States Constitution look as if they are meant to keep the state from "stealing" someone's property.  Indeed, that is a true statement.  However, it is far from the whole story.

In thinking about property (personal, private or public), we need to start earlier and from a different perspective.  To a large extent, prior to the Magna Carta all property was owned by the king.  I recognize this is a gross exaggeration and that there are numerous examples where this was not true.  However, this is a useful place to start.  The Magna Carta essentially granted rights, or "property", as that term can be loosely used away from the king, while retaining certain rights, or "property" in the king.

Now, there is an interesting characteristic of property that everyone knows and everyone forgets.  Property owns you.  While you "own" something, you always have some sort of obligation, whether it be a tax, maintenance or simply finding a place to store the property.  And, of course, you always have the risk of loss.  After you give property away, of course, you no longer own it.  So the peculiar thing is that the only time you actually exercise all the rights of property that you may have is at the particular time you give away those rights.

That bears repeating:  only at the time someone actually disposes of their property is that person taking complete control and exercising all the property rights they own. 

Taken one logical step further, the best of all possible worlds would be to give away the (property) rights, while still maintaining the ability to direct the use and management of the (property) rights.  The king knew this when he put his seal on the Magna Carta.  The Barons that forced the Magna Carta did not get freedom from the king.  The state knows this when it allows you to "keep" your property free from taking for public use without just compensation.  On a personal level, the parent who "gives" a car to their child to drive to and from school and work, and nowhere else, practices the same type of control.

So let's use this concept and redefine public property.  Public property is not just the property "owned" by the state.  Indeed, ownership by the state is not nearly so public as one might think.  The ownership or use of the property is limited by the owner - the state - not the public.  Public property is, rather, the whole of the rights that the public has.  This includes positive rights such as traditional deeded ownership of land, as well as negative rights, such as the right to zone, or set a speed limit.  Let's also do away with the idea of the state "owning" these rights.  While modern law seems to treat that as true, I am proposing that is the wrong way of looking at things.

The King gave way to Parliament in England.  However, in the United States the King gave way to the people.  In fact, in the Commonwealth of Pennsylvania, the rights have been protected by the Commonwealth as if in Public Trust.  The Pennsylvania Constitution essentially gives the people rights which - most rightfully - should be public property.

So then, private property is everything not owned by the people, right?  One certainly can make that distinction logically.  However, there is another more fundamental distinction at play.  Since so many property rights are subject to so many rights of the public, is there not a third, more inalienable property right?  Did the Declaration of Independence not indicate there were inalienable rights such as life, liberty and the pursuit of happiness?  Can someone take your intellectual property?  You can give it, perhaps without protection, but can they actually take it?

My suggestion is that there are certain personal property rights which are inviolate.   Nor should these be limited to your thoughts.  Life, liberty and the pursuit of happiness come to mind.  The clothes on your back should be your personal property, subject to no one else's right to remove them.  Of course, the line gets blurred, but generally the fruits of your labor should be yours.  You create it, you keep it or dispose of it.

However, all other property, including the money received if disposing of personal property, and no matter whether "private" or "public", is simply property.  Again, all other property, whether "private" or "public" is simply property.

It is neither good, nor evil.  One property right is limited by another.  In a society, one in which presumably there is a social compact, the concept of correlative rights allows for seemingly incongruous positions on property.  Taxes are an example of incongruous positions.  If your personal property was inviolate, and you sell it, why wouldn't the income be inviolate.  This is because taxes are simply a method of aggregating capital that presumably the public has agreed upon (this is another subject, for another day, but remember that whole "taxation without representation" thing). 

So the important thing turns out not what kind of property right we have after all.  The important thing is what we as a society choose to do with these rights.  Right now, much wealth (a form of property) is concentrated in a few holders.  This is not necessarily bad.  A concentration of wealth allows for investment.  What is dangerous is how the decision is made how that wealth should be exercised.  In other words, how and when will it be given away?  To who?  What restrictions will be placed on how that wealth is used?  As a society, we should be wary of  allowing a small group of persons to make those decisions.  Likewise, we still have the same tensions as the founding fathers regarding the tyranny of the majority.  More recently, we need to be concerned about the tyranny of what is loosely termed special interests. 

While I cannot answer specifics as to ownership or wealth transfer or regulations and rules on the use of property (who am I to impose this order unilaterally anyway), I do suggest that people stop thinking in terms of public versus private (and left versus right).  We need to begin to think of "us" and what is best for ourselves and our children.  It is not best for a small number of private interests to make public decisions.  It is not best for the public to abdicate their public responsibility and allow a small minority of persons to hold capital with little, if any, accountability to the public.

Talk with people.  Talk with your family.  Talk with your friends.  Talk with those who disagree with you.  What kind of social conscience do we all agree a large company like Walmart should have in return for the public allowing them to exist and concentrate wealth in a small number of people?  What are we willing to do to achieve this? 

Oil and Gas as Subject to the Public Trust...

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 I have written about wildlife and the public trust. Part of the reason is that I would also like to discuss how other natural resources should also be part of the public trust. The Environmental Amendment, in fact, makes this imperative.

Pennsylvania is currently in the midst of an oil and gas boom. The Marcellus and Utica Shales. Much information about this can be found on the websites for the Pennsylvania State University Extension Service, or even found in any Google search. There can (and should) be a discussion of whether this is good or bad. However, there should also be a discussion of the nature of the rights in oil and gas. I will use this as a jumping off point for the discussion of natural resources in general.

First, let's start where we were and discuss deer. Deer are very important to the Commonwealth. They are the state animal. Throughout the years, they have provided food for Pennsylvanians, as well as an export to cities such as New York City. So successful was this export that deer needed to be protected and the taking and possession of deer, among other wildlife, is highly regulated pursuant to the Game and Wildlife Code, 324 P.S. §§101, et seq. The Pennsylvania Game Commission is even charged with managing wildlife with due regard for the Commonwealth’s hunting and trapping heritage.

Deer are wildlife that move freely on and off property. They are ferae naturae. An individual can only legally possess in accordance with the Game and Wildlife Code, 34 Pa.C.S. §§101, et seq., which requires certain paperwork. Simply shooting a deer does not make it the shooter’s property. A shooter must have a license and must inflict the mortal wound and then tag the deer before it can be legally possessed. A landowner cannot fence their property and take ownership of the deer on the property, they must have a permit to be the owner of the deer behind the fence. In fact, with fencing and the associated paperwork someone can own a deer, but if the deer escapes and is legally shot and tagged by someone else, the prior ownership can be lost. See Potts v. Davis, 149 Pa.Cmwlth 8 (1990), citing Douglas v. Seacoast Products, Inc., 431 U.S. 265, 97 S.Ct. 1740, 52 L.Ed.2d 304 (1977) where the Commonwealth Court noted, “it is pure fantasy to talk of ‘owning’ wild birds, fish or animals…”.

Likewise, oil and gas are important to the Commonwealth. Drake’s well was drilled in the Commonwealth. There are many jobs that depend upon the oil and gas industry. Oil and gas provide energy not just for Pennsylvania, but also for the lucrative eastern market. There are impacts to the environment because of oil and gas and the oil and gas industry. In addition, the oil and gas industry is highly regulated. See, e.g., Title 58 of Purdon’s. Oil and gas moves freely on and off property. They have been termed ferae naturae. Westmoreland & Cambria Natural Gas Co. v. DeWitt, et al, 130 Pa. 235, 18 A. 724 (1889). An individual can only possess oil and gas with the proper paperwork. Drilling alone does not make oil and gas the driller’s property. A producer must have a permit and take physical possession of oil or gas before the oil and gas can be said to be legally possessed. A producer cannot simply lease a property and take ownership of the oil and gas on the property, they must have a permit to drill, drill and remove gas. In fact, even if a property is leased, someone with a right to drill in the same strata can remove all the gas and the first producer’s ability to remove oil and gas can be lost. Jones v. Forest Oil Co., 194 Pa. 379, 44 A. 1074 (1900).

Commonwealth case law has long recognized that oil and gas are different by their very nature than coal, minerals or real property. Id. While the previous paragraphs’ assertions regarding oil and gas are seemingly radical, they are, in fact, based upon sound law in this Commonwealth. First, oil and gas leases and reservations are interpreted with respect to the intent of the parties at the time of entering into the contract. Szymanowski v. Brace, __ A.2d ___, 2009 WL 3790561 ( Pa. Super. November 13, 2009). The current oil and gas activity in the Utica and Marcellus Shales was certainly not contemplated. Second, recent cases have begun to develop a jurisprudence of natural resources law. Cases have recognized the difference between ownership of a natural resource and actual production rights to that resource. Moore v. Commonwealth, Department of Environmental Resources, 129, Pa.Cmwlth. 628, 566 A.2d 905 (1989); Belden and Blake v. Commonwealth, Department of Conservation and Natural Resources, 600 Pa. 559, 969 A.2d 528 (Pa. 2009). In addition, cases have recognized that oil and gas are not “land” within the classic meaning of that term. Independent Oil and Gas Association of Pennsylvania, et al., v. Board of Assessment Appeals of Fayette County, 572 Pa 240, 814 A.2d 180 (Pa. 2002). Finally, such developing jurisprudence is in accord with the best interests of the Commonwealth when dealing with other natural resources.

First, the intent of the parties must be examined. Many times courts observe the plain language of the document. Very few older documents speak about size of well pad sites, how roads are determined, what use can be made of minerals or water, or any number of any other rights necessary for production of gas shales.

In the 1930’s, wells were vertical wells with 40 acre drainage areas. Well sites may have been the size of a small truck and the expected life of a well may have been 25 or 30 years. Thus, when a buyer of the surface evaluated a reservation, they could reasonably expect a small surface impact for a relatively short period of time. Conversely, they did not expect that 79 years after their purchase, millions of gallons of water would be used to fracture subsurface zones, that such water would be injected, stored and transported in and through his property, and that 10 acre well pads with cleared pipelines would crisscross the property rendering large areas unusable. Based on the producers’ theories, if the Marcellus was pumped to exhaustion this year, the producer could come back 100 years later and pump it again using new technology. The surface owner would never be able to quietly and peaceably enjoy the estate for which they bargained.

Producers, likewise could not reasonably expect the result urged in case law across the Commonwealth. Coal, can be drilled located and tested, and the extent and quality of which can be measured with some accuracy. Thus, someone reserving coal knows what they will have in 100 years with a high degree of certainty. By contrast, an oil and gas producer will have no guaranty gas will be there tomorrow, let alone 100 in years. By fact of nature and geology, gas reservation are time sensitive and economic and law must recognize this time sensitive component to the rights of production.

In terms of pure real property law, these issues are not issues of oil and gas ownership, but rather of production rights and what those rights constitute. Recognition of oil and gas as ferae naturae, not subject to ownership as land, but only recoverable through the exercise of production rights is perfectly logical. In fact, the law has a word for such a right: profit a prendre. Such a profit a prendre is not listed as the subject of a quiet title action. 

           Likewise, jurisprudence that is developing seemingly struggles with questions of ownership of oil and gas and the exercise of rights of production. In the case of Independent Oil and Gas Association of Pennsylvania, et al., v. Board of Assessment Appeals of Fayette County, 572 Pa 240, 814 A.2d 180 (Pa. 2002), the Supreme Court found that oil and gas were not land subject to taxation. The majority based this on the principle of ejusdem generis, but Justice Nigro in concurrence (joined by Justice Saylor) made a different observation. “…I would simply hold that Appellees lacked the statutory authority to tax Appellant’s interests because oil and gas are of a fundamentally different character than real estate.” Id., at 185 [Emphasis added]. Recognition of this difference can be found in cases decided both before and after the Independent Oil and Gas Association case.

The case of Moore v. Commonwealth, Department of Environmental Resources, 129, Pa.Cmwlth. 628, 566 A.2d 905 (1989) involved a situation of interest. Moore claimed oil and gas ownership through a reservation in the chain of title to lands owned by the Department of Environmental Resources (DER). The facts and reasoning are not particularly useful here, as they were very case-specific. However, the holding is significant. Ultimately, Commonwealth Court found that Moore had title to the mineral estate (the case involved oil, gas and coal), but that the rights of ingress, egress had lapsed and were subject to reasonable regulations of DER. Thus, the court split the rights of production from the rights to the natural resource itself.

Of course this begs the question of what value oil and gas is if there are no production rights. In fact, it is the production rights which have any value at all. The industry itself recognizes this distinction and the importance of production rights as it relies heavily on leases of production rights, not outright purchase of oil and gas. There is case law calling leases sales, and the industry wants the public to believe that a lease carries rights forever. However, the contract itself, the intent of the parties, is what should govern. As we have examined, an outright sale of rights forever simply could not have been contemplated.

Courts also recognize this distinction and courts have implied production rights. The recent case of Belden and Blake v. Commonwealth, Department of Conservation and Natural Resources, 600 Pa. 559, 969 A.2d 528 (Pa. 2009), is just the latest incarnation. That case involved an alleged oil and gas owner and the attempt by the Department of Conservation and Natural Resources (DCNR) to impose rights by virtue of their status as a Commonwealth agency under the Environmental Amendment. The Court rejected these “superpowers” on the part of DCNR. However, the court also explicitly recognized that implied rights – the rights to produce – were limited to reasonable use. The Court also indicated that landowners could seek reasonable restrictions on use and could seek redress for unreasonable use.

What these cases show are courts grappling with questions of natural resources law and how to deal with those resources in the best interests of the Commonwealth. While industry wishes the courts to treat oil and gas as real property, the people can insist it be treated like what it is: energy. You can certainly feel the wind, but you cannot own it. You may, however lease your property for production of wind energy. The value is in the production rights. You can see, feel and even be burned by the sun. But you cannot own the sun or sunlight. You can however, lease your property for a solar farm. The value again is in the production rights. These production rights are not land or real property interests.

These questions seem esoteric, but as courts deal with natural resources issues in the next century, they will become more and more real. There will be questions who owns the ozone above the earth, the water below the earth, and even the radiation that may come from the earth. We can choose to treat these issues with the limited concepts of real property law, with its notions of ownership and try to decide who the lucky winners are. Or we can treat these with concepts of equity, as being a Commonwealth would suggest, and develop case law that suits the circumstances. Chartiers Block Coal Company, 152 Pa. 286, 25 A.597 (Pa. 1893), a case relied upon in Belden and Blake, foreshadowed this moment. They noted:

This is a new question, and one that is full of difficulty. The discovery of new sources of wealth, and the springing up of new industries which were never dreamed of half a century ago, sometimes present questions to which it is difficult to apply the law, as it has heretofore existed. It is the crowning merit of the common law, however, that it is not composed of ironclad rules, but may be modified to a reasonable extent to meet new questions as they arise. This may be called the ‘expansive property of the common law.’ Mining rights are peculiar, and exist from necessity, and the necessity must be recognized, and the rights of mine and land owners adjusted and protected accordingly.

Id., at 294, 295.

This is what it means to be a Commonwealth and to redefine the nature of government. What happens when the second wind farm gets in the way of the first? Oil and gas themselves should be utilized for the benefit of all citizens.  The interests that allow that development are more akin to personal property, and should be protected.  However, as a Commonwealth, for the good of all, we cannot permit the public benefit to be held hostage by a few.  Are all cases to be treated individually, or are we going to have an orderly development for the good of the Commonwealth as a whole? The system as it is set up favors those with money and those with influence. In a sense, those with something of value to lose.  I would suggest, that is true when it comes to the rights to exploit a natural resource.  However, when it comes to the natural resource itself, everyone stands to win or lose.  The people of the Commonwealth will need to use influence and strategy to plan appropriately. 

The Commonwealth's Environmental Amendment...

On May 18, 1971, Pennsylvania's voters by a four-to-one margin ratified what is now Article I, Section 27 of our state constitution-the Environmental Rights Amendment.

"The people have a right to clean air, pure water, and to the preservation of the natural, scenic, historic and esthetic values of the environment. Pennsylvania's public natural resources are the common property of all the people, including generations yet to come. As trustee of these resources, the Commonwealth shall conserve and maintain them for the benefit of all the people."

The Environmental Amendment should not be thought of a shield to protect the environment. Rather, the Environmental Amendment should be a weapon to fight those that would take the public's property interest in clean air, pure water and the preservation of the natural, scenic, historic and esthetic values of the environment. The Environmental Amendment should be at the forefront of a new post activist environmentalism. One which is not concerned with externalities and trying to protect what is at risk, but which is integral to the Commonwealth and public's ownership interests and which uses that property for the benefit of all the people.

The case law on the Environmental Amendment is sparse. The seminal case is Commonwealth v. National Gettysburg Battlefield Tower, Inc. There are actually two cases, one in Commonwealth Court and one in the Supreme Court of Pennsylvania. Read together, these provide a basis for what came next and why I advocate the Environmental Amendment has been looked at wrongly.

On April 3, 1973, the Commonwealth Court decided that the evidence in favor of constructing an observation tower to look over the Gettysburg battlefield sustained the finding that the construction of the tower would not violate the Environmental Amendment. Commonwealth v. National Gettysburg Battlefield Tower, Inc., 8 Pa. Cmwlth. 231, 302 A.2d 886 (1973). Of course, this is just the result, the important thing is the reasoning. Essentially, the court looked at the Commonwealth's interest as a Constitutional interest and balanced it against the private property interest of the company seeking to build the tower. The Commonwealth Court even noted the Commonwealth's power to exercise eminent domain. Of paramount importance throughout this discussion, the court also found the Environmental Amendment to be self-executing and that the Attorney General had standing to raise the Amendment on behalf of the Commonwealth as Trustee of the public's resources. It should be noted the dissents felt that the Environmental Amendment was, in essence, too vague to be self-executing. What is “clean air” or “pure water”? The dissents felt that further legislative or regulatory action was needed to implement the amendment.

On October 3, 1973, the Pennsylvania Supreme Court, by a split decision, affirmed the Commonwealth Court's decision, and implicitly the decision that the Environmental Amendment was self-executing. Commonwealth v. National Gettysburg Battlefield Tower, Inc., 454 Pa. 193, 311 A.2d 588 (1973), reh. den. December 5, 1973. This decision was far from unanimous, nor without controversy. Further case law would prove that the decision whether or not the Environmental Amendment was self executing is essentially irrelevant.

On November 21, 1973, the Commonwealth Court decided the next, and possibly most important, case involving the Environmental Amendment, Payne v. Kassab, 11 Pa.Cmwlth. 14, 312 A.2d 86 (1973) aff'd 468 PA 226, 361 A.2d 263, 6 Envtl. L. Rep. 20,796 (PA 1976). The case involved the widening of a street in the City of Wilkes-Barre. The Plaintiffs were not Commonwealth agencies, but rather citizens who felt that taking of the River Common would violate the Environmental Amendment. The court found standing and also reiterated that the Environmental Amendment was self executing. However, the court imposed a three prong test. First, the court is to examine whether there was compliance with all applicable statues and regulations relevant to the protection of the Commonwealth's natural resources. Essentially, this means the self executing nature is irrelevant, as the applicable statues and regulations will be the executory provisions. Second, the court is to determine whether the record demonstrates a reasonable effort to reduce the environmental incursion to a minimum. This means the courts have “reinterpreted” a self executing, substantive, right to clean air or pure water as a right to “reasonably clean” air, or “as pure water as one can get, given the circumstances. Finally, the third prong weighs whether the environmental harm outweighs the benefits to be derived. To be perfectly clear, the court did not say whose benefits those were, or how they were to be weighed.

Complaints are irrelevant. This is the test: was the law followed, is the harm minimized and do the perceived benefits to someone seem greater than the harm.

The Department of Transportation was allowed to widen the road, just like the tower was allowed to be built at Gettysburg.

The next cases involving the Environmental Amendment continued this trend. The first significant case were Community College of Delaware County v. Fox, et al., and Central Delaware County Authority v. Fox, et al., both reported at 20 Pa.Cmwlth. 335, 342 A.2d 468 (1975). In these cases, several landowners were aggrieved by a local Township's actions with regard to sewage facilities. Essentially, the landowners tried to limit the sewer extension on the grounds that the long term development of the watershed would violate the Environmental Amendment. Of course, an attack on the Department of Environmental Resources decision to grant a permit under the Clean Streams Law and the Sewage Facilities Act is a somewhat collateral attack on the decision of the Township to build the sewer in the first place. Commonwealth Court lost no opportunity to rely on DER's scope of statutory authority and found the granting of the permits did not violate the Environmental Amendment because of the opportunity cost of open space or the cost to human health or happiness.

In Mignatti Construction Company v. Commonwealth of Pennsyvlania, Environmental Hearing Board, et al., and Township of Salford, et al. v. Commonwealth of Pennsyvlania, Department of Environmental Resources, reported at 49 Pa. Cmwlth. 497, 411 A.2d 860 (1980), the Commonwealth Court took an almost identical tack. The challenge was to an air quality permit under the Air Pollution Control Act. The Commonwealth Court followed the Payne test and reasoned that DER acted in accordance with law, minimized the impacts through conditions in the permit and (with no analysis) that the benefits of the quarry were substantial and outweighed the environmental harm that would result. Id., at 504, 864.

The take away is that the courts are not going to give teeth to this amendment in the face of administrative decision making. However, there is another take away. In both cases, the courts required compliance with the laws. Including, in some instances and manner, consideration of the economic impacts. The point is that one cannot use the Environmental Amendment to trump agency action, but one can possibly use it to influence that action.

Although totally different in terms of the type of case, the time in which it was decided and the lesson to be learned, the case of Einsig v. Pennsylvania Mines Corporation, 69 Pa. Cmwlth. 351, 452 A.2d 558 (1982) does have an instructive role to play. In Einsig, a coal owner brought an action to stop an oil and gas driller from drilling pursuant to a permit. The court decided the case on the basis of familiar principles of real property law. The only discussion of the Environmental Amendment was to compare the fact that DER's scope of responsibility to the public under the Environmental Amendment was different than its scope of responsibility as between the two competing natural resource producers. Again, the Environmental Amendment cannot be used to stop an administrative decision or action. It appears it can only be used to help influence that action in some way.

Turning from two private parties where the Environmental Amendment was only tangential, we now examine a case with two Commonwealth Agencies, where standing, as opposed to the applicability of the Amendment took center stage. In Commonwealth, Pennsylvania Game Commission v. Commonwealth, Department of Environmental Resources, Ganzer Sand & Gravel, Inc. and Hammermill Company, 97 Pa.Cmwlth. 78, 509 A.2d 877 (1986) the Commonwealth Court was faced squarely with the issue of what agency would represent the Commonwealth in determining whether the Environmental Amendment had been met. Ganzer Sand & Gravel desired to allow a waste fill site on Ganzer's property near a State Game Lands known as No. 218 – Siegel Marsh. The Game Commission feared a degradation of the environment and filed an appeal with the Environmental Hearing Board raising issues under the Dam Safety and Encroachment Act (DSEA). Commonwealth Court gave great deference to DER and specifically noted that, for purposes of the DSEA, DER was the agency that was to look out for wildlife, not the Game Commission. The Court followed the Payne v. Kassab three prong test. They found the law had been properly followed by DER and that no substantial issue had been raised under the second or third prongs.

On appeal to the Pennsylvania Supreme Court, that Court held that the Game Commission had standing to challenge the permit on the basis of the Dam Safety and Encroachment Act but thereby avoided addressing the impact of the environmental amendment, Commonwealth, Pennsylvania Game Commission v. Department of Environmental Resources, (Supreme) 521 Pa. 121, 555 A. 2d 812 (1988). Justice Larsen did take the opportunity in his concurring opinion, in which Justice Papadakos joined to point out:

“As one of this Commonwealth’s trustees of our natural resources and the public estate under Article I, section 27 of our Constitution, the Commission must have standing to take whatever legal action is necessary and appropriate to “conserve and maintain” our “clean air, pure water,” and “the natural, scenic, historic and esthetic values of the environment where threats to game or wildlife and to waterways and lands acquired and managed by the Commission arise. Commonwealth, Pennsylvania Game Commission v. Commonwealth, Department of Environmental Resources, (Supreme), supra, page 131.”

Thus, although there was some judicial recognition that the Game Commission is a trustee of resources under the environmental amendment, the recognition has been less than decisive.

This is instructive on two counts. First, as to what type of evidence must be presented. It is not enough to allege a damage to a bird, a plant or a viewshed. One must prove by clear and convincing evidence that a recognized right is economically damaged and that such damage outweighs the benefit of the proposed action. Second, it is clear that the burden is heavy. A private right should not be weighed against a private right pursuant to Einsig, supra., and a public's right as a public interest is not a traditional property right such as is capable of quantification.

Lest there be any doubt whether these conclusions make sense, read Belden & Blake Corporation v. Commonwealth, Department of Conservation and Natural Resources, 600 Pa. 559, 969 A.2d 528 (2009). In that case the Supreme Court was virtually incredulous that DCNR had the temerity to claim a special status for the public under the Environmental Amendment. The analysis was limited to whether Belden and Blake met its statutory (NOT constitutional) obligations and whether Belden & Blake tried to minimize its damage caused by the exercise of its property rights. The third prong of Payne: whether the damage outweighed the benefits, was virtually ignored under the guise of protecting private property rights. Essentially, a government agency stands in no better position than any other citizen.

The most recent instruction on the Environmental Amendment and its use came in 2012. In the case of Robinson Township et al, v. Commonwealth, Public Utility Commission, et al., 52 A.3d 463, the Commonwealth Court had occasion to review the constitutionality of “Act 13”, 58 Pa.C.S. 2301-3504. Act 13 repealed Pennsylvania's Oil and Gas Act and replaced it with a comprehensive code. Specifically, Act 13 preempted local regulations, including environmental laws and most zoning provisions. The Plaintiffs raised a myriad of constitutional challenges. One of these was Article I, Section 27 of the Pennsylvania Constitution – the Environmental Amendment. The Supreme Court deemed this a justiciable question. They specifically rejected the Commonwealth's reasoning that the Legislature was to make policy determinations such as whether zoning (a General Assembly created creature under the Municipalities' Planning Code) should be preempted. The Court specifically found municipalities had standing to raise the issue. However, when actually addressing Article 1, Section 27, the Supreme Court gave great deference to the General Assembly's decisions as to how to develop oil and gas, specifically Marcellus and other shale oils and gases. The express statutory language prohibiting local regulation was found to settle the question and to vest the authority for Article I, Section 27 in the Department of Environmental Protection.

So much for being self executing.

However, this also points out the avenue of attack. A plaintiff cannot expect to raise the Environmental Amendment against DEP and receive deference. However, a plaintiff can use the Environmental Amendment to force DEP to create an administrative record. Such a record can take time and can be used to indicate where proposed permittees may make accomodations. The record can also be used to appeal to the Environmental Hearing Board to show violations of DEP mandates in its own regulations. While this has proven difficult in the past, several times cases turned not on the facts, but the absence of evidence. Practitioners must make every effort to show damages. The evidence cannot be replete with references to plants and animals which everyone knows will suffer some harm by development. To be successful, a record needs to reflect that other property rights, on balance, will suffer more harm than the alleged benefit of the proposed action to be permitted. This means involvement early on in a case of expert economists, business and industry officials, as well as a frank appraisal of whether a plaintiff has a justiciable claim or simply has a bias against the project. To be successful, no such litigation will be inexpensive.

Quite simply, the Environmental Amendment will not shield the environment from damage. However, it can be used as a sword to force administrative agencies, most notably DEP, to consider valuable interests of other persons when making permitting decisions. The proof of these interests and damages to them will be key.