Last Updated on Typically, modern mineral rights ownership is not without its complex issues. In the United States, property is everything. The ability to own property sets Americans apart. It is also worth noting that the rule of capture, which originates from English common law, is embraced by Americans.
This makes the law very old and traditional. No one wants to mess with traditions. For this reason, it is imperative to understand what the rule of capture is, especially when it comes to oil and gas extraction, and how it works. Keep reading!
What is the rule of capture?
According to the rule of capture, whoever capture an asset or resource owned it. For instance, whenever you shoot a deer, you own the carcass. Also, you capture oil from a well on your land, regardless of where the oil originated underground, you own that oil.
Again, take, for instance, a landowner who extracts or “captures” groundwater, oil, or gas from a well that bottoms within the subsurface of their land. According to the rule of capture, they acquire full ownership of the substance even though it is drained from the subsurface of another’s land.
The rule of capture forms an important component of English common law and became accepted by certain states in the United States. It establishes a rule of non-liability for captured natural resources and minerals, including oil and gas, game animals, and groundwater.
What does the Rule of Capture Mean to the Oil and Gas Industry?
The rule of capture represents a key component of oil and gas law since the first commercial oil well in Pennsylvania was completed in the 1840s. There was always a bigger question of whether oil and gas was a possessory or non-possessory interest. As the capture rule became associated with more complex issues, besides pure ownership, there were modifications in multiple different ways.
There were significant issues in Kentucky and Indiana, which ensured that the rule was restricted by recognizing the correlative rights of other parties to recover oil or gas from a common supply source. For this reason, certain people were not insulated from liability by the rule: owners who negligently drilled into the common source of supply, owners who adopted the use of artificial methods to generate the hydrocarbon, and owners who wasted the hydrocarbons.
Many complex issues, other than oil and gas ownership, are involved in modern oil and gas cases. It must be noted that anywhere an oil and gas operator engages in a conventional gas drilling or drilling of a well, which is bottomed on the land of another party, the rule of capture defense may not be asserted to limit liability to the quantity of oil and gas initially situated under the neighbor’s land.
Furthermore, it is worth stressing that statutes related to oil and gas conservation have had a great influence on the rule of capture. They do so by limiting the ability of oil and gas owners to drill wells. Sometimes, an oil and gas operator may violate conservation regulations. When this happens, the operator may not plead the capture rule to defend their actions.
Yet, the rule of capture promises to keep applying to the extent conservation law or orders do not preempt it.
What rights and responsibilities are associated with the rule of capture?
The rule of capture is associated with certain rights and responsibilities landowners must acquaint themselves with. This section will list some of these:
- The rule of capture ensures that owners can gain access to groundwater, oil, and gas before their neighbors can capture them.
- The capture rule establishes non-liability for captured minerals and natural resources.
- The rule of capture encourages the exploration of mineral resources.
- It is possible for a producer to acquire title to all of the oil or gas produced from a well on its land, irrespective of if some of that oil migrated from an adjoining tract.
What are the potential problems that the rule of capture creates?
The rule of capture can create certain issues. One of these is potential groundwater (surface water) conflicts.
In the state of Texas, landowners own the groundwater found beneath their land. The legislature has declared this as the law.
According to Chapter 36 of the Texas Water Code, “the legislature recognizes that a landowner owns the groundwater below the surface of the landowner’s land as real property.”
Besides this, groundwater is considered subject to reasonable regulation through groundwater conservation districts.
Chapter 36 of the Texas Water Code also articulates that the ownership of groundwater entitles a landowner to specific rights.
A landowner is within their rights to:
“drill for and produces the groundwater below the surface of real property, subject to section (d), without causing waste or malicious drainage of other property or negligently causing subsidence.”
It is also worth stressing that even though a landowner has the right to exploit and produce groundwater below the surface of their land, they are not immune to section (d) of Chapter 36.
Oftentimes, the important conflict that takes place when no groundwater regulations are in place is between neighbors. There is always the one who is pumping groundwater and another person who is worried about his well getting dry as a result. This kind of conflict is now new.
Indeed, since the Texas Supreme Court embraced the rule of capture in 1904, this conflict, which exists between neighbors, has become the foundation upon which plaintiffs have argued before the court. They often plead with the court to overturn the rule of capture.
However, in recent times, many new facts are differentiating this old conflict between landowners. Groundwater exploration projects are generally aimed at distributing groundwater from rural regions to developing urban areas. As these projects increase, conflicts between adjacent landowners have intensified.
For example, a landowner may decide to put up their groundwater for sale to groundwater developers. They may become resented by neighbors because of the impact such a large-scale groundwater project could cause nearby wells. Besides this, in the eyes of people, such a landowner may be seen to be taking advantage of the absence of regulations to boost their profits.
According to the correlative rights doctrine, owners of a common reservoir have access to their fair share of the oil or gas that is found beneath their properties. Simply put, the right of a property owner to produce oil and gas is restricted by an obligation to do so without having an impact on the right of another property owner to do the same.
As a result, this doctrine ensures that a property owner with the right to extract oil and gas from a common reservoir may do so as long as the common reservoir is not damaged. Many people view this correlative rights doctrine as a natural solution to many issues related to the rule of capture.
What are some other alternatives to the rule of capture that have been proposed or implemented in different jurisdictions?
This section will look into different alternatives that exist to the rule of capture. Many of these have been implemented in various jurisdictions.
Reasonable use doctrine
One of the cornerstones of the complex water rights laws in the state of California is the Reasonable Use Doctrine. According to this doctrine, the use of water must be reasonable and beneficial irrespective of the different underlying water rights. There is no enforceable property interest when it comes to the unreasonable use of water.
It must be noted that many circumstances have revealed the unreasonable use of water. Yet, the adoption of the Reasonable Use Doctrine has provided multistep processes, which have become significantly effective. Whenever an individual claims the use of water by another person is unreasonable, they resolve the complaint with the use of a judicial forum.
Restatement (Second) of Torts §858
This is a rule that is widely adopted as a basis for resolving any kind of conflicts between competing users of hydrologically connected surface water and groundwater.
Coordinated reservoir development (CRD)
Coordinated reservoir development (CRD) is an alternative to the rule of capture that aims at achieving two different goals:
- Provision for rational development of the oil and gas reservoir
- Provision for a property system, which is capable of recognizing and protecting each landowner’s proportionate interest in oil and gas while in the reservoir.
Conclusion
The rule of capture is widely adopted to provide important support to the investment of capital while also providing clear rules to solve conflicts among property owners.
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