WELLSBURG, W.Va. — A court battle in West Virginia appears to be headed to trial in May after a U.S. District Court judge denied a motion filed by Chesapeake Exploration.

Lawsuit

Marion Stone and Brian Corwin filed a lawsuit against Chesapeake Appalachia, LLC; Statoil USA Onshore Properties Inc.; and Jamestown Resources, LLC in Brooke County, West Virginia Court of Common Pleas in June 2012.

The lawsuit was then filed in the U.S. District Court, Northern District of West Virginia in Wheeling in July 2012.

Marion Stone and Brian Corwin, mother and son, own a 217-acre farm in Buffalo District in Brooke County, W.Va.

The lawsuit contends that the driller was able to obtain gas and oil from the property even though the existing lease did not give permission to pool or unitize the Marcellus shale formation.

Judgment denied

Chesapeake Appalachia, Statoil USA Onshore Properties and Jamestown Resources asked the court for a summary judgement in the case, but it was denied April 10.

Background

Stone signed an oil and gas lease with Phillips Production Company in August 2001. According to the court records, the lease did not give the right to pool or unitize the Marcellus shale formation within and under Stone’s property.

The lease was eventually sold to Chesapeake Appalachia, LLC. Stone was reportedly asked to modify her lease to allow for pooling and unitization of the Marcellus shale formation, but she refused.

According to court documents, Chesapeake drilled a Marcellus shale well on property near Stone and Corwin’s property in Brooke County to recover oil and gas.

Prior to drilling the well, Chesapeake Appalachia designated an oil and gas unit representing the land from which oil and gas is pooled by the well. Stone and Corwin’s property is believed to be located within 200 feet of the area horizontally drilled and is not included in the unit.

Judgment denied

U.S. District Judge John Preston Bailey denied the motion by Chesapeake contending that the rule of capture protected Chesapeake.

“The court sees no reason why the desires of the industry should overcome the property rights of small landowners,” stated Bailey in his opinion.

Loss of value

Stone and Corwin claim that as a result of the breach of contract, they have suffered a loss of oil and gas and a diminished value of the remaining oil and gas under their property.

In the lawsuit, Stone and Corwin also stated that by entering the Marcellus shale formation under their property or in conjunction with another property, Chesapeake Appalachia trespassed on their property. The lawsuit goes on to state that Chesapeake Appalachia obtained a benefit not owed to them by draining the gas from Stone and Corwin’s land.

Trespass, ‘rule of capture.’

Judge Bailey determined the use of hydraulic fracturing can constitute trespassing.
Bailey wrote, “…this court finds, and believes that the West Virginia Supreme Court of Appeals would find, that hydraulic fracturing under the land of a neighboring property without that party’s consent is not protected by the ‘rule of capture,’ but rather constitutes an actionable trespass.”

Breach of contract

The lawsuit contends that when the well in question was hydraulically fractured, Chesapeake Appalachia breached the contract with Stone by pooling the Marcellus shale formation under Stone’s property without the authority to do so.

According to West Virginia code, a pool is defined as an underground accumulation of gas in a single and separate natural reservoir (ordinarily a porous sandstone or limestone.)

It is characterized by a single natural-pressure system so that production of gas from one part of the pool tends to or does affect the reservoir pressure throughout its extent.

A pool is bounded by geological barriers in all directions, such as geological structural conditions, impermeable strata and water in the formation, so that is effectively separated from any other pools which may be present in the same district or on the same geologic structure.

Judge’s ruling

The judge also commented on the claim for the breach of the implied covenant against drainage and implied covenant of good faith and fair dealing made by Corwin and Stone in the original lawsuit.

Judge Bailey stated that the plaintiff (Corwin and Stone) alleged sufficient facts from which a jury could find a breach of the implied covenants as well as a breach of the implied covenant of good faith and fair dealing.

Plea to court

Stone and Corwin are asking that Chesapeake Appalachia be removed from within and under their land and that they be compensated for damages, which include the value of the oil and gas improperly taken from their land, income and punitive damages.

A trial is set for May 14, 2013.