The Ownership in Place Rule

Commercial development of oil in the United States began in 1859 with the first producing well drilled by Colonel E.L. Drake in Titusville, Pennsylvania. At the time, there was a well-developed body of law that, both from state legislatures and case law, governed property rights to minerals and coal found on a property. These rules were fairly simple to develop because ownership of coal and similar hard-rock mineral deposits formed strata beneath the surface of the land, making a determination of ownership easy to figure.

Ownership in Place

In contrast, both oil and gas possess characteristics inconsistent with the traditional notions of “ownership in place” applied to coal and other hard-rock minerals. Ownership in place theory is a principle of oil and gas law wherein the nature of the interest of the landowner in oil and gas contained in his/her land is the same as his/her interest in solid minerals. In other words, if you own property then you own the oil and gas located beneath the property.

Issues and Capture

The issue with applying ownership in place to oil and gas rights are that oil and gas are fluid and migrate from areas of high pressure to areas of lower pressure within the reservoir, or pool, where they are found. As such, many legislatures enacted the rule of capture concerning oil and gas located beneath a property. Under this rule, a person who digs a well and captures oil and gas from beneath the property is the lawful owner of the oil and gas, even though some of that oil and gas was drained from an adjacent property. Under the rule of capture, there is no liability for capturing oil and gas from another’s property.

West Virginia and Other States

West Virginia does not apply the rule of capture to oil and gas and instead applies the ownership in place rule. In Boggess v. Milam, the court confirmed the ownership-in-place theory and stated that “the owner of the fee is vested with title in the oil and gas underlying the boundary to which he holds title . . .”

Interestingly, the majority of the U.S. states follow ownership in place theory vis-à-vis oil and gas, including Texas, New Mexico, Kansas, Mississippi, and Michigan. The ownership in place theory counters a significant issue with the capture theory wherein people race to dig and extract oil and gas from wells so they do not lose that oil and gas to someone else. This creates an environment of dense and excessive drilling and leads to premature reserve depletion.

Other states, like Oklahoma, have adopted the “exclusive-right-to-take” theory, which is a modified capture theory, that a landowner does not own the substances that underlie his land, but merely retains the exclusive right over others to capture the substances beneath the property.

If you own property that contains oil and gas, plan or have extracted the oil and gas from the property, and are facing opposition, contact the law firm of Hendrickson and Long. Hendrickson and Long are experienced and knowledgeable attorneys in defending the use of oil and gas in West Virginia.