Oil and Gas Owner’s Rights When a Trespass Occurs
The Law makes a distinction between good faith trespass and bad faith trespass
You own the oil and gas rights underlying certain property. Without your permission, an oil and gas company comes onto this land and produces the underlying oil and gas. This can happen. For example, an oil and gas company in doing its title search as to the owner of the oil and gas underlying certain property makes a mistake in its title search and decides that your oil and gas is owned by someone else and then leases the oil and gas from the non-owner and begins production. Unbeknownst to you, the oil and gas company takes your oil and gas. If you discover this, what can you do?
You have at least two potential claims. One claim is an action in ejectment. The oil and gas company is producing your oil and gas. As such, it has possession of the oil and gas. You can bring an action in ejectment against the oil and gas company to obtain an order barring the oil and gas company from taking your oil and gas.
The other potential claim is an action in trespass as the oil and gas company has trespassed on your rights to the oil and gas. In such a situation, the damages against the oil and gas company can be extensive. This depends upon whether the oil and gas company is bad-faith or good-faith trespasser. The law makes a distinction between an innocent or good-faith trespass and a trespass committed in bad-faith.
One who “willfully” or in “bad-faith” trespasses on the land of another and removes minerals is liable to the owner for their full value computed as of the time the trespasser converted them to its own use, by sale or otherwise, but an “innocent” trespasser, who acted in “good-faith,” may deduct from such value the expenses of extraction. Put another way, when a party trespasses in bad-faith, the injured party is entitled to all monies derived from the trespass without any offset for the cost of generating those monies. When improvements to land are made by a good-faith trespasser, the injured party is entitled, in effect, to the trespasser’s net profits, i.e., the revenues generated upon the land less the monies expended in facilitating the profitable activity.
Only trespassers who are “good-faith” purchasers for value without notice of your superior title, either actual or constructive, may offset the recovered monies obtained through production by the costs of production. However, notice of the trespass, either actual or constructive, renders the trespasser a bad faith trespasser and precludes the application of offsets for costs of production.
In the example above, if the oil and gas company in its title search made a mistake in its title search, it is nevertheless bound by the constructive notice provisions of Pennsylvania law. These provisions impose on the oil and gas company constructive notice of the recording of your right to the oil and gas. Under such circumstances, you, as the owner of the oil and gas, would be entitled to damages against the oil and gas producer on the basis of a bad-faith trespass. You, as the owner of the oil and gas, would be entitled to recover the entirety of the revenues which the oil and gas company derived from the production of your oil and gas without offset of the production costs.
If an oil and gas company takes your oil and gas without your permission, you do have remedies. Contact an oil and gas attorney to explore these remedies. You may find that a trespass has been committed and that you are entitled to damages. If it is a good faith trespass, then you may be entitled to recover the production revenue minus the production costs, but if it is a bad-faith trespass, you may be entitled to recover the totality of the production revenue.