After years of legal battles and uncertainty, the U.S. Court of Appeals for the Third Circuit recently ruled that the United States Forest Service, as the surface owner of National Forests, has no special authority to interfere with the ability of owners of the underlying mineral interests to access and make use of their resources.
This ruling concludes a five-year battle during which Sierra Club and other environmental groups tried—and were briefly successful at—getting a moratorium placed on all new drilling within Pennsylvania’s Allegheny National Forest until a forest-wide environmental impact statement (“EIS”) on drilling’s effects was completed.
The Allegheny National Forest (“ANF”) consists of 517,000 acres in northwestern Pennsylvania. The Forest Service began purchasing the surface rights to this acreage in 1923. As it bought this property, the agency made no attempt to purchase the underlying mineral interests, ironically believing that these subsurface interests were largely speculative and worthless. As a result, 93% of the minerals underlying the ANF are in private hands. The Forest Service was mistaken about the oil and gas richness of this property. By 2007, the ANF hosted 8,000 conventional oil and gas wells.
Minard Run I
The protocol for drilling most of the 8,000 conventional wells was governed by a 1980 court decision (Minard Run I) that established a cooperative process by which a prospective driller presented their drilling plans to the Forest Service 60 days in advance for the agency’s review and approval. The Forest Service and the driller worked together to modify the drilling plan if necessary. Eventually, the Forest Service would issue an official Notice to Proceed (“NTP”) authorizing drilling.
Minard Run II
In late 2008, environmental groups including the Sierra Club sued the Forest Service, arguing that the issuance of a Notice to Proceed to a driller was a “major federal action” that triggers a mandatory review of the effects of the drilling on the environment under the National Environmental Policy Act (“NEPA”). In what could be considered one of the earliest “sue and settle” agreements with environmental groups by the Obama Administration, the Forest Service entered into a Settlement Agreement in April of 2009 and agreed to stop issuing drilling permits until an environmental assessment (“EA”) or EIS was completed. Soon thereafter, the Forest Service announced that it would conduct a forest-wide EIS before issuing any future NTPs, thus effectively placing a moratorium on all new drilling in the ANF.
PIOGA, the Allegheny Forest Alliance, and Warren County, Pennsylvania, challenged this drilling moratorium, arguing that the Forest Service had no authority to substantially interfere with access to mineral interests. The industry challengers were successful in federal district court (Minard Run II).
The district court explained that the mineral rights in the ANF fall into the two categories below, neither of which give the Forest Service authority to dictate whether drilling can occur. The district court awarded the industry challengers a preliminary injunction that barred the Forest Service from implementing its drilling moratorium.
Reserved Mineral Interests exist where the original owner of the joint mineral and surface estates conveyed the surface to the Forest Service but reserved the mineral interests. The Forest Service required a condition to be inserted into the instrument of conveyance that subjected the reserved mineral interests to the rules and regulations of the Forest Service then in effect. The regulations in effect when the ANF acreage was purchased, however, were minimal and only required the owner of the mineral estate to disturb the surface as little as possible and to pay for lost timber.
Outstanding Mineral Interests exist when the mineral interests were severed from the surface prior to the surface being conveyed to the Forest Service. The mineral estate owner, as the dominant estate, must only show “due regard” to the rights of the surface owner.
Minard Run III
The environmental groups appealed to the Third Circuit, which affirmed the district court’s preliminary injunction stopping the drilling moratorium (Minard Oil III). The Third Circuit explained that the Forest Service lacked any authority over the mineral interests that would allow the agency to strictly regulate or prohibit drilling. “Although the Service is entitled to notice from owners of these mineral rights prior to surface access, and may request and negotiate accommodation of its state-law right to due regard, its approval is not required for surface access.”
Minard Run IV
Despite the favorable industry verdicts in Minard Run II and III, the 2009 Settlement Agreement between the Forest Service and the environmental activist groups remained in place. In September of 2012, the district court converted its earlier preliminary injunction ruling into a final judgment that vacated the Settlement Agreement.
Minard Run V
The environmental groups appealed the vacation of the 2009 Settlement on various procedural grounds. On September 26, 2013, the Third Circuit unanimously affirmed the district court’s decision to vacate the Settlement Agreement.
There are over 20 million acres of National Forest lands nationwide. The Forest Service does not own the minerals in approximately one-third of this territory. The Minard Run cases make clear that unless the severance instrument grants the Forest Service substantial regulatory authority over the mineral estate, then the Forest Service has the same rights—no more and no less—as any other surface owner under the common law.
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