The opinion of the court was delivered by: Chief Judge Kane
Before the Court are cross motions for summary judgment. (Doc. Nos. 40, 45.) The motions are ripe, and oral argument on the motions were held on June 8, 2012. For the reasons that follow, the Court will grant Defendant New Forestry's motion for summary judgment and deny Plaintiff EXCO's motion for summary judgment.
This action for declaratory relief relates to a 120-acre tract of land located in rural Bell Township, Clearfield County, Pennsylvania, within the Western District of Pennsylvania ("Subject Property").*fn2 Since September 19, 1997, Defendant New Forestry has owned the surface estate associated with the Subject Property. EOG Resources owns the oil and gas rights associated with the property by way of a December 1, 1997 deed to Somerset Oil and Gas, which became EOG through a series of name changes, mergers, and conversions. Plaintiff EXCO asserts rights to the property by virtue of a February 20, 2008 lease and conveyance agreement from EOG and through a license agreement. This dispute presents two issues for resolution: whether EXCO's ownership rights permit it to dispose of liquid waste from fracking operations beneath New Forestry's land; and what, if any, surface and subsurface rights EXCO is entitled to by virtue of the 2005 renewable license agreement for a disposal facility.
In addition to its ownership interests in the oil and gas estate, in 2005 EOG acquired from New Forestry a Salt Water Disposal Facility License ("License"), which permitted EOG to operate a salt water disposal facility ("Disposal Facility") on the property for an initial term of five years. (Doc. No. 42-14.) The Disposal Facility, used for the disposal of salt water from EOG's drilling operations into a depleted gas well ("Disposal Well"), included a concrete pad with a fenced area containing three tanks large enough to store 300 barrels each, a containment pond, and a pump house. (Doc. No. 42 ¶ 23; see also Doc. No. 42-15 at 48; Doc. No. 42-19.) EOG also obtained a permit from the Environmental Protection Agency, which allows for the disposal of 21,000 barrels of brine wastewater per month. (Doc. No. 42-18.)
Plaintiff EXCO purchased from EOG the Disposal Well and all of the property associated with it on February 20, 2008. (Doc. No. 42-23.) Through the agreement dated February 20, 2008, EOG assigned its rights under the License to EXCO.*fn3 (Doc. No. 47 ¶ 82.) New Forestry does not challenge the validity of the purported assignment for purposes of the instant motions, but maintains that neither EXCO nor EOG obtained its written consent before executing the assignment. (Doc. No. 41 at 6.) Since that time, EXCO has operated the Disposal Well and the Disposal Facility, disposing of wastewater from its mining operations in the region, including "frac fluids," which consists of brine-based wastewater from the hydraulic fracturing of Marcellus Shale.
The initial term of the License that EOG assigned to EXCO was set to expire on August 12, 2010. In May 2009, EXCO sought to extend the License for an additional five years, and sought permission to expand the Disposal Facility. (Doc. No. 42-32.) Over the course of about a year, the parties negotiated over insurance and bonding issues related to the License. New Forestry and EXCO never agreed to the expansion or to an amendment of the License. (See Doc. No. 42-21 at 14; 42-15 at 66.)
On June 28, 2010, New Forestry notified EOG and EXCO that the License would expire on August 11, 2010, because it had not been properly renewed. (Doc. No. 42-33.) Thereafter, EXCO and New Forestry began negotiating in an effort to reach a new agreement; however the parties did not reach an agreement. On August 6, 2010, EXCO wrote New Forestry and tendered $11,171.43 for a renewed five-year term. (Doc. No. 42-34.) In response, New Forestry issued a cease-and-desist letter, informing EXCO that it could not exercise any rights under the License because it had not timely renewed the License. (Doc. No. 53-8.)
EXCO brought this action to ascertain its rights under the oil and gas lease and the License. EXCO's second amended complaint contains two counts. First, EXCO seeks a declaration that it has the right to the reasonably necessary use of the surface of the Subject Property to access the Disposal Well (Count I). In the alternative, EXCO seeks a declaration that it is an assignee under the License, that it renewed the License, and that it has the right to operate the Disposal Well and the Disposal Facility for the five-year term of the renewed License (Count II). After EXCO initiated the instant matter, the parties have agreed to several extensions of the License in order to preserve the status quo pending the resolution of this action.
On February 6, 2012, New Forestry filed a motion for summary judgment, arguing that:
(1) EXCO's oil and gas leasehold interest does not provide it with a right to use the Subject Property to dispose of waste fluid from its drilling operations; and (2) EXCO did not properly renew the License because it was not in compliance with the License and because it failed to timely provide notice and payment. (Doc. No. 40.) On March 1, 2012, EXCO filed a cross motion for summary judgment, arguing that: (1) it owns the Disposal Well, including the "space occupied thereby," and has the right to use the surface of the Subject Property for disposal purposes; and (2) it properly renewed the License. (Doc. No. 45.) Because the two motions involve substantially the same issues, the Court will address both motions.
A. EXCO's Property Interest
In Count I of its second amended complaint, EXCO seeks a declaration that it has the right to use the surface of the Subject Property for disposal purposes by virtue of its subsurface rights. The parties dispute whether EXCO's oil and gas rights include a right to use the subsurface for disposal purposes, and whether EXCO has an easement to use the surface for disposal purposes.
The essence of the present-day dispute harkens back to the deed separating the oil and gas estate. The 1965 deed granted the oil and gas owner the "rights, titles, and interests in and to all of the oil and gas . . . and the space occupied thereby." (Doc. No. 42-2.) That language, New Forestry asserts, allows the oil and gas owner to obtain the oil and gas from the space that it occupies and precludes another person from using the space occupied by the oil and gas but does not give the oil and gas owner rights to the space once the oil and gas are removed. EXCO interprets the same language as allowing it to use the space occupied by the Disposal Well without limitation.
EXCO asserts that the rights to the space occupied by the Disposal Well were severed in the 1965 deed, and transferred to its predecessor. In the alternative, EXCO argues New Forestry is equitably estopped from arguing that EOG does not own the space comprising the Disposal Well, because it acknowledged in the License that EOG had the right to use the space occupied by the Disposal Well for disposal purposes. EXCO asserts that in entering into the conveyance ...