Question

Jones and Smith are adjacent landowners. Underground, there lies a large pool of oil. Geological surveys show that approximately 85% of the oil lies under Jone’s property and 15% under Smith’s. If smith erects an oil drilling/pumping rig on his property, how much of the oil is Smith allowed to pump from his under ground pool, and What legal theory supports your answer?

Answer 1

The “rule of capture,” applies to oil and gas subterranean resources. Courts have mostly ruled that oil and gas are which naturally flows from beneath one person’s property to another person’s property are fugitive resources. Being fugitive resources, they are in one’s property, and may be claimed by the property owner. The owner of property can drill on his land and capture oil even if pumping the oil from his property drains the reservoir of oil or gas from under someone else’s underground. Thus, in the above case, the general rule would be that Smith would be allowed to pump all the oil that he can, even though in so doing, he deprives the others of that resource, and pumps the oil which is beneath the Jones property. Case Law: Barnard v. Monongahela Natural Gas Company, 216 Pa. 362 (1907).

Naturally, the other property owner is likely to build their own drills as soon as oil is discovered and compete with Smith for the oil. Allowing each person to drill and to keep any quantity of oil can be pumped through such drilling encourages such pumping/drilling. If Smith had to share the oil with Jones, it would discourage Smith from taking the initiative and investing the time and money necessary to perform the drilling operation.

In such case, each land owner would simply start waiting until the neighbor drills and then share in the profits. The rule allowing any party to keep the oil encourages the exploitation of the oil resource.