Wednesday, April 30, 2014



Recent surges in oil and gas activity are due in large part to the technology of hydraulic fracturing or “fracking,” which allows operators to obtain mineral production from new areas previously unproductive and/or inaccessible. But does the practice of horizontal drilling and extraction underneath property for which an operator does not hold a lease constitute a trespass? In Texas, this issue was considered in the case of Coastal Oil and Gas Corporation. v. Garza Energy Trust, 268 S.W. 3d 1 (Tex. 2008). The Texas Supreme Court was the first court in the country to address this issue.  Coastal Oil and Gas Corporation (“Coastal”) had drilled a well on its lease, which was 467 feet from the boundary of an adjacent leased tract called “Share 13.” The plaintiffs were parties who owned royalty interests in Share 13. Using fracking techniques, Coastal’s drilling extended underneath Share 13, and the plaintiffs sued. Although the Texas Supreme Court did not address whether this activity constituted a trespass, the court held that, on the basis of the rule of capture, Coastal’s fracturing under Share 13 was not actionable. Coastal v. Garza Energy Trust, 268 S.W. 3d at 14.  Numerous organizations in the energy industry, including Halliburton Energy Services, Inc., Schlumberger Technology Corp., Chesapeake Energy Corp., Devon Energy Corp., Dominion Exploration & Production, Inc., EOG Resources, Inc., Oxy USA Inc., Questar Exploration and Production Co., XTO Energy, Inc., Chief Oil & Gas LLC, The Texas Alliance of Energy Producers, Harding Co., The Texas Railroad Commission, and the Texas Oil & Gas Association, submitted amicus curiae briefs on this important issue for the industry.  This ruling has been widely discussed in law reviews and scholarly treatises.  See, e.g., “Note:  Owning the Center of the Earth:  Hydraulic Fracturing and Subsurface Trespass in the Marcellus Shale Region,”  21 Cornell  J.L. & Pub. Pol’y 457; “Article:  The Known” Unknowns” of Hydraulic Fracturing:  A Case for Traditional Subsurface Trespass Regime in Pennsylvania,” 13 Duq. B.L.J. 219; “Article:  Property Rights and Modern Energy,” 20 Geo. Mason L. Rev. 803; 2-25 The Law of Pooling and Unitization, 3rd Edition, at 25.06.  However, the Texas Supreme Court’s ruling in the Coastal case has not been universally followed.  See Stone v. Chesapeake Appalachia, LLC, 2013 U.S. Dist. LEXIS 71121, *23 (N.D. W.Va. Apr. 10, 2013)( finding that hydraulic fracturing under the land of a neighboring property without that party’s consent was not protected by the rule of capture, but rather was an actionable trespass); Young v. Ethyl Corp., 521 F.2d 771, 774 (8th Cir. 1975) (failing to apply the rule of capture to the use of brine injection beneath an adjacent landowner’s property because “the common law rule of capture is not a license to plunder.”)

Does this same theory apply when operators dispose of wastewater underground beneath an adjacent property or lease? In FPL Farming, Ltd. v. Environmental Processing Systems, L.C., 351 S.W. 3d 306 (Tex. 2011), the Texas Supreme Court rejected the idea that a disposal well operator was immunized from a trespass claim from an adjacent landowner who could show that waste fluids injected through the operator’s well migrated to the deep subsurface underlying his land. The Court did not address the issue of whether the wastewater migration was a “trespass.” The Court distinguished the ruling in Coastal v. Garza Energy Trust and pointed out that the rule of capture did not apply. FPL Farming, Ltd., 351 S.W. 3d at 314.  The case was remanded, and on remand, the court of appeals held that the adjacent landowner did have an action for trespass for the migration of wastewater. FPL Farming, Ltd. v. Environmental Processing Systems, L.C., 383 S.W. 3d 274 (Tex. App.-Beaumont 2012). FPL sought a petition for review with the Texas Supreme Court, which was granted on November 22, 2013.  Environmental Processing Systems, L.C. v. FPL Farming, Ltd., 2013 Tex. LEXIS 1010 (Tex. Nov. 22, 2013).  No subsequent ruling has been made to date.  For more discussion on this issue and for further updates, check this blog, or contact Toni Ellington at 504-599-8500.

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