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February 27, 2015 Articles

A Look at Underground Trespass under Texas Law

Courts are still wrestling with the issue of subsurface trespass.

By Donald D. Jackson – February 27, 2015

The “Shale Revolution” has resulted in a widespread increase in development activity, rapidly evolving operations, and more chances for alleged underground interference across lease boundaries. It has also led to a number of subsurface-trespass claims. Despite guidance from several opinions involving subsurface trespass, courts are still wrestling with underground trespass issues in Texas and elsewhere.

The Shale Revolution

Until relatively recently, the oil and gas industry relied primarily on vertical wells for production. For decades, the industry has hydraulically fractured these vertical wells to overcome low permeability and enhance production. But even with hydraulic fracturing (or “fracking”), these vertical wells were limited by the substantial distances oil had to flow to reach the induced fractures.

Advancements in drilling technology have opened up new formations once thought too impermeable for commercial development. The Shale Revolution in Texas and elsewhere has been based primarily on two technologies: (1) horizontal drilling with accurate steering and measuring “on the fly,” and (2) multi-stage fracking of horizontal wells. This revolution has reversed what had been a declining state of oil and gas reserves nationwide.

This altered landscape has not only increased activity in the oil fields—it has also brought numerous operators into close proximity to one another. Precision horizontal drilling allows a number of scenarios unlikely to occur with traditional vertical wells. For example, two operators may both have wellbores running parallel for long distances along lease lines or an operator may wish to drill through one mineral estate to reach another.

Common-Law Background

Trespass. Common-law trespass was not a single cause of action—it included “several actions directed to different kinds of wrongs.” Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d 1, 9 (Tex. 2008). For example, a tenant could sue an intruder for “trespass” because the tenant has a possessory interest, but a landlord could only sue for “trespass on the case” because the landlord only has a reversionary interest.

The different trespass causes of action also had different requirements of proof. In some instances, a plaintiff did not have to prove an actual injury for trespass and could recover nominal damages. For trespass on the case, however, proof of actual damages was required.

Real-property ownership. Under common law, real-property ownership has traditionally been based on the eighteenth-century English “ad coelum” maxim: “Cuius est solum, eius est usque ad coelum et ad inferos,” which translates to “he who owns the soil, owns to the heavens and to the depths.” See Restatement (Second) of Torts § 159 cmt. g (1965). The ad coelum doctrine is deeply rooted in the common-law understanding of real-property ownership. For example, theSecond Restatement of Torts follows the ad coelum view. Thus, “a trespass may be committed on, beneath, or above the surface of the earth.” Restatement (Second) of Torts § 159 (1965).

Although the ad coelum doctrine is an ancient common-law doctrine, the common law has evolved to deal with new technologies. In 1946, the U.S. Supreme Court determined that commercial airspace is a public highway not subject to private rights, and noted that the ad coelum “doctrine has no place in the modern world.”United States v. Causby, 328 U.S. 256, 260–61 (1946). The Texas Supreme Court recognized the need to evolve and noted that “Lord Coke, who pronounced the maxim, did not consider the possibility of airplanes, [b]ut neither did he imagine oil wells.” Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d 1, 11 (Tex. 2008).

Ownership of severed minerals. Texas has adopted the absolute-ownership or ownership-in-place doctrine, meaning that a property owner owns the subsurface minerals just as he or she owns the surface of the property. See Stephens Cnty. v. Mid- Kan. Oil & Gas Co., 254 S.W. 290 (Tex. 1923). As a result, a property owner has absolute ownership of the subsurface minerals even if he or she has no ability or intention to develop those minerals. After a severance by lease or deed, those property rights are transferred to the lessee. Those rights, however, are subject to the rule of capture.

Some states follow the non-ownership or qualified-ownership doctrine. In those states, a property owner only owns the exclusive right to explore, produce, and develop the subsurface minerals, but title to the minerals only transfers when the minerals are brought to the surface and reduced to possession. See, e.g.Rich v. Doneghey, 177 P. 86 (Okla. 1918).

Evolving Subsurface-Trespass Law in Texas

As noted above, trespass is a common-law doctrine, and the common law evolves to deal with new circumstances. While the Texas Supreme Court’s holding in Coastal Oil & Gas Corp. v. Garza Energy Trust has limited the ad coelum doctrine in some situations, Garzadoes not address every question, and prior case law can be informative on the issue of subsurface trespass.

Below is a short chronological history of select case law related to subsurface trespass.

Pre-Garza (1950–2008)
A number of pre-Garza cases are consistent with the principle that subsurface trespass is actionable if a defendant’s operations simply break the plane of the plaintiff’s leasehold, but there are some important distinctions and exceptions.

Hastings Oil Co. v. Texas Co., 234 S.W.2d 389 (Tex. 1950). Hastings Oil is one of the earliest reported Texas Supreme Court cases involving subsurface trespass and oilfield operations. Under Hastings and other slant-well cases that followed, subsurface trespass is actionable if the wellbore itself breaks the plane of the plaintiff’s leasehold boundary.

Humble Oil & Refining Co. v. L & G Oil Co., 259 S.W.2d 933 (Tex. Civ. App.—Austin 1953, writ ref’d n.r.e.). In Humble Oil, M&M directionally drilled from an adjacent tract that it owned to its own adjoining mineral estate. In doing so, the wellbore passed through Humble’s mineral estate and Humble sought an injunction, which the trial court denied. The Court of Civil Appeals then affirmed, despite the fact that Humble’s lease gave it the “exclusive” right to explore for and produce oil and gas. The court’s reasoning suggests an early departure from a strict application of the ad coelum doctrine.

Gregg v. Delhi-Taylor Oil Corp., 344 S.W.2d 411 (Tex. 1961). For decades, Greggstood as the Texas Supreme Court’s last word directly related to subsurface trespass by hydraulic fracturing. Gregg drilled 37.5 feet from the adjacent lease boundary and was planning to fracture his well, but Delhi-Taylor sought an injunction to stop the alleged subsurface trespass. After stating that “the allegations [were] sufficient to raise an issue as to whether there is a trespass,” the court continued, in dicta: “While the drilling bit of Gregg’s well is not alleged to have extended into Delhi-Taylor’s land, the same result is reached if in fact the cracks or veins [from fracking] extend into its land and the gas is produced therefrom by Gregg.” This reasoning is in line with the ad coelum doctrine.

Railroad Commission of Texas v. Manziel, 361 S.W.2d 560 (Tex. 1962). InManziel, the court faced the issue of whether secondary recovery operations—specifically, “waterflooding”—constituted subsurface trespass. Rather than strictly applying the ad coelum doctrine, the court considered whether this activity authorized by the Texas Railroad Commission authorized activity was based on sufficient justification, weighing the social interest in the activity against the individual “who is damaged.” Similar to the aircraft exception to trespass, the Texas Supreme Court recognized that waterflooding had evolved sufficiently to justify an exception to the notions of the ad coelum doctrine.

Chevron Oil Co. v. Howell, 407 S.W.2d 525 (Tex. Civ. App.—Dallas 1966, writ ref’d n.r.e.). In Howell, Chevron began directionally drilling from Howell’s tract to reach its leasehold under Lake Texoma. In the process, it passed through Magna’s mineral estate, and the trial court granted an injunction against Chevron. The appellate court disagreed with Chevron’s contention that there was no evidence of damage to the surface and the mineral estates, and affirmed the grant of an injunction. This case appears to be in line with the more absolute ad coelumnotions of subsurface ownership.

Amarillo Oil v. Energy-Agri Products, 794 S.W.2d 20 (Tex. 1990). Energy-Agri perforated into a gas zone, and Amarillo Oil, which owned the gas rights, sued for an injunction and damages. The Texas Supreme Court held that Amarillo was not entitled to an injunction, reasoning that the railroad commission’s approval of the production operation must be respected. But the court drew a “distinction between the right of possession through the Railroad Commission-granted right to produce, and the right of ownership.” The court then remanded for a determination of damages based on how much of the gas that Energy-Agri produced was casing-head gas.  

Geo Viking v. Tex-Lee Operating, 1992 WL 80263 (Tex. 1992), withdrawn, 839 S.W.2d 797. Citing Gregg and Amarillo Oil, the court held that “[f]racing under the surface of another’s land constitutes a subsurface trespass.” The court stated further that “the rule of capture would not permit Tex-Lee to recover for a loss of oil and gas that might have been produced as a result of fracing beyond the boundaries of its tract.” About six months after issuing its opinion, the court withdrew its opinion, stating that the writ of error was “improvidently granted.” This left lingering uncertainty over the legality of fracturing beyond one’s lease boundary, which the Texas Supreme Court would not address again for several years.

Gifford Operating v. Indrex, No. 2:89-CV- 0189, 1992 U.S. Dist. LEXIS 22505 (N.D. Tex. 1992). Before the Geo Viking opinion was withdrawn, another court faced the issue of subsurface trespass by hydraulic fracturing. In Indrex, Gifford hydraulically fractured a Granite Wash well located about 1,340 feet from the lease line and about 2,640 feet from a second well. The court cited Gregg for the proposition that “sand fracing under the surface of another’s land constitutes subsurface trespass.”

Garza and Beyond (2008–Present)

Coastal Oil & Gas v. Garza Energy Trust, 268 S.W.3d 1 (Tex. 2008). Sixteen years after Geo Viking, the ad coelum doctrine received an update in Garza. After drilling a well on its fee-simple mineral estate precisely 467 feet from the lease boundaries, Coastal fracked the well. The lessor of the adjoining tract, Salinas, filed suit, and the jury found for Salinas. The court of appeals cited Gregg and held that subsurface trespass by hydraulic fracturing is a recognized claim in Texas.

Despite its statements in Geo Viking and Gregg, the Texas Supreme Court reversed. First, the court explained that while trespass is a unified cause of action under modern law, vestiges of the old forms remain. In the oil and gas context, the court stated that this meant that mineral lessors with no present right to possess, explore for, or produce the minerals must prove actual damages. As a royalty owner, Salinas had no possessory interest and could assert “trespass on the case” with no special pleading requirement, but did need to prove an actual injury.

Second, the court stated that the ad coelum doctrine “has no place in the modern world . . . . [and] [t]he law of trespass need no more be the same two miles below the surface than two miles above.” But, with that strong statement, the court also stated that it “need not” decide the “broader issue” of whether fracking can give rise to an action for subsurface trespass.

On the “narrower” issue, the court found that Salinas’s damages were based on drainage, and these damages were precluded by the rule of capture. Because Salinas had to prove actual injury as an element to trespass on the case, his trespass claim failed.

This opinion appears to leave for another day some questions about the contours of actionable subsurface-trespass claims. For example:

  • Would the Texas Supreme Court recognize a trespass claim for hydraulic fracturing if other damages besides drainage can be proven? If so, what proof of injury would be required?
  • Would the trespass in Indrex (where fracture fluid and proppant was recovered from an offset well and production decreased) be an actionable trespass under Garza?
  • What if the defendant is injecting into a disposal well, rather than waterflooding?

Stone v. Chesapeake Appalachia, LLC, 2013 U.S. Dist. LEXIS 71121 (N.D. W.V. 2013), vacated, 2013 U.S. Dist. LEXIS 71121. Making an Erie guess, the Stonecourt predicted that West Virginia would reject the rationale of Garza. Stone sued under West Virginia law for trespass by engaging in hydraulic fracturing, failure to protect from drainage, and breach of contract. On summary judgment, Chesapeake argued that the West Virginia rule of capture barred the trespass claim and urged the court to adopt the reasoning of Garza. The trial court denied summary judgment and harshly rejected Garza, stating that “the Garza opinion gives oil and gas operators a blank check to steal from the small landowner,” and “‘the common law rule of capture is not a license to plunder.” The opinion was vacated on July 30, 2014, by a joint motion after the parties reached a settlement.  

Environmental Processing Systems v. FPL Farming, No. 12-0905 (Tex. argued Jan. 7, 2014). Many in the industry are closely following FPL, a case involving wastewater-injection wells, as it has the potential to provide additional guidance on subsurface-trespass claims in Texas. There are a number of important considerations in FPL:

  • What proof will be required to prove injury, if any?
  • What is the extent of an owner’s subsurface property rights to water at various depths?
  • Will the holding be limited to Class I injection wells (those not associated with oil and gas production)?
  • If trespass is cognizable in this case, will the opinion distinguish field saltwater-injection wells from other injection operations such as in waterflood/tertiary recovery injection?

Lightning Oil Co. v. Anadarko E&P Onshore, LLC, No. 04-14-00152-CV (Tex. App.—San Antonio Oct. 29, 2014, no petition h.). In a recent decision, a court was again faced with the issue of off-lease drilling from an adjoining surface site. On October 29, 2014, the San Antonio Court of Appeals ruled that Lightning Oil, an operator and lease owner, was not entitled to a temporary injunction barring Anadarko, an operator on an adjoining lease, from drilling through Lightning’s mineral estate to reach Anadarko’s mineral estate.

Conclusion
The Shale Revolution has truly taken hold in Texas. Crude-oil production has been on an upward trend since 2011 and has surpassed levels that have not been seen since the early 1980s. As the subsurface becomes more crowded and operations increase, subsurface trespass cases are likely to continue. There are also other related issues, such as ownership of earth around minerals (pore-space ownership) and subsurface easements, which are important to consider. Many issues of subsurface trespass still remain to be resolved, and, as discussed above, there are some important cases to watch.

 

Keywords: energy litigation, subsurface drilling, Shale Revolution, oil and gas, fracking, hydraulic fracturing

 

Donald Jackson is a partner at Haynes and Boone in Houston, Texas.


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