TEXAS COURTS CONTINUE TO SIDESTEP ISSUE IN RULINGS

MARK A. MATHEWS, BAKER DONELSON, HOUSTON

SINCE THE FIRST RULING in Environmental Processing Systems LC v. FPL Farming Ltd., 353 S.W. 3d 306 (Tex. 2011), many landowners and energy companies followed this case in anticipation that the Texas Supreme Court would once and for all determine whether or not there exists a common law action for trespass for deep subsurface water migration. Unfortunately, in February of this year the Texas Supreme Court in Environmental Processing Systems LC v. FPL Farming Ltd., 58 Tex. Sup. J. 293, (Tex. 2015) kicked the can down the road by deciding the case in favor of Environmental Processing Systems, but on other grounds.

The court specifically stated that the decision was rendered "… without the need to decide whether Texas law recognizes a trespass cause of action for deep subsurface water migration…" On May 1, 2015, the Texas Supreme Court denied a rehearing of its ruling thus rendering the decision final.

%{[ data-embed-type="image" data-embed-id="5d086d96f6d5f267eec876c0" data-embed-element="aside" data-embed-align="right" data-embed-alt="1506ogfjmat P01" data-embed-src="https://img.ogj.com/files/base/ebm/ogj/image/2018/08/1506ogfjmat_p01.png?auto=format&h=640&w=640" data-embed-caption="" ]}%

State capitol building in Austin, Texas.
© F11photo | Dreamstime.com

Although the Texas courts have recognized common law trespass actions since the days of the Republic of Texas, the common law relating to the subsurface trespass of fluids has developed as a result of the oil and gas industry. The oil and gas industry in Texas has a long history concerning the injection and or migration of fluids in the subsurface strata. In fact, the first permit by the Texas Railroad Commission to inject water in a productive reservoir was issued in 1936. The RRC maintains exclusive authority over oil and gas exploration and production in Texas, which is authorized pursuant to the Texas Natural Resources Code and the Texas Water Code.

The RRC has authority over Class II injection wells, which includes wells used to dispose of "oil and gas waste" (including salt water and other produced fluids), in the enhanced recovery of oil and gas and in underground hydrocarbon storage. The Texas Commission on Environmental Quality has regulatory authority over Class I wells that typically inject for disposal purposes non-hazardous industrial waste (including certain oil and gas waste products). Although there is a distinction between Class I and Class II wells (the Environmental Processing case involved a Class I disposal well), the elements for the underlying cause of action of a subsurface trespass would be the same.

The Texas courts have addressed the subsurface trespass issue in other contexts relating to the oil and gas industry. In Railroad Commission of Texas v Manziel, 361 S.W. 2d (Tex. 1962), the Texas Supreme Court addressed a subsurface trespass relating to a waterflood located in the Vickie Lynn Field in Marion County, Texas. The adjacent mineral owners brought an action to enjoin waterflooding in a portion of the Vickie Lynn Field. In this case, the court concluded that when the RRC authorizes a secondary recovery operation (i.e. a waterflood), "a trespass does not occur when the injection of secondary recovery fluids cross lease lines…" However the court did not address what liability, if any, an oil and gas operator may have if the injection of fluids caused actual damages to the adjacent property beyond the waterflood. The court merely addressed the issue involving an authorized waterflood.

More recently, in Coastal Oil and Gas Corp. v. Garza Energy Trust, 268 S.W. 3d 1 (Tex. 2008), the court determined whether hydraulic fracturing constituted a subsurface trespass. The royalty owners of adjacent property complained that Coastal, by fracking wells on adjacent lands, allowed substantial drainage of their hydrocarbons to occur. In this case, the Texas Supreme Court sidestepped the subsurface trespass issue by invoking the rule of capture.

The court's decision involved multiple policy considerations, but ultimately held that an "actionable trespass requires injury" and that the application of the rule of capture prevented any claims based on fracking activity that caused drainage. Yet again, the court did not close the door on subsurface trespass. The court did not determine if fracking might constitute a trespass in a non-drainage case if there was an injury to the property. Another distinction of note is that this particular case involved the hydraulic fracturing of a gas well and did not involve either a Class I or Class II injection well.

These three cases demonstrate the applications of a common law subsurface trespass to three distinct subsurface operations utilized in the oil and gas industry. Environmental Processing relating to Class I disposal wells, Manziel relating to Class II enhanced recovery injection wells, and Garza regarding hydraulic fracking in the completion and subsequent production of oil and gas wells.

In light of the positions taken by the Texas Supreme Court in the Environmental Processing, Manziel, and Garza cases, what is considered a subsurface trespass in Texas? It would appear that even though the Texas Supreme Court has left the door slightly ajar with regard to subsurface trespass in each of referenced cases, the burden of proof falls squarely on the plaintiff to prove an actual harm for any such trespass. That may well be a burden that will difficult to prove. Furthermore, is apparent from the tenor of the court's decision in Garza, that the application of public policy issues may override the applicable effects of common law trespass. Moreover, Justice Willett in his concurring opinion in Garza, takes the position that he would have closed the trespass door entirely, providing that subsurface encroachment such as fracking "...simply isn't wrongful and thus isn't a trespass at all…"

What are the practical effects of each of these decisions for the oil and gas industry? It is truly hard to determine as none of the above cases have totally eliminated the threat of litigation relating to a deep subsurface trespass. Certainly it would appear that the court as established a road map, at least for Class I disposal wells, where a plaintiff can prevail if all the elements of a common law trespass are met. Importantly, however, liability will turn on whether the plaintiff can prove actual damages from the deep subsurface trespass.

ABOUT THE AUTHOR

%{[ data-embed-type="image" data-embed-id="5d086d96f6d5f267eec876c2" data-embed-element="aside" data-embed-align="right" data-embed-alt="1506ogfjmat A01" data-embed-src="https://img.ogj.com/files/base/ebm/ogj/image/2018/08/1506ogfjmat_a01.png?auto=format&h=640&w=640" data-embed-caption="" ]}%

Mark Mathews is a shareholder in Baker Donelson's Houston office. He has over 25 years' experience in the oil and gas industry, which includes six years as a land professional with a major independent exploration and production company prior to obtaining his law degree. He has extensive experience in transactional and litigation matters relating to the energy industry, both onshore and offshore.

Subsurface trespass

In order to access this content, you must be logged-in and have an active subscription to the OGJ Premium Archive