Ruling expected soon in ‘trespass by frac’ case
A lawsuit is pending before the Texas Supreme Court that could determine whether a tort cause of action exists under Texas law for subsurface trespass through hydraulic fracturing. The case is Coastal Oil & Gas Corp. and Coastal Oil & Gas USA LP v. Garza Energy Trust.
A state district court in Hidalgo County sided with the trust and awarded it $10.5 million in actual and punitive damages in the original lawsuit filed in 1997. The 13th Court of Appeals in Corpus Christi upheld the jury’s verdict, saying that the Texas Supreme Court in 1961 recognized a cause of action for subsurface trespass in Gregg v. Delhi-Taylor Co.
Late last year, the Texas Independent Producers and Royalty Owners Association (TIPRO) and the Texas Alliance of Energy Producers filed amicus briefs on the merits of the case on behalf of the original defendants. TIPRO points out that about 80% of gas wells drilled in Texas must be fractured to obtain economical production and that an unreasonable deterrent to fracturing could “cripple the oil and gas industry.”
On Sept. 28, the Texas Supreme Court heard oral arguments in the case and is expected to rule late this year or early in 2007. Coastal’s attorneys are asking the justices to overturn the appellate ruling, saying that this is a claim for drainage and that there is no tort cause of action for drainage in Texas.
Briefly, Coastal was the lessee on Garza-owned property called Share 13 in the mid-1990s. After drilling, completing, and fracturing a dozen wells in Share 13, Coastal drilled, completed, and fractured a tight-sands gas well on neighboring Share 12, which was owned by Coastal.
The trust sued Coastal for trespass, claiming that some of the fractures from Coastal’s Share 12 well extended across the lease line and drained hydrocarbons from Share 13.
TIPRO believes the case should be decided on public policy grounds. The organization points out that Texas law does not recognize a cause for action for subsurface trespass through waterflood and believes these same policy considerations should apply to hydraulic fracturing as well. The reasoning is that secondary recovery by waterflood and recovery by hydraulic fracturing are so important to maximizing ultimate recovery of reserves that, as a matter of public policy, the court should not allow someone to shut down producing wells by suing for trespass.
Upholding the appellate court would place Texas producers at great risk despite the most prudent completion practices, says TIPRO. Elizabeth N. Miller, an attorney representing Costal, told the court that if producers had faced the threat of a claim of trespass by fracture, unconventional but prolific natural gas plays such as the Barnett shale might never have become a reality.
“Fracing should be encouraged and not penalized,” said Miller. “We are past picking the low-hanging fruit in this state. The Barnett shale would not exist but for fracing.”
Her point is well taken. At a time when America needs to fully develop its own energy resources, a ruling in favor of the Garza Energy Trust could have a negative effect on future development of unconventional plays in Texas and elsewhere.