Subsurface Trespass and Lateral Rights - PowerPoint Presentation

Subsurface Trespass and Lateral Rights HBA Oil, Gas & Mineral Law Section May 23, 2019 Monika U. Ehrman Associate Professor of Law Faculty Director, Oil & Gas, Natural Resources, and Energy Center

Overview Review of subsurface trespass Case law history in Texas Nature of estates Lightning Oil v. Anadarko Challenges and questions Surface owner Adjacent mineral interest owner/lessee Conclusions

Subsurface operations

Ad coelum doctrine Cujus est solum eius est usque ad coelum et ad inferas . He who owns the soil owns everything above and below, from heaven to the depths of the earth.

Subsurface trespass Trespass elements 1. Unauthorized 2. Entry upon land of another Enters or causes a thing to enter No damage requirement Trespass is a possessory action Plaintiff must prove possession Ownership or possessory interest in land May be done in good faith or bad faith

Subsurface trespass Rule of capture revisited Slant well trespass Horizontal well trespass Geophysical/Seismic trespass Hydraulic fracturing trespass Migrating injected wastewater

Subsurface trespass? Blackacre Whiteacre

Subsurface trespass? Blackacre Whiteacre

Subsurface trespass? Blackacre Whiteacre

Subsurface trespass? Blackacre Whiteacre

Subsurface trespass? Blackacre Whiteacre

Subsurface trespass? Blackacre Whiteacre

Subsurface trespass? SI: Briscoe Ranch MI: Lightning SI: Chaparral Wildlife Mgmt Area MI: Anadarko

Texas case law Humble Oil & Ref. Co. v. L & G Oil Co. , 259 S.W.2d 933, 934–38 (Tex. Civ. App.—Austin 1953, writ ref’d n.r.e . Denying challenge to RRC authority to grant a deviated-well permit to allow mineral lessee that leased minerals under a railroad ROW but also could not access those minerals from the right-of-way, to drill a well from the surface estate it owned despite objection from the subjacent mineral owner

Texas case law Chevron Oil Co. v. Howell , 407 S.W.2d 525, 526–28 (Tex. Civ. App.—Dallas 1966, writ ref’d n.r.e .) Permission of surface owner insufficient to afford Chevron right to drill through the subsurface, absent permission of the mineral owner and when the surface was leased to another party who was also non-consenting

Texas case law FPL Farming Ltd. v. Envtl . Processing Sys. , L.C., 351 S.W.3d 306, 313–14 (Tex. 2011) Left open possibility of trespass by means of migratory wastewater Envtl . Processing Sys., L.C. v. FPL Farming Ltd. , 457 S.W.3d 414, 424 (Tex. 2015) The owner of realty generally “has the right to exclude all others from use of the property.”

Nature of estates Mineral interest = dominant estate Bundle of sticks When the owner of a fee simple estate severs the mineral estate by a conveyance, five rights are conveyed to the transferee or grantee: “(1) the right to develop, (2) the right to lease, (3) the right to receive bonus payments, (4) the right to receive delay rentals, and (5) the right to receive royalty payments.” Hysaw v. Dawkins , 483 S.W.3d 1, 9 (Tex. 2016).

Nature of estates Surface interest Servient estate Accommodation doctrine. Getty Oil Co. v. Jones , 470 S.W.2d 618 (Tex. 1971). Leasehold interest Fee simple determinable Right to develop Ownership-in-place v. right-to-take Texas follows ownership in place

Accommodation doctrine “[W]here there is an existing use by the surface owner which would otherwise be precluded or impaired, and where under the established practices in the industry there are alternatives available to the lessee whereby the minerals can be recovered, the rules of reasonable usage of the surface may require the adoption of an alternative by the lessee.” -- Getty Oil Co. v. Jones

Lightning Oil v. Anadarko

Lightning Oil v. Anadarko Cutlass lease severed mineral estate under portion of Briscoe Ranch Leased by Lightning in 2009 Anadarko (APC) leased mineral estate under Chaparral Wildlife Management Area (CWMA), adjacent to surface estate (Briscoe Ranch) overlying Cutlass lease CWMA controlled by Texas Parks and Wildlife Department

Lightning Oil v. Anadarko CWMA lease contained drilling restrictions: “Drilling locations will be established off the Chaparral . . . when prudent and feasible. Any drilling site locations on the [Chaparral] must be planned and authorized by [TPWD’s Chaparral area] manager.” APC negotiated Surface Use & Subsurface Easement Agreement with Briscoe after Lightning sued for TRO & injunction

Lightning Oil v. Anadarko Source: John McFarland

Lightning Oil v. Anadarko Lightning sued for injunction to prevent APC from siting wells on Briscoe Ranch and from drilling through Cutlass Lease Lightning argues: Leaseholder can exclude others from drilling APC may be conducting seismic while drilling APC argues: Only requires surface estate owner permission Surface estate owner controls subterranean structures

Lightning Oil v. Anadarko Trial: 365th Judicial Dist. Dimmit County Cross motions for summary judgment filed Traditional & No Evidence Court granted APC Motion for Partial Summary Judgment Denied Lightning’s motions Severed rulings for appeal (Rule 11)

Lightning Oil v. Anadarko Court of Appeals (San Antonio) Affirmed trial court judgment Plaintiff lessee had no right to exclude others from subsurface Surface estate owner “controls the earth beneath the surface estate” & “may grant Anadarko permission to site a well on its ranch, drill down through the earth within the boundaries of the Cutlass Lease, and directionally alter its wellbore into the [Chaparral].”

Lightning Oil v. Anadarko Supreme Court of Texas Loss of minerals insufficient injury for trespass Lightning has no right to prevent surface or subsurface use that might later interfere with plans Adjacent mineral estate lessee’s activities relating to drilling wells to adjacent property were a surface use for accommodation doctrine purposes Deed did not preclude surface estate owner from authorizing drilling from surface

Surface estate owner Surface overlying a leased mineral estate is the surface owner’s property, and those ownership rights include the geological structures beneath the surface. Surface owner, and not the mineral owner, “owns all non-mineral ‘molecules’ of the land, i.e., the mass that undergirds the surface” estate Mineral estate owner only entitled to “a fair chance to recover the oil and gas in place or under” the surface estate

Adjacent Owner/Lessee Do mineral owners have the right to prevent surface owners & their licensees from drilling through subsurface areas containing minerals and extracting some of those minerals during drilling operations? Court holds speculation of harm/injury not enough for injunctive relief Conservation rules apply to APC Accommodation doctrine applies

Adjacent Owner/Lessee Lightning  Rule of capture applies to production, but does not apply to extraction of minerals via drilling S.Ct .  “[W]e weigh ‘the interests of society and the interest of the oil and gas industry as a whole against the interest of the individual operator.’” Lightning will lose only small amount Horizontal wells are efficient Prevents waste

Developing Owner/Lessee Execution of easement allowed APC to partake in limited surface owner status Anadarko’s status as it relates to Lightning is derived from the bargain it made with the Ranch’s surface owners, not its status as adjacent mineral lessee Accommodation doctrine is therefore appropriate

Challenges and questions Deed drafting and exceptions? Certainty of title? Practical engineering/development? What happened to contracts?

Challenges and questions What happened to contracts? 1. Easement 2. Right of way 3. JOA 4. PSA

Conclusions Oil and gas lessee should obtain subsurface easement from owner of “subterranean estate” Conveyances of the severed fee estate should be carefully drafted Correlative rights still matter Porous space ownership

Conclusions Subterranean structure supportive of Professor Ernest Smith’s view of allocation wells Accommodation doctrine for the mineral estate? Compare with extending Rule of Capture and altering scope of mineral or leasehold estate Surface/Mineral accommodation doctrine gamesmanship may occur

Contact information Monika U. Ehrman Associate Professor of Law Faculty Director, Oil & Gas, Natural Resources, and Energy Center The University of Oklahoma College of Law mehrman@ou.edu (405) 325-3747 @ oilgaslawprof http:// law.ou.edu / onecenter