CHAPTER 2 GEOPHYSICAL "TRESPASS" IN LIGHT OF MODERN SEISMIC TECHNOLOGY

• Jurisdiction: United States

Basic Oil & Gas Geology And Technology For Lawyers And Other Non-Technical Personnel
(2001)
CHAPTER 2
GEOPHYSICAL "TRESPASS" IN LIGHT OF MODERN SEISMIC TECHNOLOGY ^*
Owen L. Anderson ^**
University of Oklahoma College of Law
Norman, Oklahoma

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The yearly increase in 3D seismic data collection has accelerated to the point that this wonderful new technology has significantly dropped the price per barrel to find oil. It has also resulted in surprising increases in the production of oil from existing fields. Perhaps the solution to the impending push to get more oil to market, faster, will come not from increased exploration success, but from new uses of 3D seismic data that maximize recovery efficiencies from existing oil and gas fields. ¹

I. The Right to Explore Is a Valuable Property Right

II. Causes of Action For Unlawful Exploration

III. Ownership of the Right to Explore

A. Severed Mineral Interests

B. Surface-Related Exploration

C. Minerals Owned In Cotenancy

D. Minerals Owned In Succession

E. Mineral Ownership Divided By Depth

F. Mineral Ownership Divided By Substance

G. Minerals Under Lease or Other Agreement

H. The Exploration of Adjacent & Nearby Tracts—(With a Brief Digression on Aerial Surveying)

1. The Basic Problem

2. Assumpsit

3. Loss of Speculative Value

4. Trade Secrets

5. The Related Problem of Aerial Surveys

6. Misappropriation

7. My "Modest Proposal"

IV. Measure of Damages For Actionable Geophysical "Trespass"

V. Surface-Use Limitations on the Right to Explore

VI. Conclusion

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Although one might adequately describe a three-dimensional object by studying a series of two-dimensional photographs taken from every conceivable angle, studying the object in its three dimensions both externally and internally would be infinitely more accurate and more informative than hundreds of two dimensional photographs. This is the essential difference between conventional 2D seismic and modern 3D seismic. Because of this difference, 3D seismic has revolutionized the petroleum industry during the past 25 years. Presently, 3D seismic operators comprise a multimillion-dollar industry that uses this technology both offshore and onshore in a variety of regions worldwide for both exploration and development. Indeed, 3D seismic promises to become the exclusive seismic tool for future field development, allowing the ability to image snapshots of the extent and movement of reservoir fluids through time (sometimes called 4D seismic).

Not surprisingly, as the use of 3D seismic technology expands and becomes routine within the petroleum industry, the potential legal ramifications of 3D seismic become increasingly important. One of the more troublesome issues, geophysical trespass, a thorny issue with conventional 2D seismic operations, becomes even more complicated with 3D seismic operations.

The fundamental legal concern for a geophysical operator is to obtain permission from the owner of the exploration right to avoid what is commonly called "geophysical trespass." Proper permitting minimizes the possibility that a geophysical operator will be sued for trespass or a related tort.² Although this basic concern is the same for all seismic

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operations, the concern is quantitatively larger for 3D operations than for conventional operations. This greater concern arises because 3D survey operations usually cover larger land areas, require more intense surface use, may target tracts that are not actually used and occupied by the geophysical operator; and may use and occupy tracts that are not included in the targeted acreage. Moreover, because 3D seismic is often regarded as highly reliable, favorable information can be very valuable to those who have it, and unfavorable information can greatly lower the speculative value of "wildcat" acreage. Thus, if a tort is committed, a geophysical trespasser and its principals may be liable for potentially large direct and consequential damages.³

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Geophysical operations conducted without permission from the "owner" of either occupied or targeted acreage raises several fundamental issues, including: Will the law recognize and protect the right to explore as a valuable property right? If so, what possible causes of action are available to protect this right? Who owns the right to explore? What if the targeted property is owned in cotenancy or in succession? What if the mineral ownership has been horizontally divided? What if the mineral ownership is divided by substance? What if the property is subject to an oil and gas lease or other agreement? Can the surface of one tract be used to secure subsurface information from another tract? These questions are briefly addressed in the following subsections.

I. The Right to Explore Is a Valuable Property Right

Fundamentally, the right to conduct geophysical operations is a valuable property right that the law will protect against trespass and related torts.⁴ This is true regardless of the oil and gas "ownership theory" recognized in a particular state.⁵ The right to conduct geophysical operations is traditionally secured by obtaining permission from an "owner" of the right to explore.

Permission may take several forms, including: a "prospecting" permit, a prospecting permit coupled with an option to acquire an oil and gas lease, or an oil and gas lease.⁶ In the case of a prospecting permit, used most commonly by a geophysical operator doing a "speculative survey"⁷ for subsequent licensing to oil and gas companies, the operator is given a fixed period of time to engage in geophysical operations. An owner of the right to explore might be paid nothing, paid a flat or per-acre sum of money, paid according to the operations on the subject property,⁸ paid by the acreage explored, or paid on some other basis. A prospecting permit coupled with a lease option may be used where a geophysical operator is performing a seismic survey for an oil and gas company that is not ready to acquire leases. Here, the form of payment is likely to include an up-front

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payment for the lease option and an additional bonus if a lease is taken.⁹ In the case of an oil and gas lease, the lessee will generally have the implied or expressed right, but not necessarily the exclusive right, to explore the leased premises through the use of geophysical or other methods. In return, the lessor will be paid a bonus and probably annual rentals for the primary term of the lease.

II. Causes of Action For Unlawful Exploration

Depending on the specific facts and circumstances, an owner of the right to explore may have several causes of action against a party who conducts geophysical operations without permission. These include trespass, assumpsit, loss of speculative value, interference with the right to contract regarding exploration, invasion of privacy,¹⁰ unlawful acquisition of a trade secret, and misappropriation. Thus, an "owner" who has suffered unlawful geophysical operations will have a choice of tort¹¹ remedies in the courts where the wrongful survey occurred.¹² The choice of remedy will turn on the nature and circumstances of the plaintiff's injury and on the cause of action that, on balance, offers the best chance for recovery and the most lucrative damage award.¹³

If suit is brought for trespass arising from an unlawful entry, the plaintiff will ordinarily recover for any injury to the land and to any improvements on the land, including timber and water.¹⁴ Often, however, the owner of the right to explore will elect

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to waive the trespass and bring suit in assumpsit for the value of the exploration right that was wrongfully exercised.¹⁵ An action for recovery of the value of the exploration right may be possible even if an action in trespass is barred, such as where no physical entry occurred.¹⁶

In an action to recover damages for the value of the exploration right (or similar damages), an issue can arise regarding the type of "contract" the parties would have negotiated: a bare exploration permit,¹⁷ a permit to explore coupled with a lease option,¹⁸ or an oil and gas lease.¹⁹ This dispute also involves the amount of acreage such a permit or lease would likely cover—the mineral owner's full acreage in the area, only the actual acreage explored, or some amount in between.²⁰

Today, one would ordinarily expect a mineral owner to seek damages measured by the oil and gas lease bonus typically paid for acreage typically leased because a lease is probably the most common arrangement negotiated with a mineral owner for the exercise of the exploration right.²¹ The lack of any actual physical damage to the property at issue, the defendant's willing disclosure to the plaintiff of any information acquired, and the defendant's nondisclosure of the information to third parties may serve to limit

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the recovery of other damages.²² On the other hand, the failure to complete a survey or the failure to secure useful or valuable information in the course of a wrongful survey will not serve to eliminate damages.²³ If a "trespassing" geophysical operator disseminates unfavorable information, the rightful owner may recover for the loss of speculative value or for interference with the right to contract regarding exploration.²⁴ In this case, recovery is usually based upon any resulting depreciation in the value of the oil and gas interest.²⁵ In the case of an international wrongful exploration, a court might award damages for mental anguish²⁶ an even exemplary damages.²⁷ However, courts have rejected liability on the ground of conversion, which would, in the proper case, allow

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damages based upon the value of the information to the defendant.²⁸ My views regarding the proper measures of damages are discussed in section IV, below.

III. Ownership of the Right to Explore

Who owns the right to explore? The answer to this basic question turns on many variables...