CHAPTER 5 HORIZONTAL DRILLING AND TRESPASS: A CHALLENGE TO THE NORMS OF PROPERTY AND TORT LAW

• Jurisdiction: United States

Horizontal Oil & Gas Development
(Nov 2012)
CHAPTER 5
HORIZONTAL DRILLING AND TRESPASS: A CHALLENGE TO THE NORMS OF PROPERTY AND TORT LAW
Bruce M. Kramer
Of Counsel, McGinnis, Lochridge & Kilgore LLP
Houston, Texas
Maddox Professor of Law Emeritus
Texas Tech University School of Law

BRUCE M. KRAMER, a long-time professor at Texas Tech University School of Law, is a preeminent oil, gas, energy, and land use legal scholar. He is currently of counsel to McGinnis, Lochridge and Kilgore with offices in Austin and Houston, TX. He is the co-author of several important books that have become the definitive references for energy lawyers, including two multi-volume treatises, The Law of Pooling and Unitization and Williams and Meyers Oil and Gas Law (since 1996), as well as the last three editions of the Williams and Meyers Manual of Oil and Gas Terms. Bruce also is an authority on land use, zoning, and the conflicts that arise between mineral property owners. Among his many accomplishments, Bruce's books and legal articles have been cited as authority in numerous court rulings and appellate opinions, including decisions of the Supreme Courts of Texas, Alaska, Louisiana, Montana, New Mexico, and North Dakota; the United States Court of Appeals for the Fifth Circuit; the United States Court of Appeals for the Tenth Circuit; and numerous Federal District Courts. Bruce has prepared papers and spoken at more than 80 continuing education programs for lawyers and other professionals in the oil and gas and real estate/land use industries.

I. INTRODUCTION

This paper will explore the interplay or interphase between common law property and tort concepts as they apply to surface and subsurface trespass claims and the technological developments in horizontal drilling techniques that are in widespread use in the various shale plays throughout the United States. As used in this paper, the term trespass relates to the unauthorized or unprivileged entry into or onto an interest in real property owned by another.¹ It is one of several different causes of action that may be brought by those parties who believe that an interest in real property has been damaged through the actions of another.² The paper will also explore the relationship between the trespass issues and the ownership of pore space and/or ownership of strata concepts that have received renewed attention due to the interest in carbon sequestration that has developed over the past several decades. Settling the ownership

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issue, however, may not resolve the underlying issue of who has the power to consent to, or veto, attempts to use the subsurface for the location of a wellbore outside of the correlative interval/producing formation. The severance of the mineral and surface estates which is commonplace in jurisdictions that have substantial oil and gas development complicates the trespass question because of the sometime unclear demarcation of rights between those severed estates. As always, I am indebted to the many scholars and authors who have preceded me in this endeavor.³ The literature on these issues has mushroomed in the past 20 years. As such, rather than provide a lengthy footnote I will include a bibliography in Section X at the end of this paper.

II. HORIZONTAL DRILLING FOR DUMMIES

Normally a horizontal well can be broken down into three operational segments: the vertical section, the build section and the lateral section.⁴ The vertical section is drilled as any vertical well would be depending on the depth and the type of rock that will be encountered. Prior to drilling the engineers will have determined the depth at which the "Kick-Off Point" is reached. The kick-off point is the depth at which the vertical drilling rig will be replaced by a horizontal drilling rig. Reaching the kick-off point leads to the build section of a horizontal well. The build section entails the building of the angle from zero degrees to around ninety degrees at the end of the build section. The subsurface tools needed to conduct the build operation segment include the drill bit, the mud motor, bent subs and the "MWD" or measurement while drilling devices. In drilling the build section, bit rotation is not provided by the drill string as in

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the vertical section but by a mud motor through a series of impellers that are displaced as drilling fluid is pumped down the drill string. Bent subs are then used to provide angle and are usually applied just above the mud motor. During the build section operations a MWD or measurement while drilling device will be used to provide the directional measurements necessary to steer the mud motor and bit along the proper azimuth. The operation of the motors to achieve the desired inclination is controlled from the surface. The build section operations are continued until the inclination of the bit is at or near 90 degrees or the intended production formation is reached. The last operational segment is the lateral section. The same equipment used in the build section is used in the lateral section although the bent subs employed are bent less severely. A MWD is employed to continuously monitor the angle and length of the horizontal well bore. The length will be determined by the formation being drilled, whether or not the horizontal well bore has to make "doglegs," and appropriate spacing rules. It is not uncommon for laterals to be 3000-12,000 feet in length.⁵ The path of the horizontal lateral is called its azimuth. An azimuth is "the direction in which a deviated or horizontal well is drilled relative to magnetic north."⁶

III. OWNERSHIP OF THE PORE SPACE

While the issue of who owns the pore space or "rock" after a severance has received renewed attention in the past two decades triggered by a number of factors including hydraulic fracturing, horizontal drilling and carbon sequestration, Professors Williams and Meyers noted that there is a suggestion in a number of cases that courts treat the severed oil and gas owner as owning the "rock" wherein the hydrocarbons are located.⁷ One of the earliest cases separating out the concept of owning the fugitive oil and gas and the "rock" where the oil and gas

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is trapped is Gray-Mellon Oil Co. v. Fairchild.⁸ In describing the nature of the ownership of oil and gas that has been severed by a mineral deed, the court says:

Oil and gas in the earth stands much as water percolating under the earth. The owner in fee owns to the center of the earth. But he does not own a specific cubic foot of water, oil, or gas under the earth until he reduces it to possession. . . While the oil is fugitive, the sand bearing oil is as stationary as a bank of coal. The only practical use to which the oil-bearing sand can be put is to get the oil out of it. The exclusive, permanent right to get the oil from the sand is necessarily a right to a part of the land, for to use the sand in any other way would be to destroy the right to extract the oil from it, as the sand must be allowed to remain as it is for the oil to flow through it.⁹

The court is concerned that if the ownership of the "rock" and the ownership of the oil and gas are separate, that would essentially deprive the owner of the oil and gas the opportunity to produce the oil and gas. This paragraph from Gray-Mellon quote above is cited with approval in Jilek v. Chicago, Wilmington & Franklin Coal Co.,¹⁰ a decision of the Illinois Supreme Court. Jilek, however, is dealing with the issue of whether or not one can sever the mineral estate from the surface estate, a more generic question that all jurisdictions answer in the affirmative.

Gray-Mellon also provides support for the position that since the mineral estate owner owns the pore space and/or the "rock" even after the native hydrocarbons have been developed, hydrocarbons that migrate into that pore space or "rock" will belong to the mineral owner and not the party that may have injected the natural gas into the formation for storage purposes.¹¹ An early Kansas ad valorem taxation case while mentioning the ownership of the stratum suggests that it may be possible to separate out the ownership of the hydrocarbons

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from the pore space or "rock." The following language may be read to allow such a severance although it merely may be just confirming the general view that oil and gas may be severed from the surface estate:

It has also been determined that, although oil and gas in palce are a part of the realty, the stratum in which they are found is capable of severance, and by an appropriate writing the owner of the land may transfer the stratum containing oil and gas to another. Such party acquired an estate in and title to the stratum of oil and gas, and thereafter it becomes the subject of taxation, incumbrance, or conveyance.¹²

Finally, there is language in United States Steel Corp. v. Hoge,¹³ that supports the concept of owning strata underneath the surface as opposed to owning different types of minerals. Hoge involves the issue of whether coalbed methane is owned by the oil and gas owner or the coal owner. By finding that the coal owner also owns the CBM physically located within the coal, the court is implying that the coal owner owns the entire strata where the coal seam is located, including any non-coal minerals located therein.

There is no simple answer to the question of who owns the pore space or the "rock" after there has been a severance. Professor Anderson believes that, at least in Texas, the view appears to give the surface owner such ownership rights.¹⁴ The Williams and Meyers treatise posits a contrary position, at least when it comes to the underground storage of gas, namely that the severed surface owner should not be entitled to compensation in any eminent domain action, nor should the surface owner's consent be required before the gas is stored.¹⁵ Analogizing to the ownership of the pore space is a predicate to answering the...