CHAPTER 7 TRESPASS ISSUES IN A SHALE PLAY

• Jurisdiction: United States

Development Issues in the Major Shale Plays
(Dec 2010)
CHAPTER 7
TRESPASS ISSUES IN A SHALE PLAY
David E. Pierce
Professor of Law
Washburn University
School of Law
Topeka, Kansas
Bruce M. Kramer
Of Counsel, McGinnis, Lochridge & Kilgore, L.L.P.
Special Advisor, Steptoe & Johnson PLLC
Houston, Texas

DAVID E. PIERCE is a Professor of Law at Washburn University School of Law where he teaches Oil and Gas Law, Advanced Oil and Gas Law, Energy Law, Contracts, and Hazardous Waste Regulation. Prior to entering law teaching, Professor Pierce was an oil and gas attorney for Shell Oil Company in Houston, Texas and a Research Fellow at the University of Utah's Energy Law Center in Salt Lake City, Utah. Prior to that he practiced law in Kansas. Professor Pierce holds a B.A. degree from Kansas State College of Pittsburg, a J.D. from Washburn University School of Law, and an LL.M. (Energy Law) from the University of Utah College of Law. Professor Pierce is a member of the American Law Institute. Professor Pierce is a co-author of Cases and Materials on Oil and Gas Law (West 4th ed. 2002) (with Professors John S. Lowe, Owen L. Anderson, and Ernest E. Smith), an upkeep/revisions co-author for Kuntz on the Law of Oil and Gas (Anderson 1998) (with Professors John S. Lowe, Owen L. Anderson, and Ernest E. Smith), and the author of the Kansas Oil and Gas Handbook (KBA 1986).

BRUCE M. KRAMER received a B.A. in International Relations from UCLA, a J.D. from the UCLA School of Law, and an L.L.M. in Environmental and Natural Resources Law from the University of Illinois College of Law. He is Maddox Professor of Law Emeritus, Texas Tech University School of Law, Lubbock, Texas and Of Counsel, McGinnis, Lochridge & Kilgore, Houston, Texas. Professor Kramer is the co-author of The Law and Pooling and Unitization (3d ed.), Williams and Meyers Oil and Gas Law (since 1996, Cases and Materials on Oil and Gas Law (6th and 7th eds.) and International Petroleum Transactions. He is the author of numerous law review articles on oil and gas law including "The Sisyphean Task of Interpreting Mineral Deeds and Leases: An Encyclopedia of Canons of Construction and Royalty Interests in the United States: Not Cut From the Same Cloth." He has been an editor of the Oil and Gas Reporter and was recently named the administrative editor of that publication. Professor Kramer is a special advisor to Steptoe & Johnson, PLLC.

CONTENTS

I. INTRODUCTION

II. TRESPASS ANALYSIS USING THE "PROPERTY" SURFACE DIMENSION

A. The Physical Intrusion

B. The Damaging Intrusion

III. TRESPASS ANALYSIS USING THE "REGULATORY" DRILLING WINDOW

IV. SURVEY OF OIL & GAS TRESPASS ISSUES

V. AN ALTERNATIVE ANALYSIS: "CORRELATIVE RIGHTS"

A. Defining What is Meant by "Correlative Rights"

B. Developing a Workable Correlative Rights Analysis for Subsurface Activities

VI. CONCLUSION

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I. INTRODUCTION

Trespass claims in a shale play can occur when activities designed to recover hydrocarbons cross either a property boundary or a designated drilling window established by an oil and gas conservation authority. The first category of trespass claims deals with traditional private boundary lines; the second category deals with regulatory boundary lines created by an oil and gas conservation commission to achieve orderly development that prevents "waste" and protects "correlative rights."

The hydrocarbon recovery activities that give rise to potential trespass claims include the creation of the wellbore and fractures radiating from the wellbore. Because horizontal drilling and formation fracturing are essential to any shale play, every jurisdiction where commercial shale formations are found will, of necessity, have to address these trespass issues at some point in time. This article analyzes existing case law and commentary that assist in defining possible approaches to the trespass issue associated with a shale play.¹ The author also offers his views on how the law

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in this area should evolve to address intra-reservoir development disputes.

II. TRESPASS ANALYSIS USING THE "PROPERTY" SURFACE DIMENSION

The most compelling argument that will be made concerning horizontal drilling and formation fracturing is what I will call the surface dimension argument: "if the activity physically enters the reservoir within my surface boundaries extended downward, a trespass has occurred." This argument relies upon the what I will refer to as the "ad coelum"² concept that an owner of the surface owns all that lies above and below their land, defined by extending the surface boundaries upward and downward. This is the "Heaven and Hell" concept of private ownership which, at least in theory, gives the fee owner a property right in the spatial areas above and below the land itself.

A. The Physical Intrusion

The elegance of a trespass claim is generally unmatched by most legal doctrines. If a physical invasion can be identified, it establishes the foundational element for the tort of trespass. However, the analysis is not so elegant as it first seems because the "tort" of trespass is always dependent upon a "property" analysis. Only after the "property" interests of each party are properly defined can the "tort" analysis take place.³ This gives courts, when they are so inclined, an

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opportunity to manipulate the tort of trespass by defining the nature of the underlying property interest. This was forthrightly acknowledged by Justice Willett in Coastal Oil & Gas Corp. v. Garza Energy Trust⁴ where he commented on the relationship between property rights and the tort of trespass by stating:

To many people, a subsurface intrusion of fissures, fluid, and propant invites a simple application of rudimentary trespass principles. Why not call a tort a tort? Well, we affix that common-law label, and not every technical intrusion, no matter how small, warrants damages, no matter how large. Trespass is a court-defined doctrine, and it falls squarely on this Court's shoulders to decide what is actionable.⁵

Justice Willett indicated how he would address the trespass problem: "I would confront Lord Coke's maxim directly and decide whether land ownership indeed 'extends to the sky above and the earth's center below,' or alternatively, whether that ancient doctrine 'has no place in the modern world.'"⁶ Justices joining in the majority opinion in the Garza case also took aim at Lord Coke's maxim noting he did not "imagine oil wells" and in any event: "The law of trespass need no more be the same two miles below the surface than two miles above."⁷

Analytically, the law of trespass cannot be properly applied until the property interest at issue is clearly defined.⁸ The jurisprudential issue is whether a court will choose to manipulate property law or tort law to achieve its desired outcome. I submit that the jurisprudential adjustments (manipulation) should occur in defining the property interest since trespass is merely a device to protect a defined property interest. If the complaining party lacks the property "stick" necessary to give rise to a trespass claim, then trespass ceases to be an issue. Perhaps the most shocking aspect of the Garza case was the apparent readiness of a majority of the court to give up part of the "stick"

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associated with Lord Coke's maxim.⁹ As it turns out some awkward use of the rule of capture, equally awkward trespass damage analysis, and a trip through the forms of action allowed the court to avoid a direct assault on subsurface ownership concepts in Texas.¹⁰ However, the court has clearly indicated it is open to redefining basic subsurface ownership rights in Texas.

The Supreme Court of Ohio, in 1996, took the step the Texas court only approached in Garza, by expressly limiting the ad coelum concept when applied to "deepwell injection."¹¹ BP had obtained a permit pursuant to state and federal law to inject industrial wastes into a geological formation containing brine located 2,430 feet below the surface.¹² BP was sued by area landowners who asserted that BP's injectant was migrating under their lands; the court ultimately limits its review to the plaintiffs' trespass claim. The court begins its analysis by noting that BP's compliance with its state-issued injection permit would not limit its trespass liability.¹³ The court was also invited to decide the issue applying water law by focusing on ownership of the receiving water. Although it noted that the state owns the water, the court declined to make that fact determinative, merely noting such ownership "underscores that their subsurface ownership rights are limited."¹⁴ Therefore, the court had to address the trespass issue based upon ad coelum concepts. The court began by defining - some would say redefining - the plaintiffs' property interest in the geological formation filled with brine water 2,430 feet below their land.

The court first noted that Ohio, like the federal government, has recognized limitations on ownership of the "Heavens" above land; now it is called upon to address the "Hell" component of the maxim. As the court stated the issue: "ownership rights in today's world are not so clear-cut as they were before the advent of airplanes and injection wells."¹⁵ The court defined the landowner's property in the subsurface geologic structure as follows:

[W]e do not accept appellants' [plaintiffs'] assertion of absolute ownership of everything below the surface of their properties. Just as a property owner must

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accept some limitations on the ownership rights extending above the surface of the property, we find that there are also limitations on property owner's subsurface rights. . . . [A]ppellants' subsurface rights in their properties include the right to exclude invasions of the subsurface property that actually interfere with appellants' reasonable and foreseeable use of the subsurface.¹⁶

Although the court held the plaintiffs failed...