HYDRAULIC FRACTURING AS A SUBSURFACE TRESPASS: WILL TEXAS PRECEDENT LEAD THE WAY?

• Jurisdiction: United States

49 Rocky Mt. Min. L. Fdn. J. 19 (2012)
Chapter 1
HYDRAULIC FRACTURING AS A SUBSURFACE TRESPASS: WILL TEXAS PRECEDENT LEAD THE WAY?
Barclay R. Nicholson
Barclay Nicholson
Fulbright & Jaworski, LLP
Houston, TX 77010
Copyright © 2012 by Rocky Mountain Mineral Law Foundation; Barclay R. Nicholson

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As hydraulic fracturing activities continue to rise, the number of lawsuits attacking the process increases. Most of the lawsuits to date have focused on the potential health risks of hydraulic fracturing, mainly involving claims that fracturing fluid chemicals pollute water supplies. Another emerging issue of growing importance is whether hydraulic fracturing activities can, or should, lead to actionable subsurface trespass claims.

Texas has a significant line of relevant precedent, and two recent Texas cases, especially the seminal case of Coastal Oil & Gas Corp. v. Garza Energy Trust¹ which addresses subsurface trespass as it relates to hydraulic fracturing, have developed the issue. However, Texas is alone; while other states have considered subsurface trespass claims arising from activities related to secondary recovery operations and wastewater injections, none has issued a decision addressing subsurface trespass as it relates to hydraulic fracturing. With the growing importance and presence of hydraulic fracturing, an increasing number of states' courts will confront the issue, and they are sure to look to the Texas Supreme Court's struggle with it for guidance.

The Texas Supreme Court and Subsurface Trespass

The Texas Supreme Court has decided a handful of cases dealing with subsurface trespass claims over the years. Only one of those cases, Garza, presents subsurface trespass as it relates specifically to hydraulic fracturing. But the holdings of each of these cases, together with the Garza concurrence and dissent, provide valuable insight to the competing interests involved in this important issue.

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Gregg

In the 1961 Gregg v. Delhi-Taylor Oil Corp. case,² the Texas Supreme Court considered not whether hydraulic fractures that cross lease lines were subject to trespass law, but instead whether that very question was one for the courts to decide, or for the Texas Railroad Commission (RRC), the state's regulatory agency for oil and gas. The plaintiff, Delhi-Taylor Oil Corp., owned the mineral estates in land surrounding the defendant's lease.³ The defendant, Gregg, planned on hydraulically fracturing a common formation beyond his own property lines and into Delhi-Taylor's lease. Delhi-Taylor filed suit to enjoin Gregg from fracturing, alleging that it would be a subsurface trespass.⁴ The trial court, without hearing evidence, dismissed the complaint on the ground that the RRC had primary jurisdiction.⁵ The appellate court reversed and remanded, ordering the case to be reinstated for trial.⁶ The Texas Supreme Court granted an application for a writ of error, and affirmed the appellate court, holding that such a decision was in the purview of the courts, as the issue was "one inherently judicial in nature" and the Legislature had not "explicitly granted exclusive jurisdiction to the administrative body.⁷ In dicta, the Court suggested that hydraulic fractures should be considered similarly to a deviated drilling bit: as a result of fracturing, the well "would be, for practical purposes, extended to and partially completed in" another's land, and, "while the drilling bit ... is not alleged to have extended into" another's land, "the same result is reached if in fact the cracks or veins extend into its land and gas is produced therefrom."⁸

Manziel

In the 1962 Railroad Commission of Texas v. Manziel case,⁹ the plaintiff landowners, the Manziels, sought to set aside and cancel an order of the RRC permitting the defendants to drill and inject water in their well as part of a secondary recovery operation. The defendants' tract adjoined the Manziels', and the Manziels claimed that the subsurface injection of water into the defendants' tract constituted a trespass that would damage their producing wells and result in loss and injury to their oil and gas interest due to premature flooding.¹⁰ The trial court entered a judgment cancelling the order and enjoining the defendants from injecting the water.¹¹

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The judgment was appealed directly to the Texas Supreme Court.¹²

In considering the trespass claim, the Texas Supreme Court examined cases "covering almost every aspect of the oil and gas industry" where the plaintiff claimed damage to or encroachment on a subsurface estate.¹³ The Court found only one situation in which an injunction was granted on a trespass theory: when there is a continuing, physical invasion by drilling across lease lines.¹⁴ Almost the entirety of the remaining cases involved questions of liability for negligence.¹⁵ The Court looked to the Gregg case in considering whether "injected water that crosses lease lines from an authorized secondary project [is] the type of 'thing' that may be said to render the adjoining operator guilty of trespass."¹⁶

The Court then considered the societal and industry interests involved and noted that secondary recovery operations should be encouraged. The Court held that when the RRC "authorizes secondary recovery projects, a trespass does not occur when the injected, secondary recovery forces move across lease lines, and the operations are not subject to an injunction on that basis."¹⁷ The Court was careful to point out, however, that it was not addressing whether such authorization "throws a protective cloak around the injecting operator who might otherwise be subjected to the risks of liability of actual damages to the adjoining property."¹⁸

Geo Viking

In the 1992 case Geo Viking, Inc. v. Tex-Lee Operating Co.,¹⁹ Tex-Lee Operating Company had hired Geo Viking to hydraulically fracture a well with sand, commonly called "sand fracing," and Geo Viking failed to adequately perform the task. Had the job been performed properly, there was evidence that Tex-Lee would have been able to capture an increased amount of oil and gas, including minerals from a neighboring tract.²⁰ At trial, Geo Viking requested that the jury be instructed that it should not consider the value of oil and gas outside of Tex-Lee's tract that may have been recovered by an adequate fracturing job.²¹ The trial court refused the instruction, and Geo Viking appealed, arguing that without this instruction, "the jury was free to consider as part of its estimate of damages the value of production that Tex-Lee had no legal right to recover."²²

The court of appeals determined that such an argument was in

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direct opposition to the rule of capture, and that an injured landowner's remedy is generally self-help.²³ But the Texas Supreme Court, in a per curiam opinion issued April 22, 1992, held otherwise, noting that, although minerals can be drained legitimately under the rule of capture, the owner "is accorded the usual remedies against trespassers who appropriate the minerals or destroy their market value."²⁴ Additionally, the Court cited dicta from Gregg in stating that "fracing under the surface of another's land constitutes a subsurface trespass."²⁵ As a result, the rule of capture "would not permit Tex-Lee to recover for a loss of oil and gas that might have been produced as the result of fracing beyond the boundaries of the tract."²⁶

However, barely six months later, the Court issued another per curiam opinion withdrawing both its initial Geo Viking opinion and its granting of the application for writ of error, stating that it "was improvidently granted."²⁷ The Court further stated that, in denying the application for writ of error, it "should not be understood as approving or disapproving the opinions of the court of appeals analyzing the rule of capture or trespass as they apply to hydraulic fracturing."²⁸

Garza

In the 2006 case Garza, the plaintiff, Salinas, leased the mineral rights in a 748-acre tract of land to Coastal Oil & Gas Corp.²⁹ Coastal also owned the mineral estate in an adjacent tract, and engaged in hydraulic fracturing on both tracts. Salinas asserted, among other things, a claim of trespass against Coastal, alleging that Coastal's fracturing on the adjacent tract invaded the reservoir below Salinas's tract, causing damage in the form of substantial drainage of gas from Salinas's property to the adjacent tract.³⁰ At trial, the jury found, among other things, that Coastal's hydraulic fracturing trespassed on Salinas's property, causing substantial drainage in the amount of $1 million.³¹ The jury also found that Coastal acted with malice and appropriated Salinas's property unlawfully, and assessed $10 million in punitive damages.³² The court of appeals affirmed these findings, and Coastal appealed.³³

The Supreme Court of Texas considered the Gregg, Manziel, and Geo Viking cases, among others, before stating that it "need not decide the broader issue here" of whether subsurface fracturing

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could give rise to a claim for trespass.³⁴ Instead, the majority opinion stated that an actionable trespass requires an injury, and Salinas's only claim of injury - that Coastal's fracturing operation made it possible for gas to flow from Salinas's tract to the adjacent tract's wells - was precluded by the rule of capture.³⁵ The rule of capture only provided Salinas with the right to capture the gas beneath his tract, as opposed to granting him ownership of the gas itself; the gas he claimed to have lost "simply [did] not belong to him."³⁶ Thus, because Salinas incurred no actual damages, the majority reasoned, no actionable claim of trespass could be sustained, and the Court did not have to rule on whether the entry of hydraulic fracturing fluid into another's land that causes injury constitutes a trespass.

Justice Willett's concurring opinion in Garza went a step further than the majority's. Justice...