Hydraulic Fracking Blog: April 2012

Hydraulic Fracturing as a Subsurface Trespass, Part 5 in a Series of 5

This article is the final post in a series of five posts.

Conclusion

Outside of Texas, where hydraulic fracturing activities are not as prevalent and courts have yet to consider how these activities relate to claims of subsurface trespass, courts can look to the Texas Supreme Court’s opinions for guidance.

As the Garza Court’s internal debate illustrates, the impact of hydraulic fracturing and its importance to states’ economies are sure to be considered by future courts in considering whether to impose liability on fracturing activities, especially in absence of actual damages.

Prepared by Fulbright Fracking Blog Contributing Editor and energy partner Barclay Nicholson and Fulbright energy attorney Brian Albrecht.

Hydraulic Fracturing as a Subsurface Trespass, Part 4 in a Series of 5

This article is the fourth in a series of five posts.

In reviewing the Garza majority opinion, concurrence, and dissent, the Court’s concerns with the realities of hydraulic fracturing is evident. The majority opinion referred to numerous amicus curiae briefs filed by the RRC and various organizations and companies “from every corner of the industry,” and noted that all opposed liability for hydraulic fracturing, “almost always warning of adverse consequences in the direst of language.” Garza, 268 S.W.3d at 16-17.

Justice Willett’s concurrence refers to oil and gas as the “muscle” of Texas, id..at 27, and that imposing liability on fracturing activities would result in “exorbitant costs on society.” Id. at 30. And the dissent, while it argued for a finding of liability, proposed that courts should weigh the claim and the interests involved and allow such equitable considerations to influence the assessment of damages.

Additionally, the dissent was influenced by a practical concern for the rights of unsophisticated individuals who own small parcels of land and are unlikely to utilize such remedies as self help and pooling; the majority’s opinion reduces incentives for operators to lease from such property owners.

The Court similarly deferred to the importance of hydraulic fracturing in its Manziel opinion over forty years earlier. Clearly the impact of hydraulic fracturing activities is at the front of the Texas Supreme Court’s mind.

And reviewing Manziel, Garza, and FPL together provides further valuable insights, specifically as to when a subsurface invasion based on hydraulic fracturing activities can constitute an actionable trespass.

First, the Court has suggested that a subsurface invasion resulting in actual damages could constitute an actionable trespass; the Garza court noted that the plaintiff did not “claim that the hydraulic fracturing operation damaged his wells or the Vicksburg T formation beneath his property,” damages which would apparently be recoverable. Garza, 268 S.W.3d at 13.

Additionally, comparing the Manziel and FPL decisions provides evidence that actual damages could lead to an actionable trespass. Manziel declared that it is not a trespass when injected, secondary recovery forces move across leased lines if the RRC authorized the project, while FPL declared that the court of appeals was in error in determining that because the TCEQ permitted the injection wells, there was no trespass.

While these are seemingly contradictory, the Manziel decision only authorized movement across leased lines of secondary injected forces, as opposed to authorizing any injurious movement of the forces.

Additionally, the Manziel court explicitly stated that it was not granting injecting operators a “protective cloak,” and the FPL ruling held that a permit does not preclude all liability for trespass. In both decisions, the Court seems to have left the door open for an actor to be found liable for subsurface trespass when actual damages result.

Second, the Court has suggested that an actionable trespass may be based only on nominal damages if the plaintiff retains a possessory interest in the mineral rights. In FPL, the Court characterized its Garza opinion as holding that the plaintiff could not sue for trespass based on nominal damages because he was not in possession of the mineral rights.

The FPL court pointed to language in Garza stating that a trespass against a possessory interest “does not require actual injury to be actionable and may result in an award of nominal damages.” Garza, 268 S.W.3d at 13 n.36.

This article will be continued tomorrow.

Prepared by Fulbright Fracking Blog Contributing Editor and energy partner Barclay Nicholson and Fulbright energy attorney Brian Albrecht.

Hydraulic Fracturing as a Subsurface Trespass, Part 3 in a Series of 5

This article is the third in a series of five posts.

EPS had a permit from the Texas Commission on Environmental Quality to drill and operate its well. FPL alleged that the injected wastewater likely migrated onto its property and contaminated its water supply, and filed suit based on subsurface trespass.

FPL lost in a jury trial and appealed.

The appellate court did not address the merits of the trespass claim, and instead relied heavily on Manziel in holding that FPL could not recover because the wells were authorized by EPS’s permit.

But the Texas Supreme Court did not give the same deference to the permit, stating that “a permit is not a get-out-of-tort-free card.” Id. at 311.

The Court made clear that it was not deciding “whether subsurface wastewater migration can constitute a trespass, or whether it did so in this case,” and reversed the court of appeals’ judgment and remanded. Id. at 315.

This article will be continued Monday.

Prepared by Fulbright Fracking Blog Contributing Editor and energy partner Barclay Nicholson and Fulbright energy attorney Brian Albrecht.

Hydraulic Fracturing as a Subsurface Trespass, Part 2 in a Series of 5

This article is the second in a series of five posts.

Hydraulic fracturing activities continue to rise, and are at the center of much debate and litigation focusing on the potential health risks associated with the process. But an emerging issue with fracturing activities, and one that only the Texas courts has addressed with any significance, is whether hydraulic fracturing activities can, or should, lead to actionable subsurface trespass claims.

The Texas Supreme Court has decided a handful of cases dealing with subsurface trespass claims over the years, but only one of those cases, Coastal Oil v. Garza, 268 S.W.3d 1 (Tex. 2006), presents subsurface trespass as it relates specifically to hydraulic fracturing.

However, the Texas Supreme Court’s opinions in the other subsurface trespass cases provide valuable insight to the competing interests involved in the issue, and help to inform the Garza decision.

Garza

In 2006, the Texas Supreme Court decided Garza, in which the plaintiff leased the mineral rights in his land to Coastal Oil and Gas Corp. (Coastal).

Coastal owned the mineral estate in an adjacent tract, and engaged in hydraulic fracturing on both tracts. The plaintiff filed a suit in trespass, claiming that Coastal’s fracturing activities invaded the reservoir below his tract and caused substantial drainage of gas.

However, the Texas Supreme Court avoided directly ruling on the issue of whether hydraulic fracturing activities could result in an actionable subsurface trespass claim.

Instead, the Court declined to decide that “broader issue” and stated that an actionable trespass claim requires an injury, and that the plaintiff’s only injury—the drainage of gas from his subsurface—was precluded by the rule of capture.

According to the Court, the rule of capture only gave the plaintiff the right to capture the gas beneath his tract, as opposed to ownership of the gas itself. With no actual damages, there could be no trespass.

The concurring Garza opinion, authored by Justice Willett, went a step further, arguing that instead of it being no “actionable trespass” as the majority found, it was no trespass at all, and plaintiffs could instead bring such suits in negligence.

Willett “would end definitively any lingering flirtation of Texas law with equating hydraulic fracturing with trespass,” and “say categorically that a claim for ‘trespass-by-frac’ is nonexistent in either drainage or nondrainage cases.” Garza, 268 S.W.3d at 29.

Throughout his opinion, Willett cited the importance of oil and gas to economy and industry of Texas.

The Garza dissent took the position that, until the issue of whether the hydraulic fracturing activities amounted to a subsurface trespass was decided, Coastal’s fracturing into the plaintiff’s tract must be considered an illegal trespass. And, as Coastal conceded, the rule of capture only applies to gas obtained legally; thus, the rule of capture should not preclude the plaintiff’s trespass claim.

This article will be continued Monday.

Prepared by Fulbright Fracking Blog Contributing Editor and energy partner Barclay Nicholson and Fulbright energy attorney Brian Albrecht.

Hydraulic Fracturing as a Subsurface Trespass, Part 1 in a Series of 5

This article is the first in a series of five posts.

Hydraulic fracturing activities continue to rise, and are at the center of much debate and litigation focusing on the potential health risks associated with the process. But an emerging issue with fracturing activities, and one that only the Texas courts has addressed with any significance, is whether hydraulic fracturing activities can, or should, lead to actionable subsurface trespass claims.

The Texas Supreme Court has decided a handful of cases dealing with subsurface trespass claims over the years, but only one of those cases, Coastal Oil v. Garza, 268 S.W.3d 1 (Tex. 2006), presents subsurface trespass as it relates specifically to hydraulic fracturing.

However, the Texas Supreme Court’s opinions in the other subsurface trespass cases provide valuable insight to the competing interests involved in the issue, and help to inform the Garza decision.

Manziel

In 1962, the Texas Supreme Court considered subsurface trespass in the context of a secondary recovery operation in Railroad Comm’n v. Manziel, 361 S.W.2d 560 (Tex. 1962).

The plaintiff landowners claimed that the subsurface injection of water into an adjoining tract was a trespass that would result in premature flooding of their subsurface and damage their producing wells. The plaintiffs filed suit against the Texas Railroad Commission (RRC), the state’s regulatory agency for oil and gas, which had issued an order permitting the defendants to drill and inject water in their well as part of secondary recovery efforts.

The trial court sided with the plaintiffs, cancelling the RRC’s order and enjoining the injection of the water. The judgment was appealed directly to the Texas Supreme Court. 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 and 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. Id. at 567.

The Court then considered the impact and importance of hydraulic fracturing activities and stated that secondary recovery operations should be encouraged.

The Court reversed the trial court’s judgment, dissolving the injunction and holding 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.” Id. at 568.

This article will be continued tomorrow.

Prepared by Fulbright Fracking Blog Contributing Editor and energy partner Barclay Nicholson and Fulbright energy attorney Brian Albrecht.

Pennsylvania Supreme Court Agrees to Hear Appeal in Butler Case

On April 3, 2012 the Pennsylvania Supreme Court granted a petition for allowance of appeal in the Butler case.

In Butler, the Superior Court overturned the decision of a Court of Common Pleas regarding deed language, specifically the definition of “minerals” as it relates to oil and gas rights in Pennsylvania. See Fulbright's Alert, When is a Mineral Not a Mineral?.

In its Order granting the petition for allowance of appeal, the Supreme Court accepted the petitioner’s framing of the issue:

In interpreting a deed reservation for minerals, whether the Superior Court erred in remanding the case for the introduction of scientific and historic evidence about the Marcellus shale and the natural gas contained therein, despite the fact that the Supreme Court of Pennsylvania has held (1) a rebuttable presumption exists that parties intend the term minerals to include only metallic substances, and (2) only the parties' intent can rebut the presumption to include non-metallic substances.

See the Butler Docket Sheet.

This post was prepared by Fulbright energy lawyer Jeremy Mercer.

FERC Approves Sabine Pass LNG Exports and Vacates Jordan Cove LNG Imports

On April 16, 2012, FERC issued a precedent setting order approving a proposal by Sabine Pass Liquefaction, LLC and Sabine Pass LNG, L.P. (collectively, “Sabine Pass”) to site, construct and operate facilities to liquefy domestic natural gas for export to world markets.

The Sabine Pass Liquefaction Project will be constructed at the existing Sabine Pass LNG, L.P. terminal in Cameron Parish, Louisiana.

Upon completion of the Liquefaction Project, the Sabine Pass terminal will be the first bi-directional LNG facility in the U.S., capable of importing and regasifying foreign-sourced LNG, and liquefying and exporting domestically produced natural gas as LNG. FERC’s approval follows the DOE authorization last year enabling Sabine Pass Liquefaction, LLC to export domestically produced LNG for a 20-year period to all U.S. trading partner countries.

In the same sweep, FERC surprised industry watchers by vacating, without prejudice, an order previously authorizing Jordan Cove Energy Project, L.P. (“Jordan Cove”) to construct and operate an LNG import terminal in Coos County, Oregon along with the related pipeline certificate authorization for the proposed 234-mile-long Pacific Connector pipeline.

The Commission seemed to base its decision to vacate those prior approvals on recent statements by Jordan Cove that it did not intend to construct and operate its authorized import facilities at this time in light of current market conditions, but rather was seeking authorization to construct LNG export facilities.

In a strongly worded dissent, Commissioner Philip Moeller noted that FERC chose to vacate the Jordan Cove authorization “based upon little more than statements about current market conditions by Jordan Cove and the market views of three Commissioners.”

Commissioner Moeller further stated that “[r]evoking an authorization to build during the third year of a five-year authorization could fundamentally change how the public views whether this Commission will stand by its decisions.”

In conclusion, FERC’s authorization of the Liquefaction Project signals that export projects may lead the next wave of LNG development in the U.S. for those project sponsors able to obtain DOE export approval.

While the Commission’s decision with respect to the Jordan Cove import project and the Pacific Connector pipeline undoubtedly will become part of any LNG regulatory risk dialogue, we do not believe that FERC’s decision should be interpreted as a death blow for all LNG import capacity development.

Rather, we believe the FERC has put developers on notice that proposals for LNG import capacity will have to address existing U.S. market conditions that strongly support exports, but which also may vary by region.

Thus, LNG developers are well advised to design their projects in a manner that takes into account changing market conditions. For this reason, a bi-directional facility, such as the Sabine Pass terminal, is well positioned to withstand regulatory challenges based on changing market conditions.

This article was prepared by Lisa M. Tonery (ltonery@fulbright.com or 212 318 3009), Tania S. Perez (tperez@fulbright.com or 212 318 3147) and Rabeha Kamaluddin (rkamaluddin@fulbright.com or 202 662 4576) of the Fulbright's Energy practice.

Hydraulic Fracking Blog