Texas Supreme Court holds drilling across tracts not trespass

Untitled DocumentOn May 19, 2017, the Texas Supreme Court held in a unanimous decision in Lightning Oil Co. v. Anadarko E&P Onshore, LLC that an oil and gas operator does not commit trespass when, after obtaining consent from the surface estate owner of a neighboring tract, it drills into the neighboring tract’s surface and through the tract’s subsurface in order to access minerals in which the operator has an interest. In so holding, the Court affirmed the concept in Texas law that absent an express grant in a lease, the surface estate owner, and not the mineral estate owner, controls the subsurface earth beneath a tract.

Background

Anadarko E&P Onshore, LLC (“Anadarko”) was lessee to an oil and gas lease covering the Chaparral Wildlife Management Area (the “Chaparral”)—a wildlife conservation area controlled by the Texas Parks and Wildlife Department—which lease granted Anadarko the right to explore, produce, and develop the mineral estate under the Chaparral. Because the Chaparral was a public area, the lease restricted the scope of drilling activities Anadarko could undertake on the Chaparral surface. To that end, the lease required that drilling sites be established at an offsite location when “prudent and feasible.”

To access the minerals under the Chaparral while also complying with the Chaparral lease’s restrictions, Anadarko entered into an agreement with the surface estate owners of a tract adjacent to the Chaparral (“Briscoe Ranch”), which permitted Anadarko to drill vertically into the ground beneath Briscoe Ranch, and then horizontally into the Chaparral subsurface.  Lightning Oil Co. (“Lightning”), lessee of the Briscoe Ranch mineral estate, objected to Anadarko placing its drilling sites on the Ranch and drilling through Lightning’s mineral estate.

Lightning sued Anadarko, alleging that Anadarko’s drilling through Lightning’s mineral estate was a trespass, and amounted to a tortious interference with Lightning’s lease for the Briscoe Ranch mineral estate. Lightning sought a temporary restraining order and injunction to prohibit Anadarko from drilling through Lightning’s mineral estate.

The lower courts hold in favor of Anadarko

The trial court in Dimmit County granted Anadarko’s motion for summary judgment, disposing of Lightning’s claims, and denied Lightning’s motions for summary judgment.

The Fourth Court of Appeals affirmed, holding that the Briscoe Ranch surface estate owner, and not Lightning, controlled the subsurface earth beneath the Ranch, and could grant permission to Anadarko to site a well on the tract, drill into the subsurface, and directionally alter the well bore into the Chaparral subsurface. The court held that absent an express right to control the subsurface, Lightning was only entitled to “a fair chance to recover the oil and gas” in the Briscoe Ranch mineral estate. Therefore, the court held that because the Briscoe Ranch surface estate owner authorized Anadarko to drill through the subsurface earth, Anadarko was justified in undertaking that drilling, and such drilling was not a trespass.  

The Texas Supreme Court affirms the lower courts

The Texas Supreme Court granted Lightning’s petition for review, and affirmed the court of appeals’ ruling in a unanimous decision. The Court identified the key issue as: whether Lightning’s rights in the Briscoe Ranch mineral estate included the right to prohibit Anadarko’s drilling activities if those activities were not intended to capture Lightning’s minerals but rather to traverse the subsurface formations in which Lightning’s minerals were located, in order to access Anadarko’s minerals beneath the Chaparral. The Court held that neither Lightning’s lease for the Briscoe Ranch mineral estate, nor Texas law, granted Lightning the right to control the subsurface beneath the Ranch.

The Court did, however, note that although it generally agreed with the court of appeals’ position that a surface owner controls much of the mass that undergirds the surface estate, there is a distinction between earth surrounding hydrocarbons and earth embedded with hydrocarbons (the latter of which by definition includes some of the minerals owned by the mineral estate owner). To that end, Anadarko’s drilling could constitute a trespass if that drilling “infringe[d] on [Lightning’s] ability to exercise its rights” to access the minerals beneath the Ranch.  The Court found that Lightning provided no evidence to show that Anadarko’s drilling would interfere with its own rights. And even if Lightning had presented evidence, that evidence would have had to overcome Anadarko’s evidence that the Railroad Commission of Texas’s rules and oversight regarding drilling activities were sufficient to protect Lightning’s rights.

The Court also recognized that by drilling through the Briscoe Ranch subsurface, Anadarko would unavoidably extract a portion of that subsurface roughly equal to the volume of the wellbore—that is, the cuttings pushed to the surface during drilling—and that extracted material would contain a small portion of Lightning’s minerals. Balancing the interests of Lightning and Anadarko, and the interest of the individual operator against the interests of society and the oil and gas industry as a whole, the Court held that since off-lease drilling arrangements often provide the most efficient means of exploiting minerals, Lightning’s interest in the small quantity of minerals extracted by Anadarko must cede to society’s goals (embodied by Anadarko’s drilling) of maximum oil and gas recovery and minimum waste.

Key takeaways

Absent an express grant in a lease with the surface estate owner, a  lessee who holds the right to recover hydrocarbons in a mineral estate has no right to control the subsurface surrounding those hydrocarbons. Thus, in some instances, an operator can obtain consent from the surface estate owner of an adjacent tract and horizontally drill through that tract’s subsurface to access minerals in which the operator has rights. However, such an operator could be susceptible to a trespass claim if a mineral interest owner presents evidence showing that such drilling interferes with the owner’s ability to exercise its rights to access its own minerals.