November 2011 Archives

November 29, 2011

LaSalle Pipeline v. Donnell Lands - a Case to Watch

Another interesting case is pending before the Texas Supreme Court, this one involving condemnation of a pipeline easement. The San Antonio Court of Appeals, in LaSalle Pipeline v. Donnell Lands, affirmed a jury verdict awarding $650,000 to the landowner. The Supreme Court has asked for briefs on the merits but has not yet agreed to hear the case.

The Donnell family own an 8,000-acre ranch in McMullen County. LaSalle Pipeline sued to condemn an easement for a sixteen-inch gas pipeline across the ranch, for a length of 4.4 miles. In Texas, a condemnation case originally goes to three "commissioners" - citizens in the county appointed by the court to determine the amount to be awarded the landowner for the pipeline easement. The commissioners awarded the Donnells $226,000 for the easement - about $160 per rod, or $9.73 per foot. (A rod is 16.5 feet.) The Donnells appealed to the district court in McMullen County, where there was a trial de novo, meaning that the commissioners' award was not considered and the jury was asked to determine the amount of the award based on evidence at the trial.

There are three elements of damages in a pipeline condemnation case: the damage to the land within the permanent easement; the temporary damage caused to the land by the additional workspace needed to lay the pipeline; and the diminution in value of the remaining property caused by the existence of the pipeline. These damages are estimated by qualified real estate appraisers, who testify as experts at the trial.

The Donnells' real estate expert testified that the land within the easements was damaged by $34,500; the temporary workspace easement caused damage of $19,200; and the damage to the Donnells' remaining land caused by the easement was $820,000. He said that the portion of Donnell's property which was affected by the pipeline was 4,100 acres, and that the value of that 4,100 acres was decreased about 10% by having a sixteen-inch pipeline across it. LaSalle's expert testified that the pipeline had no effect on the value of the Donnells' property.

The jury awarded the Donnells $658,533 (about $468 per rod). The San Antonio Court of Appeals reduced the trial court's award for the temporary construction easement by $12,800, but otherwise affirmed the trial court's judgment.

In its appeal to the San Antonio court, LaSalle argued that the Donnells' appraiser's testimony could not support the jury's award for damage to the remainder of the Donnells' land. LaSalle argued that the evidence was "legally and factually insufficient" to support the verdict. In Texas, our intermediate appellate courts can overturn a jury verdict if it finds that the evidence is "factually insufficient" to support the jury's verdict. The court may overturn a jury's verdict "if the evidence is so weak or if the finding is so against the great weight and preponderance of the evidence that it is clearly wrong and unjust." The San Antonio court found that the Donnells' evidence was factually sufficient to support the verdict.

Our Texas Supreme Court has authority to overturn a jury verdict only if the evidence is "legally insufficient" to support it. In other words, the Court may not "weigh" the evidence and may not overturn a verdict on factual insufficiency grounds. The Court may reverse a verdict only if there is a complete absence of evidence of a vital fact or the evidence offered to prove a vital fact is "no more than a mere scintilla," or if the evidence establishes conclusively the opposite of the vital fact. All of this may sound a little bit arcane, but in the world of lawyers this distinction is important. In LaSalle's appeal to the Supreme Court, it has a harder burden to prove that the jury's award should be overturned. LaSalle must show that there was "no" competent evidence to support the verdict.

This is an important case to pipeline companies, who are busily condemning pipelines in the Eagle Ford Shale play. As LaSalle's brief says, "under the Fourth Court of Appeals' reasoning, there can be no certainty or predictability in the budgeting for land costs associated with such projects, because under the Court of Appeals' opinion landowners may impermissibly reap substantial remainder damages based solely upon speculation and conjecture. The appellate decision in this case is being cited by landowners in condemnation actions pending throughout South Texas and the Eagle Ford Shale area for the proposition that substantial remainder damages are due in every pipeline condemnation case."

If the Supreme Court elects to take this case, it will be interesting to see if it decides once again to overturn a jury verdict in favor of a landowner.

November 15, 2011

Drilling in the Eagle Ford Shale

 

Wells Fargo Bank recently had a presentation about aspects of drilling in the Eagle Ford Shale. Some of its slides are enlightening.

First, below are two pictures of a wellsite during the fracing of a well:

Fracing a Well.jpg

 

Fracing a Well 2.jpg

 

These photos illustrate the impact of drilling operations. A typical drillsite for these types of wells may be five to ten acres. During fracing, it looks like an industrial site. These pads are designed to drill multiple wells from a single site.

 

Below are illustrations of drilling being done by Rosetta Resources on its Gates Ranch Lease. The lease covers some 19,000 acres in Webb County. To date, Rosetta has drilled about 62 horizontal Eagle Ford wells on the ranch. At the time of the slide below, Rosetta had drilled 40 wells:

 

Gates Ranch 1A.jpg 

Rosetta originally planned to space its wells so that there would be one well per 100 acres:

 

Gates Ranch 2.jpg 

 

Rosetta is now experimenting with closer spacing - in other words, one well may not drain 100 acres:

 

Gates Ranch 3.jpg 

Rosetta may end up drilling wells on 55-acre spacing - 340 wells altogether. If three wells are drilled from each pad site, that is 113 pad sites.

  

Gates Ranch 4.jpg 

If one of these wells costs $6 million to drill and complete, that would be $2.04 billion to drill all 340 wells, or close to $70 million per 640-acre section, if spaced at 55 acres per well.

55-acre spacing, for wells with 5,000-foot laterals, requires that the wells would be spaced about 460 feet apart. That means that the wells would drain only 230 feet from the well bore. 

 

Here is an illustration of the lithology of a typical Eagle Ford well drilled in Dimmit County:

 

Eagle Ford Type Log.jpg 

You can see that the Eagle Ford lies between the Austin Chalk and Buda formations, and that it is divided into the Upper Eagle Ford and the Lower Eagle Ford. On this well, the Eagle Ford is about 450 feet thick.

 

Here is the growth in oil production from the Eagle Ford since 2008. It looks like 2011 production will double 2010's.

Eagle Ford Oil Production.jpg