Oil and Gas Lawyer Blog
The Delaware Mountain Group is a group of formations including the Bell Canyon, Cherry Canyon and Brushy Canyon formations, deposits in ancient canyons filled in over the ages, and are productive of oil and gas. These formations lie above parts of the Wolfcamp formation in the Permian Basin. Disposal of produced water in the Permian has become a big problem, and the Texas Railroad Commission has granted permits for disposal wells that inject produce water into depths within the Delaware Mountain Group. These disposal wells have caused water to migrate to producing wells in the Delaware Mountain Group, killing those wells. The disposed water from these wells has also migrated to long-abandoned wells causing gushers of produced waters from the abandoned wells.
In Basic Energy Services v. PPC Energy, No. 08-23-00218-CV in the El Paso Court of Appeals, PPC Energy operated several marginal wells producing from the Delaware Mountain Group. It sued several disposal well operators in the vicinity for killing nine of PPC’s producing wells, resulting in a total loss of their remaining reserves. PPC settled with all disposal well operators except Basic. (Basic’s well was 6,300 feet from PC’s nearest well.) At trial, the jury found that Basic’s disposal well was responsible for 60% of PPC’s losses, and the trial court entered a judgment for PPC of $13 million, including interest. Basic appealed.
Basic complained that the charge to the jury was erroneous. The jury was asked:
Did the negligence, if any, of those named below proximately cause the injury in question?
“Negligence” means failure to use ordinary care; that is, failing to do that which a person of ordinary prudence would have done under the same or similar circumstances or doing that which a person of ordinary prudence would not have done under the same or similar circumstances.
It is negligence to commit “waste.” The term “waste” means the drowning with water a stratum or part of a stratum that is capable of producing oil or gas or both in paying quantities or underground loss, however caused.
Basic made two arguments that this charge was incorrect. First it argued that “waste” as defined in the Natural Resources Code only applies to activities in “the production, storage, or transportation of oil and gas.” Basic argued that disposal operations are not part of the process of production, storage or transportation of oil and gas. But the Natural Resources Code also defines waste to include “drowning with water a stratum or part of a stratum that is capable of producing oil or gas or both in paying quantities.” The Court rejected this argument.
Second, Basic argued that it was entitled to an instruction to the jury that it is not liable for the waste of PPC’s reserves if it acted as a reasonably prudent operator. The Natural Resources Code also provides that in an action for damages caused by waste, “it shall be a defense that the lease owner or operator was acting as a reasonably prudent operator would act under the same or similar facts and circumstances.” PPC argued that Basic was not entitled to this instruction because it did not present any evidence that it acted as a reasonably prudent operator; Basic was required to offer expert testimony on the duty of care for a prudent operator and some evidence that it met the burden.
The Court agreed with Basic that it had produced some evidence that it acted as a prudent operator and therefore was entitled to the prudent operator instruction. It therefore reversed and remanded the case for retrial.
The interesting part of the case to me is the evidence that Basic argued in support of its claim that it acted prudently in drilling and producing its well. First, the geologist hired to help Basic with the location of the well testified that he studied the Delaware Mountain Group in the nine-section area and did not think that Basic’s wells posed any “risk at all” to PPC’s wells. The geolotist admitted that he was not aware of the volumes of water that Basic would be injecting and that this was his first saltwater injection well consult.
Second, Basic argued that it complied with the Railroad Commission’s permitting process for its disposal well and that the Commission “would not issue [the permit] if it would endanger oil, gas, or geothermal resources.” The jury heard testimony from a regulatory expert that the Commission rules impose that requirement on applicants for disposal wells. And Basic showed that it operated its well within its permit requirements.
The Court concluded that this was “some evidence” that Basic had acted as a reasonably prudent operator and therefore was entitled to the prudent-operator jury instruction.
Before filing suit, PPC filed a complaint at the Commission against the four disposal well operators. After a hearing, the Commission refused to require the disposal wells to cease operating, concluding that it was “unable to attribute the increased pressure [in PPC’s wells] to local commercial disposal operations.”
In my opinion, anyone who knows the Commission will know that the Commission’s issuance of a disposal permit is no evidence that the permitted disposal well will not damage nearby producing wells and thereby cause waste. The Commission is under tremendous pressure from Wolfcamp operators to permit disposal wells for its produced water. Wells in the Permian produce some 168 billing gallons (4 billion barrels) each year, most of which is disposed of by injection. Producers of small wells in the Delaware Mountain Group must turn to the courts for relief.
PPC is seeking review by the Texas Supreme Court.
For another case involving water-out Delaware Mountain Group wells, see my article on Iskandia v. SWEPI.