Articles Posted in Recent Cases

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The San Antonio Court of Appeals recently decided a case illustrating the new kinds of issues that can arise from the drilling of horizontal wells.

In Springer Ranch v. Jones, Alice Burkholder owned a ranch, 8,545 acres in La Salle and Webb Counties. She signed a single oil and gas lease on the ranch in 1956 that has been maintained by produciton. When she died, Alice left the ranch to her husband for life, and thereafter in three separate tracts to her three children.  In effect, by her will she partitioned the ranch, surface and minerals, into three tracts, subject to the oil and gas lease.  Alice’s husband died in 1990, and thereafter the three children signed a contract agreeing on how royalties on production from the lease should be divided among them. The contract provided that all royalties under the lease “shall be paid to the owner of the surface estate on which such well or wells are situated, without reference to any production unit on which such well or wells are located.”

The lessee drilled a horizontal well located partly on one of the ranch tracts, now owned by Springer Ranch, and partly under a different tract now owned by Rosalie Sullivan. The surface location of the well was on the Springer Ranch tract.  Springer Ranch argued that, because the surface location was “situated on” its property, it should receive all royalties from the well. Rosalie Sullivan argued that royalties from the well should be allocated between the two tracts based on each tract’s part of the productive lateral of the well.  The trial court agreed with Ms. Sullivan, and the court of appeals affirmed. It construed the parties’ agreement to to allocate royalties on the basis of the percentage of the productive interval of the wellbore on each party’s tract, not on the basis of the well’s surface location.

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On December 20, the Office of Inspector General of the Environmental Protection Agency issued its “Response to Congressional Inquiry Regarding the EPA’s Emergency Order to the Range Resources Gas Drilling Company.”  The report was requested by Congress as a result of an emergency order issued by the Dallas regional office of the EPA against Range Resources on December 7, 2010. That order required Range to take certain actions based on EPA’s finding that Range’s wells in the Barnett Shale were the likely source of contamination of water wells in Parker County.

I have written about Range’s saga before.  EPA sued Range to enforce its emergency order. Range disputed and fought the EPA order, suing in the U.S. Court of Appeals to get the order revoked. Range called a hearing before the Texas Railroad Commission (in which EPA did not participate), after which the RRC found that Range’s wells were not the source of the gas in the water wells. One of the well owners, the Lipskys, sued Range in state court for damages;  Range countersued, contending that the Lipskys had falsified evidence and defamed the company. The district court found that Lipsky had created a “deceptive video” that was “calculated to alarm the public into believing the water was burning.” The Lispkys have appealed to the Texas Supreme Court, where their case remainds pending.

Read more here: http://www.star-telegram.com/2012/02/17/3744111/owner-of-contaminated-water-well.html#storylink=cpy
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StateImpact Texas has published a series of good articles about the growing evidence that the huge quantities of wastewater being injected in the Barnett Shale field are causing earthquakes — some of sufficient intensity to cause significant damages. Lawsuits have been filed in Johnson County to recover for the damage.  StateImpact’s most recent article can be found here. Links to all of StateImpact’s articles on earthquakes caused by oil and gas activity are here.

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   Suppose that the fluids injected into a disposal well migrate beyond the boundary of the tract where the well is located; does that incursion of the injected fluids into and under the neighbor’s property constitute a trespass?  Until recently, this question had never been addressed by a Texas appellate court, and the assumption in the disposal industry was that such incursion was not actionable. The Beaumont Court of Appeals, in FPL Farming Ltd. (“FPL”) v. Environmental Processing Systems, L.C. (“EPS”), concluded that the neighbor does have a trespass claim. 

  The Beaumont Court of Appeals has issued two opinions in the case; the first was appealed to the Supreme Court which reversed and remanded to the Court of Appeals, and the second has also been appealed to the Supreme Court, where it is now pending. FPL Farming Ltd. v. Environmental Processing Systems, L.C., 305 S.W.3d 739 (Tex.App.-Beaumont), reversed and remanded 351 S.W.3d 306 (Tex. 2011), on remand 383 S.W.3d 274 (Tex.App.-Beaumont May 24, 2012, pet. filed 1/18/13).  

  The facts in FPL are these:  EPS operates an injection well for non-hazardous waste on land adjacent to the land owned by FPL. FPL previously objected to an amendment of EPS’s permit that increased the rate and volumes allowed to be injected. The Austin Court of Appeals affirmed the permit amendment over FPL’s objections, ruling that “the amended permits do not impair FPL’s existing or intended use of the deep subsurface.” FPL Farming Ltd. v. Tex. Natural Res. Conservation Comm’n, 2003 WL 247183 (Austin 2003, pet. denied).

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Lawsuits against Chesapeake Exploration for wrongfully deducting post-production costs from its gas royalty payments are hitting a boiling-point. Suits are being pursued against the company in every jurisdiction where it operates, including Texas, Arkansas, Lousiana, Kansas, Ohio, West Virginia, Oklahoma and Pennsylvania. Chesapeake has recently been much more aggressive in deducting post-production costs. In the Barnett Shale in North Texas, its post-production cost deductions have been as much as $.70 to $1.00 per mcf, and with such low gas prices, some royalty owners’ payments have been halved by such deductions. Chesapeake’s royalty payments in North Texas have reportedly been on a net price of as little as eleven cents per mcf, and as little as 11% of the price other producers have based their royalty payments on. A recent Bloomberg article summarizes Chesapeake’s royalty payment practices.

Chesapeake has settled some claims, including large royalty owner claims in Pennsylvania. Chesapeake’s marketing practices in Pennsylvania mirror those it uses in the Barnett Shale.  Last year, Chesapeake settled a claim brought by the Dallas-Fort Worth Airport for underpayment of royalties for $5 million. The Bass family in Fort Worth recently sued the company for wrongfully deducting post-production costs.

Chesapeake’s tactics for how it calculates its royalties cannot be understood without knowing something about how Texas courts have addressed deductibility of post-production costs. I have previously written three posts on this topic that can be seen here, here and here.

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The Texas Railroad Commissioners voted unanimously today to reject the recommendation of its examiners denying EOG’s allocation well permit and instructed the examiners to prepare an order and findings granting EOG’s permit.  For my prior posts about this case, see here, here and here.

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Julia Trigg Crawford has waged a well-publicized fight to prevent condemnation of an easement across her farm for the XL Keystone Pipeline.  On August 27, the 6th Court of Appeals in Texarkana denied her appeal of TransCanada Keystone Pipeline’s award of an easement over her property.  Crawford has vowed to appeal to the Texas Supreme Court.

The Court of Appeals’ opinion says that Ms. Crawford had two arguments: first, that the Texas statutes granting pipelines condemnation authority do not apply to interstate pipelines; and second, that Keystone had failed to meet the showing required by the Texas Supreme Court in Texas Riceland Partners v. Denbury Green Pipeline-Texas, 363 S.W.3d 192, 202 (Tex. 2012) that the pipeline must show “a reasonable probability … that the pipeline will at some point after construction serve the public by transporting gas for one or more customers who will either retain ownership of their gas or sell it to parties other than the carrier.” The Texarkana court held that Keystone had met that burden. The court also held that the relevant Texas statutes do grant condemnation authority to interstate common carrier pipelines.

The portion of the XL Keystone pipeline from Cushing, Oklahoma to Port Arthur, Texas is nearing completion.  That segment of the pipeline has been able to proceed even though the Obama administration has not yet approved the segment of the system that would carry heavy crude from Canada across the northern segment of the XL Pipeline system.

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For those following the Klotzman protest of EOG’s allocation well permit (our firm represents the protestants), here are the exceptions to the examiners’ proposal for decision filed by EOG and by Intervenors Devon, Pioneer, Laredo Petroleum and BP America:

EOG Exceptions to PFD.pdf

Devon et al Exceptions to PFD.pdf

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John McFarland
 Graves, Dougherty, Hearon & Moody, P.C.
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