Surface Damages

Published on: September 4, 2015

ExxonMobil v. Lazy R Ranch – a Case to Watch

In January, the El Paso Court of Appeals decided the appeal of Lazy R. Ranch, LP, et al. vs. ExxonMobil Corporation. The court reversed a summary judgment in favor of Exxon and remanded the case to the trial court for a trial on the merits. Exxon has asked the Texas Supreme Court to review the El Paso Court’s decision. Exxon argues that it has conclusively proven that Lazy R’s claims are barred by limitations.

The Lazy R Ranch is 20,000 acres in Ector, Crane, Ward and Winkler Counties. Exxon had operations on the ranch for many years. In 2009, the Ranch hired an environmental firm to investigate several sites on the property for oil-related contamination. The environmental firm found substantial hydrocarbon contamination at five sites, and found that at one of the sites the contamination had percolated down into the groundwater and that contamination at the other sites also posed a risk of leaching down into the groundwater. Lazy R sued Exxon for an injunction to require Exxon to take sufficient steps to prevent further spread of the contamination into the subsurface and groundwater.

The trial court ruled that the Ranch had waited too long to sue and dismissed its claims. The El Paso Court of Appeals reversed, holding that the statute of limitations does not apply because the Ranch is only suing for an injunction to require Exxon to abate a continuing nuisance, the spread of hydrocarbon contamination into the subsurface.

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Published on: July 29, 2014

Jimmy McAllen’s Judgment Against Forest Oil Affirmed

By John McFarland

Jimmy McAllen’s battle against Forest Oil has moved one step closer to conclusion. Last week the Corpus Christi Court of Appeals affirmed an arbitration award of more than $20 million against Forest Oil for environmental and other damages to the McAllen Ranch and personal injuries to Mr. McAllen.

The fight began in 2004, when McAllen sued Forest. He claimed that Forest had buried mercury-contaminated iron sponge wood chips on the 27,000-acre McAllen Ranch. The wood chips are waste from Forest’s gas plant on the Ranch. He also claimed that he had contracted cancer from pipe containing naturally occurring radioactive material (NORM) that Forest had given him to build pens on his Santillana Ranch. The pens were built to house endangered rhinoceroses. McAllen contracted cancer that required amputation of his leg.

Forest responded that McAllen was bound by a prior settlement agreement that required him to arbitrate any claims arising out of Forest’s operations on his ranch. McAllen opposed arbitration. The trial court denied Forest’s motion to require arbitration, and the Corpus Christi Court of Appeals affirmed. Forest appealed to the Texas Supreme Court, which held that McAllen was bound by the arbitration agreement. Forest Oil v. McAllen, 268 S.W.3d 51 (Tex. 2008).

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Published on: June 23, 2014

Texas Supreme Court Decides Key Operating v. Hegar

By John McFarland

The Texas Supreme Court last week decided Key Operating & Equipment, Inc. v. Hegar, No. 13-0156, reversing the courts below and holding that Key Operating has the right to use a road crossing Hegar’s tract to produce from a well on adjacent lands.

The legal principle the Court applied is not surprising and did not substantially change existing precedent. But the unusual facts of the case illustrate how far the Court will go to protect the rights of mineral lessees when those rights conflict with interests of the surface owner.

The legal precedent the Court followed is this: when two tracts are combined to create a pooled unit, the operator of the unit has the right to use the surface of all of the land covered by the leases included in the unit to operate wells located anywhere on the unit, regardless of the location of the well.

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Published on: June 9, 2014

Reclamation of Lands Impacted by Oil and Gas Operations

By John McFarland

In the last century in West Texas, oil and gas exploration in the Permian Basin scarred the landscape. Below is a Google Earth view of an area of Ward County in far West Texas, showing the drilling pads and roads from oil and gas development.

Ward County Google.JPG

At the time of this development the surface of this land, dry and semi-desert, was considered relatively worthless, and the impact of oil exploration to the surface of the land was considered a small price to pay for the wealth of oil found under the ground.

Today, landowners have become more ecologically conscious and protective of the natural environment of their lands. Increasingly, oil and gas leases are including provisions requiring restoration of the surface by exploration companies. But restoration of semi-arid lands in West Texas is not a simple task and requires patience and expertise, as well as significant resources.

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Published on: March 2, 2009

Surface Damages for Oil and Gas Activities in Texas

By John McFarland

Landowners in Texas are often surprised to learn that oil companies have no obligation to compensate them for use of their lands, or to restore the lands after their use, absent a contractual requirement to do so in their oil and gas lease. The typical oil-company form lease provides only that the lessee will pay for damages “caused by its operations to growing crops and timber on the land.” Under such a lease, the company does not have to compensate the surface owner for use of or damage to the surface caused by its operations.

Most exploration companies do compensate the surface owner for surface use. The usual practice is for the company to agree with the surface owner on a single lump-sum payment for each well location, with its attendant roads and flow line easements. The company pays this compensation for two reasons: first, to maintain good relations with the surface owner, and second, to obtain from the surface owner a release, which is presented to the surface owner at the time of the payment. The release typically contains language absolving the company from any and all damages caused by the company’s operations on the property for the well. In other words, part of the consideration for the payment is the landowner’s release of the company from further liability.

Absent a contractual obligation in the lease, the oil company has no obligation to compensate the landowner unless it negligently or intentionally causes damages in excess of the reasonable and necessary damages resulting from its operations. The mineral estate is the “dominant estate,” which means that the mineral owner and his/her lessee have the right to use so much of the surface estate as is reasonably necessary to explore for and produce oil and gas. Texas courts have historically been very careful to protect the rights of the mineral lessee. After all, the oil and gas industry was the principal source of wealth and revenue in Texas for decades, and courts obligingly crafted legal principles designed to facilitate oil and gas exploration and production.

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