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Iskandia Energy Operating vs SWEPI LP – The looming problem of contamination by salt water injection wells in the Permian

This case illustrates an increasing problem related to salt water disposal in the Permian Basin. Recent articles in Texas Monthly and other publications have documented leaks from old abandoned wells caused by injection of massive quantities of salt water into shallow formations.Iskandia Energy Operating, Inc. v. SWEPI LP, No. 08-22-00103-CV, El Paso Court of Appeals, October 31, 2023.

Iskandia acquired oil and gas leases covering some 5,000 acres in Loving County, along with more than 100 producing wells. Iskandia planned to re-stimulate the wells and increase production.  The wells produce from formations in the Delaware Mountain Group in the Delaware Basin lobe of the Permian Basin–the Cherry Canyon, Bell Canyon and Brushy Canyon formations. These formations are just above the Bone Springs and Wolfcamp formations, which are the principal formations being drilled by operators in the Delaware lobe. Iskandia’s wells produce oil and salt water; the salt water is re-injected into the producing formation. Iskandia produces and re-injects about 6,000 barrels per day on its leases, which maintains the formation pressure and facilitates continued oil production.

SWEPI owns and operates leases adjacent to the Iskandia leases and is drilling wells in the Bone Springs and Wolfcamp. These wells also produce large volumes of salt water, and SWEPI has drilled disposal wells on its leases that inject that water into the Delaware Mountain Group formations. Iskandia produced evidence that SWEPI is injecting more than 2 million barrels per month into the DMG, and has injected more than 75 million barrels in just three years.

Iskandia claimed that SWEPI’s injections had migrated onto its leases and damaged its wells, “swamping” its wells with the waste water and making its oil reserves unrecoverable. Increased pressures have caused some of its wells to leak salt water back to the surface locations. Iskandia hired experts who created a model of the water flow in the DMG under its leases and estimated Iskandia’s lost production. The experts concluded that SWEPI’s injection caused and would cause past and future damage to Iskandia to the tune of $30 million. Iskandia sued SWEPI for trespass, private nuisance and negligence.

In the trial court, SWEPI challenged the qualifications and conclusions of Iskandia’s experts and moved for summary judgment dismissing its claims. The trial court agreed with SWEPI, struck Iskandia’s expert reports, and dismissed its claims.

The El Paso Court of Appeals reversed and remanded, holding that Iskandia’s experts were qualified and that their opinions were based on established methods and were reliable. The court reviewed the experts’ qualifications and methodology in great detail.

SWEPI also sought to dismiss Iskandia’s trespass claim, arguing that it had not provided evidence of each element of a trespass claim. The court’s opinion contains an extensive analysis of prior Supreme Court cases on the viability of subsurface trespass claims. The court reasoned that Iskandia, as lessee, held the right to possess, use, and appropriate oil and gas from its leases and that it could assert a trespass claim if “the interference [by SWEPI’s injection] infringes on the mineral lessee’s ability to exercise its rights. … [W]e conclude that a trespass claim based on an unauthorized interference with a lessee’s development right is recognized by Lightning Oil [Co. v. Anadarko E&P Onshore, LLC, 520 S.W.3d 39 (Tex. 2017)] and Regency Field Services [LLC v. Swift Energy Operating, LLC, 622 S.W.3d 807 (Tex. 2021)] as long as the injury is not outweighed by competing interests in the oil and gas context, which the parties have not addressed in this appeal.” Reviewing the summary judgment evidence, the court concluded that Iskandia had produced evidence that SWEPI’s injections had interfered with Iskandia’s possessory rights.

In my opinion the problems caused by injection into, and over-pressuring of, the Delaware Mountain Group are in large part due to the Railroad Commission’s willingness to grant permits for injection of produced water into those shallow formations, which contain economically recoverable quantities of oil. Granting those permits for injection into producing formations results in waste–the loss of recoverable reserves–and contamination of groundwater and the surface of the land, both of which the Commission is charged to prevent.

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