Off-Lease Drilling Locations and Claims of Subsurface Trespass

In Lightning Oil Co. v. Anadarko E&P Onshore, No. 04-14-00152-CV, 2014 Tex. App. LEXIS 11844 (Oct. 29, 2014), the San Antonio Court of Appeals concluded that a mineral estate owner was not entitled to injunctive relief to prevent an adjacent mineral estate owner from drilling horizontal wells crossing through the other party’s mineral estate to access the adjacent mineral estate.  This case is significant for operators that drill multiple horizontal wells from a single pad location and for operators that drill horizontal wells from off-lease surface locations.

The dispute in Lightning Oil arose from Anadarko E&P Onshore’s (“Anadarko”) attempt to drill horizontal wells that would enter and cross through Lightning Oil Co.’s (“Lightning”) mineral estate.  Lightning owned the mineral estate to a portion of land known as Cochina East Ranch.  Id., at *2.  To the south of Cochina East Ranch lies the Chaparral Wildlife Management Area (“Chaparral WMA”), a wildlife sanctuary of approximately 15,200 acres, managed by the Texas Parks and Wildlife Department.  Id.  In October 2009, Anadarko obtained an oil and gas lease giving it the right to develop the mineral estate underlying the Chaparral WMA.  Id., at *2-3.  However, the terms of the lease required Anadarko to “utilize off-site drilling locations ‘when prudent and feasible.’”  Id.  Anadarko obtained permission from the surface owner of the Cochina East Ranch by entering into a written Surface Use and Subsurface Easement Agreement allowing it to “establish drill sites for horizontal wells that [would] enter and cross through Lightning’s Mineral Estate in order to reach Anadarko’s mineral estate on the adjacent Chaparral WMA.”  Id.  However, Lightning opposed Anadarko’s planned drilling operations and brought suit for trespass and sought injunctive relief to prevent Anadarko from drilling the proposed wells.  Id., at *4.

In Lightning Oil, the San Antonio Court of Appeals evaluated whether Lightning satisfied the requirements to obtain injunctive relief and proved that it would suffer an imminent and irreparable injury if Anadarko were permitted to proceed with its plan to drill through Lightning’s mineral estate.  Lightning Oil, at *8.  The Court reviewed the testimony of Lightning’s expert witnesses, Mr. Light and Mr. Bagnall, who raised three potential injuries that Lightning may suffer as a result of Anadarko’s plan to drill through its mineral estate.  Id., at *10.  First, Mr. Bagnall discussed that production fluids could leak into the mineral estate and damage the formation Lightning sought to produce if Anadarko experienced a casing failure, thereby causing harm to Lightning.  Id., at *10-11.  Yet, when Mr. Bagnall was cross-examined about the likelihood of a casing failure, he conceded that there was a “high likelihood that it probably won’t happen.”  Id., at 14.

Second, Mr. Light discussed the obligation and increased cost for Lightning to drill offset wells to prevent drainage from Anadarko’s wells on the adjacent property.  Id., at *10.  However, Lightning already had an obligation under its lease to drill offset wells.  If Lightning failed to drill the required offset wells within the timeframe mandated by its lease, then Lightning would have to pay a compensatory royalty to the lessors.  Id., at *12.  On cross-examination, Mr. Light admitted that even if Anadarko drilled its well from a different surface location and did not enter Lightning’s mineral estate, his company would have the same obligation and expenses to drill the offset wells.  Id., at *12-13.

Finally, Mr. Light noted that Anadarko’s pipelines or wellbores, if placed in a specific location, could interfere with Lightning’s planned wells.  Id., at *11.  Specifically, he stated, “it will probably disrupt our drilling program,” and it is “very difficult and costly” to turn and change drilling direction.  Id., at *12.  Yet, when pressed on the issue, he acknowledged that he “staked the new well site and instructed Lightning’s contractors to rush the permit for the proposed well in time for the injunction hearing after he learned that Anadarko had staked its proposed well sites on the surface of the Cochina East Ranch.”  Id., at *13.  Additionally, Mr. Bagnell confirmed that Lightning could drill its proposed well without any problem from the proposed Anadarko wells, but depending on how much pipeline Anadarko lays and where its located, Lightning’s drilling plans may need be altered.  Id., at *15.  However, he was unable to quantify the added cost of altering the drilling plans at the time of the testimony, and speculated that that costs may exceed $100,000.00.  Id.

Consequently, the Court affirmed the trial court’s order denying Lightning’s application for injunctive relief.  Id., at *16.  The Court noted that the evidence showed a potential for injury to Lightning’s mineral interest in the future, and a potential for increased costs to Lightning.  Id.  Nevertheless, Lightning failed to show that these potential injuries were not quantifiable, and thus failed to prove that an injury was probable, imminent, and irreparable, which is necessary to obtain injunctive relief.  Id.

Despite the ruling in favor of Anadarko on appeal, the San Antonio Court of Appeals did not address whether Anadarko’s proposed well through Lightning’s mineral estate constitutes an actionable claim for subsurface trespass.  Typically, operators obtain surface use agreements for off-lease well pads, but do not obtain agreements from owners of adjacent mineral estates.  Prior to the proliferation of horizontal drilling, there were few instances involving off-lease locations and multiple severed owners of the adjacent mineral estates and courts have not had an opportunity to address subsurface trespass issues in the context of horizontal drilling.  Here, under Lightning’s theory, Anadarko’s proposed well that crosses Lightning’s mineral estate, but does not produce from that mineral estate, would nonetheless constitute a subsurface trespass and Anadarko would be liable to Lightning for damages.  Thus, under Lightning’s theory, Anadarko would be required to obtain permission not only from the surface owner, but also the owners of adjacent mineral estates, to drill horizontal wells from an off-lease location.  However, Lightning’s subsurface trespass theory is contrary to the long-standing theory, and practice, that the surface owner is the one who can grant permission for an off-lease drilling location.