In a case that has been closely watched in the oil-and-gas industry, yesterday the Texas Supreme Court decided whether drilling through a mineral estate—one which is not under lease by the driller—to access a reservoir beneath a bordering tract constitutes a form of trespass.
The operator in the case, Anadarko Petroleum, secured permission from the surface owner—of a tract adjacent to the company’s leasehold—to spud a well and drill directionally into the mineral estate “next door.” The owner of the mineral rights under the surface of the spud site, Lightning Oil, argued that Anadarko trespassed when it bored through Lightning’s mineral estate.
On Friday, the Texas high court affirmed decisions from the appellate and trial courts that had roundly rejected Lightning’s claims. As the Texas Supreme Court sees it, the surface owner is presumptively the master of the “the mass of earth undergirding the surface,” and therefore it alone will usually have the authority to authorize this kind of subsurface activity.
The Court did acknowledge that the appropriate test is nevertheless fact intensive, involving a careful balancing of the competing interests of all the involved parties. The fundamental inquiry will be the extent to which the horizontal drilling will cause the unleased mineral owner to suffer a loss of oil and gas. In Lightning’s case, only a “small amount of minerals [was] lost through that process,” and, according to the justices, this is not enough to rise to the level of mineral trespass:
In that context, we have no doubt that individual interests in the oil and gas lost through being brought to the surface as part of drilling a well are outweighed by the interests of the industry as a whole and society in maximizing oil and gas recovery. That being so, we conclude that the loss of minerals Lightning will suffer by a well being drilled through its mineral estate is not a sufficient injury to support a claim for trespass. Accordingly, such a loss will not support injunctive relief.
Lightning also argued that, even if Anadarko’s existing well had not caused it to suffer substantial harm, the operator’s slate of proposed wells would prejudice Lightning’s ability to produce its minerals in the future. This, according to Lightning, would result in precisely the kind of irreparable harm that would support the entry of an injunction against Anadarko. The Court was unimpressed with this argument because Lightning had adduced virtually no evidence of such harm; on this score, Justice Phil Johnson, writing for an undivided Court, was direct and to the point: “Speculation is not enough.”