Lightning Oil Company v. Anadarko E&P Offshore, LLC

11/4/2014

Offsite drilling is becoming increasing prevalent in the Eagle Ford Shale in Texas. Consequently, many in the industry were closely following a dispute between two neighboring operators in the Eagle Ford Shale area in which one operator opposed a neighboring operator’s plans to use offsite drilling. On October 29, 2014, the San Antonio Court of Appeals ruled that the plaintiff lease owner, Lightning Oil Co. (“Lightning”), was not entitled to a temporary injunction barring an adjoining lease owner, Anadarko E&P Onshore, LLC (“Anadarko”), from drilling through Lightning’s mineral estate to reach Anadarko's own mineral estate. Lightning Oil Co. v. Anadarko E&P Onshore, LLC, No. 04-14-00152-CV (Tex. App.—San Antonio, October 29, 2014).

Lightning owns mineral leases in Dimmit County, Texas. Briscoe Ranch, Inc. owns the surface above Lightning’s leases. Directly south of Lightning’s leases is the Chaparral Wildlife Management Area (“Chaparral WMA”), a wildlife sanctuary and public hunting area managed by the Texas Parks and Wildlife Department (“TPWD”).

In 2009, Anadarko obtained leases to mineral interests in the Eagle Ford Shale beneath the Chaparral WMA. Anadarko’s lease requires it to use offsite drilling locations “when prudent and feasible.” To reach the Eagle Ford Shale, Anadarko first unsuccessfully sought a surface use agreement from TPWD. After its unsuccessful bid to TPWD, Anadarko obtained a Surface Use and Subsurface Easement Agreement from Briscoe Ranch. Anadarko planned to establish drill sites on Briscoe Ranch’s land to reach the Eagle Ford Shale on its lease under the Chaparral WMA. Anadarko’s wells would pass through—but not produce from—Lightning’s leasehold. Anadarko informed Lightning of its plans.

After discussions between Lightning and Anadarko broke down, Lightning sued Anadarko, asserting claims for trespass and tortious interference with contract. At the temporary injunction hearing, Lightning claimed that Anadarko’s drilling operations would harm Lightning because:

  • If Anadarko failed to properly case its wells, drilling or fracing fluid could seep into and damage Lightning’s mineral interests;
  • Lightning would have to drill additional offset wells to prevent drainage from Anadarko’s wells; and
  • Anadarko’s wellbore would interfere with Lightning’s drilling plans.

The trial court denied the temporary injunction, and Lightning immediately appealed. The appellate court, however, agreed with the trial court, noting that Lightning’s own witnesses undercut its argument that it would suffer immediate and irreparable harm if Anadarko were permitted to drill. In short, Lightning’s witnesses testified that:

  • A casing failure or blowout was highly unlikely, but even if one occurred, “that loss could be quantified and compensated based on reserve estimates”;
  • Lightning would have to drill the same additional offset wells if Anadarko were able to reach its lease from a different surface location; and
  • Lightning’s proposed wellbore would “never encounter” Anadarko’s wellbore because of Texas’ field spacing rules.

On appeal, both sides also argued the issue of whether Anadarko’s drilling plans would constitute a trespass, and whether Briscoe Ranch, the surface owner, had the right to consent to drilling activities through Lightning’s leasehold. The court, however, stated that those arguments were outside “the scope of this interlocutory appeal” and would have to be “determined at the trial on the merits.” But the court did state that, even assuming there was a legal trespass, Lightning had failed to show that it would suffer imminent and irreparable harm if Anadarko was permitted to proceed with its drilling plans.

Lightning Oil is significant for drilling operators and mineral owners who deal with the increasingly common phenomenon of offsite drill pads. The case shows that, without specific proof of imminent harm, it will likely be difficult to stop a planned drilling operation while a case is pending. At the same time, however, the case leaves unanswered questions about potential liability for such operations. As a result, this is an important case to watch, as it has the potential to address a number of issues involving alleged subsurface trespass.

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