Surface Issues Dealing With Landowners, Buyers, and Sellers

Transcription

1 Surface Issues Dealing With Landowners, Buyers, and Sellers Presented by Greg W. Curry

2 Surface owner preventing access Sudden release Historical release 2

3 Clean, freshwater, is the lifeblood of rural Texas. Douglas Beveridge Vice President King Ranch Minerals 3

4 Contaminated freshwater renders the surrounding land virtually worthless. 4

5 But the Truth is ,000 +/- wells in Texas Possibly as many as 116,500 wells that may need to be plugged But, according to the TNRCC in 2003, only 250 cases of water pollution as a result of oil and gas operations 5

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17 General Considerations Does the complaining party own the land? Is there available insurance? Give notice Is there any possible indemnity right? Give notice Do you need to contact any governmental authorities? 17

18 Do you need to hire consultants? Environmental Appraiser Oil field operations Others Do you need to hire a PR consultant? Secure the site Preserve all evidence Maintain privilege 18

19 Primarily an issue when the mineral rights are severed from the surface... but has become more of an issue in historical areas and where the oil fields are meeting the city. Hostile surface owners get off my land... what part of my double barrel shotgun do you not understand? 19

20 Play nice, negotiate compromise, surface damage agreement... Never take matters into your own hands Injunctive relief and possibly damages related to delay/interference... Same rights to access surface exist even if minerals and surface are not severed, subject to terms of the lease 20

21 Where does the right to use surface originate? Implied out of necessity even if not expressly granted by lease Expressly granted by lease Statutory 21

22 Scope of mineral owner s right to use surface Where mineral estate is severed from surface, mineral estate dominant Legal privilege and enforceable right to use and have priority over servient estate to extent reasonably necessary to explore, develop, and transport minerals 22

23 When conflict of use arises, and no reasonable alternative, mineral estate s right to use surface trumps In Texas, mineral owner not required to pay surface damages provided use is not excessive, negligent, or in violation of lease but as a practical matter most oil companies do so Many surface owners may not know that mineral owner may be entitled to damages and injunctive relief for improper interference 23

24 Limitations to Right to Use Surface Limitations to Right to Use Surface May use only amount of surface as reasonably necessary to explore, develop, and transport minerals giving due regard for the rights of the surface owner Accommodation Doctrine : Are there reasonable alternative means to producing minerals which will permit surface owner to continue existing use of surface? 24

25 Surface use generally limited to exploration, development, and transport of minerals underlying lease/mineral estate must secure easement or right of way to transport off-lease or off-premise production or to access lease or premise to explore adjacent acreage (unless pooled) Surface use must comply with terms of lease and with applicable statutes, rules, and regulations e.g., drilling permits, statutory notice requirements, etc. 25

26 Exposure to damages for operations outside the reasonably necessary area used to explore and develop minerals pollution is not reasonably necessary. Lessee cannot negligently damage surface violations of RRC rules may result in negligence per se finding 26

27 State surface damages acts: several states have enacted surface damage acts requiring operators to compensate surface owners for value of crops destroyed and diminution in value of the surface, including Oklahoma, North and South Dakota, West Virginia, Illinois, and Kentucky, but not Texas but is Texas going to do so in the next legislative session. Texas does limit drill sites in densely populated areas Texas now requires notice to the surface owner of the issuance of a permit to drill or re-enter a well 27

28 Other Issues Damages Permanent vs. Temporary Fair market value Economic feasibility Stigma 28

29 Jury Instruction Name: Nuisance Question Nuisance Question Did Defendant maintain a nuisance which proximately caused damage to Plaintiff? Answer Yes or No. Answer: 29

30 Jury Instruction Name: Permanent/Temporary Damage Question Permanent/Temporary Damage Question Was the injury, if any, to Plaintiff s real property permanent or temporary? You are instructed that injury to real property is permanent if it is constant and continuous, and not occasional, intermittent, or recurrent. Injury to real property is temporary if it is sporadic, occasional, or contingent upon some irregular force such as rain. Answer Permanent or Temporary. Answer: 30

31 Jury Instruction Name: Permanent Damage Question Permanent Damage Question What is the difference, if any, in the reasonable market value of Plaintiff s real property immediately before and immediately after the injury in question? Answer in dollars and cents, if any. Answer: Source: Porras v. Craig, 675 S.W.2d 503 (Tex. 1984). Comments provide: Opinion testimony is proper means to prove. Owner can always testify. 31

32 Jury Instruction Name: Temporary Damage Question Temporary Damage Question What sum of money, if any, if paid now in cash, would fairly and reasonably compensate plaintiff for damage to his real property resulting from the injury in question? Consider the following elements of damages and no other. Consider each element separately and do not include amounts for one element in the other element. Do not include interest on any damages you find. Cost of repair. Consider the reasonable and necessary cost in Forum County, Texas to restore the real property to the condition it was in immediately before the injury. Loss of use and enjoyment. Consider the reasonable value of the use of similar real property in Forum County, Texas for the period of time required to repair the property. Answer in dollars and cents, if any. Answer: Comments Note: You may need to limit to damages occurring since 2 years before suit is filed Economic feasibility 32

33 Historical issues may be difficult to defend because of availability of proof Differing standards but possibly judged by today s standards Other responsible parties Other operators Subcontractors and suppliers Other surface users 33

34 Horizontal Drilling Issues Cannot use land that is not owned or under lease Pending before the Supreme Court is Mission Resources v. Garza Energy Trust Corpus Christi Court of Appeals recognized subsurface trespass tort by frac Be careful when drilling through minerals you do not own or lease Prudent path is to obtain permission from all 34

35 Remember you may still have liability (including possible criminal liability) to regulators RCC Wildlife and similar statutes Superfund usually outside the context of oil and gas operations, but may be available for substances other than petroleum, such as drilling fluid Local zoning issues 35

36 How do you handle surface damage issues in an oil and gas transaction? Contract will govern My watch your watch Buyer assumes all defects identified as of a date certain 36

37 Contract Issues Common sense should dictate How long has the Seller owned the property? How has the Property been operated? Any pending actions? Any sensitive areas, including water? 37

38 Make sure contract documents the deal Set standard for shifting responsibility and set means for establishing cost Due diligence, including environmental assessments Be careful with representations and warranties 38

39 Drafting Considerations Define environmental defects or conditions Conditions Tied to standards or laws Timing and identification of defects Materiality Knowledge limitations Subjective Objective 39

40 As is clause Release and waiver provisions Valuing the defect Escrow Consider insurance Indemnity fair notice and specific language 40

41 Recent Cases of Interest... Texas Genco, LP v. Valence Operating Co., 187 S.W.3d 118 (Tex. App. Waco 2006) Surface owner sought to enjoin oil company to directionally drill so as to not interfere with existing surface use (electric power plant/landfill) In this case, surface owner even offered to partially compensate for increased costs (rare); obtained TRO/TI to prevent drilling, and sought permanent injunction 41

42 Dispute concerned whether directional drilling was a reasonable alternative (under the accommodation doctrine) despite increased costs Jury found existing use and that directional drilling was a reasonable alternative to recover gas 42

43 Duke Energy Field Services, L.P. v. Meyer, No CV, 2005 WL (Tex. App. Amarillo Dec. 27, 2005, pet. filed) Pipeline was granted easement which contained damage provision for crops, livestock, etc. related to use of easement Cows observed drinking oil that had leaked from pipeline; exposure allegedly led to cows having miscarriages/aborted calves... 43

44 Pipeline failed to preserve at trial its objection that the testimony in support of causation was not expert testimony or reliable However, Court of Appeals reversed the finding for the surface owner finding insufficient evidence that oil from pipeline leak actually caused harm to cows (e.g., no evidence cows digested oil and other possible causes existed such as poor nutrition) 44

45 Mieth v. Ranchquest, Inc., 177 S.W.3d 296 (Tex. App. Houston [1st Dist.] 2005, no pet.) Case involved issue of whether alleged damage to surface related to drilling (e.g., discharging drilling muds, diesel, saltwater onto pasture land and into nearby creek) was temporary or permanent Temporary damage: can be remediated at reasonable expense; measure of damages = cost of restoration (however owner cannot recover more than diminution in fair market value of the property) Permanent damage: will continue indefinitely; measure of damage is diminution in fair market value of land 45

46 Court concluded damage permanent, but found for oil company because jury found no diminution in value of land, only $200,000 in reasonable and necessary remediation costs Court of Appeals affirmed holding that jury finding of no diminution in value was proper in light of conflicting evidence Side note, court points out that the oil company s violations of RRC rules could serve as negligence per se 46

47 Grinnell v. Munson, 137 S.W.3d 706 (Tex. App. San Antonio 2004, no pet.) Lessee filed action against surface owner alleging surface owner damaged aircraft runway that lessee was entitled to maintain/use pursuant to leases Surface owner counterclaimed, seeking in part a declaration that leases had terminated for lack of production in paying quantities Lessee granted summary judgment on grounds surface owner lacked standing to challenge leases surface owner not a party to leases and was not an intended third-party beneficiary 47

48 Greg W. Curry