Subsurface Trespass and Pore Space Issues Associated with Horizontal Drilling in the Rockies The following is expressly for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of the following information does not create an attorney-client relationship between Burleson LLP and the user. The opinions expressed are the opinions of the individual author and may not reflect the opinions of Burleson LLP or any individual attorney. Presented by: Brent Chicken Burleson LLP 303.801.3210 bchicken@burlesonllp.com
HORIZONTAL DRILLING
ROCKY MOUNTAIN ISSUES
REAL PROPERTY OWNERSHIP - Interests in surface and mineral estates are real property under the laws of the subject states - This is true whether such estates are fee, severed or split estate, or fractional/undivided - Leases in such interests are also generally considered real property, including oil and gas leases, gas storage leases, and gravel or grazing leases - Common law and statutory property ownership principles are applicable to all such interests - With respect to joint ownership of surface and mineral estates, there are minor differences between the subject states - Generally, each co-tenant has the right to possession of the whole and the right to exclude third parties - For example, in order to obtain a surface use easement or right-of-way, it must typically be granted by all co-tenant surface estate owners
PROPERTY RIGHTS MODIFICATION - However (and although somewhat less prevalent with respect to the surface estate), some principles of property ownership are subject to modification based upon common law and statute operation, through the exercise of a state s police power to preserve health, safety and welfare - With respect to the mineral estate, the rights of possession and exclusion of third parties are capable of modification, either by common law or statute, allowing a single co-tenant to develop the mineral estate without the consent of other co-tenants, but having the obligation to account to them - For example, all of the subject states provide statutory mineral estate pooling mechanisms, implemented and enforced by state agencies tasked with overseeing natural resource development based on conservation principles - These agencies also implement statutory and common law concepts regarding the rights of severed or split estate mineral estate owners, such as facilitating surface estate access and bonding process - The relationships between the various owners of the surface and mineral estates become important components to analysis of subsurface trespass issues
MINERAL ESTATE DOMINANCE AND ACCOMMODATION - The traditional doctrine concerning the dominance of the mineral estate allows the owner thereof to use so much of the surface estate as is reasonably necessary to develop the mineral estate - This mineral estate dominance has been mostly preserved in the subject states, although such dominance is often subject to the accommodation doctrine - Under the accommodation doctrine, the surface and mineral estate owners must ensure that their respective uses of the land are not to the detriment of the other, exercising due regard - A corollary common law concept further provides that the right to use of the surface estate to develop the mineral estate is tied to a specific mineral estate, i.e. the reasonable surface use rights of a given mineral estate cannot be used to develop other adjacent mineral estates
SUBSURFACE TRESPASS - Trespass is a physical intrusion upon the real property of another, including subsurface property and minerals, without the owner s consent - Trespass can occur through an instrumentality, such as an oil and gas wellbore - There is a reasonably developed body of jurisprudence concerning subsurface trespass in the basic situation where a party drills a wellbore into the mineral estate of a third party, either via a misaligned slant well or through an unintentionally deviated vertical wellbore; in contrast, there are few subsurface trespass cases associated with horizontal wellbores - A trespass can be characterized as continuing or permanent in nature; for example, a failure to remove a thing from the property of another is a continuing trespass until it is removed - Conversely, a wellbore is likely a permanent trespass, owing to the practical impossibility of removal - Such continuing and permanent trespasses are subject to heightened damage allowances, attorney fee and cost recovery, and perhaps most importantly, injunctive relief
WHAT IS SUBSURFACE PORE SPACE?
OWNERSHIP OF SUBSURFACE PORE SPACE - Although jurisprudence directly on-point is unavailable or inconclusive, all of the subject states are likely to follow the majority rule, vesting subsurface pore space ownership in the owner of the surface estate, unless it was otherwise expressly severed by a conveyancing instrument - However, despite limited discrepancies (often associated with water law or geophysical exploration), the common law of the subject states supports ownership of the subsurface pore space as part of the surface estate - Wyoming and North Dakota have codified surface estate ownership of subsurface cavities or voids capable of storing gaseous substances - Montana has unsuccessfully attempted to pass subsurface pore space legislation, as have other Rocky Mountain states, most recently Utah and New Mexico - Colorado remains the only subject state without some form of statutory reference to subsurface cavities or voids, either in relation to the storage of gaseous substances or the sequestration of carbon dioxide - Federal law is generally in line with the majority subsurface pore space ownership views, although there are certain federal materials to the contrary
PROPERTY OWNERSHIP PRINCIPLES, MODIFICATION, AND ACCOMMODATION DOCTRINE IN RELATION TO SUBSURFACE PORE SPACE - To the extent that subsurface pore space ownership is vested in the owner of the surface estate, subsurface pore space should be treated as a part of the surface estate for analysis purposes - Accordingly, traditional co-tenancy ownership concepts and surface estate rights likely extend to subsurface pore space - For example, although no jurisprudence directly on-point exists, references in a traditional surface use and access agreement would likely extend to subsurface pore space - Subsurface pore space ownership principles should also be subject to modification by statute and common law; for example, many states allow the exercise of eminent domain by publicly regulated utilities and pipeline companies to condemn subsurface natural gas storage rights - Likewise, the dominance of the mineral estate, and the accommodation doctrine, are also probably applicable to subsurface pore space, allowing the mineral estate owner the right to use so much of the subsurface pore space as is reasonably necessary to develop the mineral estate - Indeed, both the Wyoming and North Dakota subsurface pore space statutes expressly preserve the dominance of the mineral estate
SUBSURFACE PORE SPACE AND TRESPASS - Just as the surface of the lands can be the object of trespass, so too can the subsurface pore space - Accordingly, a wellbore is capable of penetrating subsurface pore space, causing liability for trespass where the common law trespass concepts have not been modified by other law or statute, and/or where the consent of the surface estate owner was not obtained - As a general matter, most operators, through a combination of oil and gas leases, surface use and damage agreements, and other land instruments, obtain the necessary permissions to undertake horizontal drilling without the potential for subsurface pore space trespass liability - The dominance of the mineral estate, and its accompanying right to reasonable use of the surface estate, along with the modification of common law ownership principles through the operation of conservation law, results in operators generally possessing the necessary permissions to drill horizontal wells - However, each horizontal well has its own unique factual ownership situation, and as such, should be carefully analyzed separately to identify any potential subsurface pore space trespass liability
SUBSURFACE PORE SPACE TRESPASS ANALYSIS - The most useful horizontal well situation for purposes of illustrating the analysis is shown below, with the thick bold vertical lines representing property boundaries
SUBSURFACE PORE SPACE TRESPASS ANALYSIS - Potential issues arise in this scenario, whether the lands are owned in fee or are severed mineral and surface estates, in at least two (2) ways - First, although the operator is likely to have an oil and gas lease covering the far left tract, the reasonable right to use of the surface estate of that tract is tied to its mineral estate, not the mineral estate of the adjoining tracts from which the horizontal wellbore will produce - Accordingly, in order to avoid subsurface pore space trespass liability with respect to the vertical, non-producing segment of the wellbore, the operator must secure the independent consent of the surface owner - Second, to the extent that some portion of the horizontal wellbore lying in the center tract has not been perforated for production, the operator is again faced with obtaining the surface estate owner s independent consent - The analysis becomes more complicated if surface estate ownership is fractionalized/undivided, or if the operator intends to place any reliance on governmentallyregulated surface access through bonding - Each and every horizontal wellbore must be diligently analyzed, based on its own specific facts, to ensure that no subsurface pore space trespass liability will accrue
SUBSURFACE PORE SPACE TRESPASS RISKS: DAMAGES - Because the value of subsurface pore space lies primarily in its ability to be pressurized for the storage of gaseous substances, damages for subsurface trespass are likely to focus on destruction of that ability due to the penetration of a wellbore - Despite the technically broad range of damages potentially associated with subsurface pore space trespass, those damages must nonetheless be capable of reasonable, non-speculative determination - The normal method for calculation of damages with respect to trespass would be the difference between the value of the pore space before the penetration and the value of the pore space after the penetration - However, establishing a benchmark would require costly expert witness testimony, and would likely only be availing if the subsurface pore space owner had established a baseline for the penetrated pore space prior to the arrival of the wellbore - Accordingly, the subsurface pore space owner faces substantial difficulty and cost in successfully maintaining a claim for subsurface pore space trespass damages - The greatest potential for cost to the operator from a subsurface pore space trespass action therefore lies not in the dangers of an large adverse judgment, but in other forms of relief available, particularly in the early stages of the litigation
SUBSURFACE PORE SPACE TRESPASS RISKS: INJUNCTIVE RELIEF - All of the subject states have judicially and/or statutorily approved the award of injunctive relief in trespass actions - Thus, a subsurface pore space owner may seek a preliminary injunction at the start of litigation, asking the court to preserve the status quo, i.e. the absence of a wellbore penetration in the subsurface pore space - Although the specific facts of each case will control with respect to the subsurface pore space owner s ability to meet the requirements for issuance of a preliminary injunction, and despite the potentially high injunctive relief bond an operator may seek to have imposed, courts often err on side of caution when determining preliminary injunctions - Accordingly, the greatest economic risk to an operator from a subsurface pore space trespass claim lies not in the ultimate damages awarded, but in the potential for judicially-mandated cessation of drilling - Such cessation may involve prohibition on the removal of equipment from the drilling location, potentially including rigs, frac crew materials, and other essential equipment, which may lead to further disputes between the operator and its drilling and service contractors
CONCLUSION - Although the potential range of scenarios under which subsurface pore space trespass liability may accrue is narrow, operators should nonetheless focus on careful and diligent analysis of the potential for the same, taking into account the specific factual situation associated with each horizontal wellbore
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