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Anadarko Case Could Reshape Offsite Drilling In Texas

March 23, 2017

In a case that could impact offsite drilling throughout the state, Texas Supreme Court justices on Tuesday wrestled with whether Lighting Oil Co. could prove an Anadarko Petroleum Corp. unit trespassed on its property by drilling through its mineral estate to reach an adjacent lease.

The justices largely asked questions aimed at the boundaries of Lightning’s trespass argument, like if it matters how many wells Anadarko E&P Onshore LLC would drill through, what kind of evidence is necessary to show Lightning could be harmed by that drilling and whether existing common law rules like the accommodation doctrine and rule of capture are sufficient to decide the dispute between the companies.

Trial and appellate courts have ​rejected ​the claims brought by Lightning Oil and found that the surface owner — Briscoe Ranch — has the power to authorize a well like Anadarko’s.​ ​The high court agreed to hear the case in January.

Justice Eva Guzman brought up the state’s policy in favor of developing its mineral resources, and asked Lightning’s counsel how blocking Anadarko from drilling into its lease from neighboring property would further that policy. She also asked under what authority Lightning could exclude others from use of the earth surrounding its minerals, and whether it’s relevant that Anadarko would not be producing any oil or gas from the Lightning side of the property line.

“I don’t think that’s important in a trespass sense,” Lighting attorney Shannon Ratliff of Ratliff Law Firm PLLC said. “If you walk through a corn field you don’t own, you’re a trespasser. You don’t have to pick the corn for it to be a trespass.”

Lightning owns the rights to oil and gas beneath the Briscoe Ranch in the Eagle Ford shale play, and argues it must grant consent before Anadarko can drill through that property to reach Anadarko’s mineral lease. Anadarko’s mineral estate lies beneath the Chaparral Wildlife Management Area, a state-owned preserve, and it could not reach a deal granting it permission to drill on the surface.

Anadarko has argued it never had to strike a deal with Lightning, saying it secured permission from the ranch to place a drill pad site on the Briscoe Ranch surface and drill horizontally deep underground before “bottoming out” and beginning to produce oil and gas from beneath Chaparral. 

Ratliff told the court Anadarko’s plans to drill at least five wells under the Briscoe Ranch could interfere with Lightning’s legal right to a fair opportunity to capture the minerals in that ground. Anadarko’s wells would impede Lightning’s ability to produce the formation how it sees fit — the record shows Lightning had to re-orient its wells from its preferred direction to avoid running into Anadarko’s well bores, and it could run into a problem like not being able to frack its own wells for fear it could interfere with Anadarko’s well bores, he said.

And regarding state policy, he argued the state also has an interest in Lightning developing its minerals, so if Anadarko’s operations preclude Lightning from being able to produce from its lease, that would also violate state policy.

Justice Debra Lehrmann asked Anadarko’s counsel directly whether it believed its wells trespassed on Lightning’s property.

Arguing for Anadarko, Deborah Hankinson of Hankinson LLP said Lightning doesn’t have an ownership interest that allows it to exclude others from coming onto the Briscoe Ranch surface or subsurface, so there’s no trespass. Hankinson told the court that offsite drilling like Anadarko proposes has become wildly popular, saying 30 percent of horizontal wells permitted recently utilize it, and everyone else has been able to work out any issues “in the field.”

“The parade of horribles hasn’t happened,” Hankinson said. “They are asking you to step in the middle and create a cause of action that interrupts the doctrine of accommodation, which works so well we rarely see it written about.”

Justice Guzman asked Hankinson if the outcome would be the same if Anadarko drilled 65 wells through the property, saying even though there’s no evidence of that many wells in this case, the court has to issue a rule that can operate beyond this fact pattern. Justice Phil Johnson asked if Anadarko’s wells did interfere to the point that Lightning could not in any other way access its minerals, whether Anadarko would have to yield and Lightning would have a preferential use of the land.

Hankinson said the accommodation doctrine serves to protect both companies’ rights no matter how many wells there are. If there’s evidence the neighboring lessee’s well bores interfered, there could be a discussion of reasonable use, and if Lightning could establish an interference like Justice Johnson suggested, the accommodation doctrine would protect it, she said.

Lightning is represented by Shannon Ratliff and Lisa Paulson of Ratliff Law Firm PLLC, and Bruce Spindler, John Petry and Stephen Ahl of Langley & Banack Inc.

Anadarko is represented by Donato D. Ramos and Donato D. Ramos Jr. of Law Offices of Donato D. Ramos LLP; Shayne D. Moses and David A. Palmer of Moses Palmer & Howell LLP; and Deborah G. Hankinson, Stephanie Dooley Nelson and Brett Kutnick of Hankinson LLP.

The case is Lightning Oil Co. v. Anadarko E&P Onshore LLC, case number 15-0910, in the Supreme Court of the State of Texas.

Law360, Dallas, Editing by Breda Lund.

Read original article at www.law360.com.

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