YOU SWAMPED MY WELLS!! – Texas Court finds that Saltwater Disposal May Create an Actionable Trespass

AUTHOR(s)

Lone Pump Jack Midland Texas

 

Iskandia Energy Operating, Inc. v. SWEPI LP[1] is the latest installment in a growing line of Texas cases addressing various forms of subsurface trespass.  Iskandia recognizes the possibility of a trespass claim due to unwanted wastewater migration.

Recall that in the 2008 case of Coastal v. Garza, the Texas Supreme Court held that every unauthorized entry upon the land of another is a trespass even if no damage is done or the injury is slight.[2]  However, the Coastal court declined to address whether the entry of frac fluid and proppants into another’s land two miles below the surface was an actionable trespass, deciding the case on other grounds.[3]  In the 2015 FPL Farming case, the Texas Supreme Court similarly dodged the question of whether the deep subsurface migration of wastewater could give rise to a cause of action for trespass.[4]  In 2017’s Lightning case, the Texas Supreme Court seemed to walk back Garza a bit, stating that not every invasion of property is a trespass, and that the rules of trespass are different on the surface of the earth from those that apply two miles above or below it.[5]  The Lightning court also made it clear that even if a subsurface trespass has technically occurred, there must be more than nominal damages to support the claim.  That same year, the Twelfth District Court of Appeals held in XTO Energy v. Goodwin that there was a cause of action for trespass when a wellbore drifted onto – but never produced from – an adjacent tract.[6]  However, in that case Goodwin failed to prove any actual damages and ultimately took nothing.

Iskandia Energy Operating, Inc. (“Iskandia”) is an oil and gas operator who specializes in squeezing new life out of depleted wells and reservoirs.  In 2017 Iskandia purchased oil and gas leases covering more than 5,000 acres in Loving County, Texas.  Their leases and wells were limited to the Delaware Mountain Group (DMG) Formation, a “shallow” formation lying above the more prolific Bone Spring and Wolfcamp Formations in the Permian Basin.  There were over 100 wells producing on Iskandia’s leases in the DMG Formation.  As is common in the area, Iskandia’s operations resulted in the production of ~6,000 barrels of saltwater (a/k/a brine or wastewater) per day, which it disposed of by injecting it back into the DMG Formation at a 1:1 ratio.  The facts imply that Iskandia and its predecessors operated these South Dimmitt Field wells for 35 years with little incident.[7]

In 2018, Shell Western E&P (“SWEPI”) erected several saltwater disposal wells as part of its development program in the Bone Spring and Wolfcamp Formations.  These disposal wells were in the immediate vicinity of Iskandia’s producing wells.  Importantly, neither party had the right to explore and produce, or dispose of wastewater, in the others’ depths.  Between December 2018 and October 2019, SWEPI began to inject large amounts of saltwater into the area, increasing from 58,000 barrels per day to over 2 million barrels per month.  Over three years, SWEPI injected over 75 million barrels of non-native saltwater – an amount equivalent to what Iskandia and its predecessors had injected over 35 years.  Iskandia soon began to notice signs that its wells were producing more and more saltwater and less oil and gas.[8]

Iskandia accused SWEPI of injecting its saltwater into Iskandia’s producing area as opposed to SWEPI’s.  By disposing of “exponentially more” saltwater than the area could accommodate, Iskandia maintained that SWEPI was watering out or “swamping” Iskandia’s wells.  In some instances, saltwater was even being forced out of the tops of the wellheads.[9]  As the saltwater contamination spread, Iskandia alleged SWEPI had irreparably damaged the reservoir and the economics of many of its wells.  In June 2020, Iskandia sued SWEPI, alleging that SWEPI’s injection of saltwater into Iskandia’s producing zone, instead of its own producing zones, was a trespass.[10]  The trial court disagreed, granting summary judgment in favor of SWEPI, and this appeal followed.[11]

A large portion of the Eighth District Court of Appeals’ opinion addressed whether the trial court had properly excluded certain expert testimony.  This testimony was based on reservoir modeling software and asserted that: (i) SWEPI’s activities had adversely affected, or would eventually affect, the potential of multiple of Iskandia’s wells; and (ii) the resulting damages amounted to nearly $30 million.  SWEPIs attacks on the credibility of Iskandia’s experts ultimately failed, with the Court of Appeals holding that Iskandia’s experts were qualified, and that their testimony was relevant and reliable.[12]

The court then turned to the law of trespass.  In Texas, the three common law elements of trespass are: (1) entry (2) onto the property of another (3) without the property owner’s consent or authorization.[13]  However, the court acknowledged a notable absence of existing legal precedent governing cases of subsurface trespass from migrating wastewater.[14]  The court instead analogized Helena Chemical Co. v. Cox, a case that involved herbicide drifting from aerial application onto a neighbor’s property, damaging his cotton crop.[15]  In applying Helena, the court held that in order to survive summary judgment, Iskandia must demonstrate that SWEPI’s activities had directly caused the alleged damage to its wells.[16]  Iskandia, it found, had potentially met that burden.

In finding that the trial court erred in granting summary judgment, the Court of Appeals pointed to the ample (newly admissible) expert testimony that SWEPI had caused saltwater to enter Iskandia’s wells at a level that caused irreparable damage, noting that: (1) by July 2019, Iskandia’s records showed that it became aware of substantial volumes of high-pressure saltwater flooding some of its wells; and (2) by 2021, additional wells showed significant pressure increases due to saltwater encroachment.  The issue, per the experts, was that there is pressure communication between the zones in which SWEPI is injecting saltwater and Iskandia’s producing zones.  This allowed the wastewater to travel to Iskandia’s depths and water out its wells.  Finally, the court dismissed SWEPI’s argument that Iskandia might have watered out its own wells with its customary 1:1 saltwater disposal efforts.[17]

The takeaway from this case is that at least one Texas Court has recognized the possibility of a trespass claim due to unwanted wastewater migration.  Here, the facts imply that SWEPI was injecting wastewater into depths outside of the Bone Spring and Wolfcamp Formations (where it had leases) into the DMG Formation (where it did not have leases).  Even if it was not injecting directly into the DMG Formation, the injected wastewater was being communicated to Iskandia’s depths.  Although this matter is far from resolved, the appellate court held that there was enough of a factual dispute on both causation and damages to overturn summary judgment.

[1] 2023 Tex. App. LEXIS 8288 (El Paso 2023).

[2] Coastal Oil & Gas Corp. v. Garza Energy Tr., 268 S.W.3d 1, 12 n.36 (Tex. 2008).

[3] Id. at 11.

[4] Envtl. Processing Sys., L.C. v. FPL Farming Ltd, 457 S.W.3d 414 (Tex. 2015) (However, the Court noted that “every unauthorized entry upon the land of another is a trespass even if no damage is done or injury is slight, and gives a cause of action to the injured party”).

[5] Lightning Oil Co. v. Anadarko E&P Onshore, 520 S.W.3d 39 (Tex. 2017) (“Wheeling an airplane across the surface of one’s property without permission is a trespass; flying the plane through the airspace two miles above the property is not”).

[6] XTO Energy, Inc. v. Goodwin, 584 S.W.3d 481 (Tex. App.—Tyler 2017, pet. denied).

[7] 2023 Tex. App. LEXIS 8288, at 2, 46-48.

[8] Id.

[9] Id. at 3-5.

[10] Id.

[11] Id. at 6.

[12] Id. at 8-32.

[13] Id. at 35.

[14] Id. at 42-43.

[15] Helena Chem. Co. v. Cox, 664 S.W.3d 66 (Tex. 2022).

[16] See 2023 Tex. App. LEXIS 8288, at 45.

[17] Id. at 46-49.

Brad represents clients in connection with upstream energy transactions, complex mineral titles, pooling issues, lease analysis, joint operating agreements, surface use issues, title curative and general oil and gas business matters.

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