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Lightning v. Anadarko

By Ilya Batikov

On May 19, 2017, the Supreme Court of Texas issued its long-awaited decision in Lightning v. Anadarko (see here for our earlier coverage of this case)—holding that when minerals are severed from the surface, the mineral owner’s permission is not required for a producer to drill through the surface tract in order to produce minerals from an adjacent tract.

Lightning obtained an oil and gas lease covering the severed mineral estate underlying Tract A.   Anadarko held an oil and gas lease on an adjacent tract, Tract B. To develop Tract B, Anadarko entered into an agreement with the surface owner of Tract A to place a pad site on Tract A and drill five wells, which would be drilled vertically through Tract A before “kicking-off” horizontally and completing in—and producing from—Tract B.   Lightning sued Anadarko for trespass and for tortious interference with its oil and gas lease on Tract A. The trial court found in favor of Anadarko and the appellate court affirmed.

The Supreme Court of Texas also affirmed. The court found that by virtue of its lease, Lightning was granted the “right to develop” the oil and gas estate underlying Tract A. The right to develop, the court noted, included the right to explore for, produce, and possess minerals—but not “the right to possess the specific place or space where the minerals are located.” Thus, Lightning would only have a viable trespass claim if it could show that Anadarko’s drilling plans would interfere with its own ability to develop Tract A. Whether Lightning would suffer such interference was a matter of speculation, the court noted. Further, Anadarko’s drilling activities would be subject to Railroad Commission oversight, and there was no reason to think that the Railroad Commission would not adequately protect Lightning’s rights. Moreover, the accommodation doctrine—which otherwise serves to resolve conflicts between surface and mineral owners—was applicable here and would provide a workable framework to address disputes regarding Anadarko’s and Lightning’s respective rights in Tract A.

And while it was true that Anadarko’s plan to drill vertically through Tract A would invariably displace and extract a portion of the subsurface embedded with Lightning’s hydrocarbons, that interference with Lightning’s mineral estate did not support a trespass claim. “Whether the small amount of mineral lost through that process will support a trespass action must, in the end, be answered by balancing the interests involved.” Here the amount of minerals that Lightning would lose is minimal. Conversely, although Anadarko could drill from the surface of Tract B, it would have to do so under “burdensome conditions.” Moreover, the several thousand feet of kick-off and transition required for the well to go from vertical to horizontal results in blind spots—intervals that may never been fully produced—and so, in order to efficiently develop the mineral estate under Tract B, Anadarko would need to drill vertically from an adjacent tract. Under that balancing test, the small amount of minerals that Lightning would lose as a result of Anadarko’s drilling is outweighed by the industry-wide interest in maximizing oil and gas recovery, and therefore, did not present a sufficient injury to support Lightning’s trespass claim.

Tags: Oil and Gas, Energy, Shale

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