Coastal Oil & Gas Corp. v. Garza Energy Trust
268 S.W.3d 1, 172 O. & G.R. 521 (2008) (2008)
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Rule of Law:
The rule of capture bars a mineral rights owner from recovering damages for trespass for the value of natural gas drained from their property by a hydraulic fracturing operation that extends from a well lawfully drilled on an adjacent property.
Facts:
- The Salinas family owned the mineral rights in a 748-acre tract of land called Share 13.
- Coastal Oil & Gas Corp. was the lessee of the minerals in Share 13 and owned and operated the mineral estate in an adjacent tract, Share 12.
- A natural gas reservoir, the Vicksburg T formation, which requires hydraulic fracturing for commercial production, lies deep beneath these tracts.
- In 1996, Coastal drilled the Coastal Fee No. 1 well on Share 12, positioning it as close to the Share 13 boundary as state regulations permitted (467 feet).
- Coastal then performed a 'massive' hydraulic fracturing ('fracing') operation on the Coastal Fee No. 1 well.
- The fracing operation was designed with a hydraulic length intended to reach over 1,000 feet from the well, a distance sufficient to cross the property line into the subsurface of Share 13.
- The parties agreed that the hydraulic and propped lengths of the fractures physically extended into the subsurface beneath Share 13.
- Salinas alleged that these artificially created fractures drained substantial amounts of natural gas from under Share 13 to Coastal's well on Share 12.
Procedural Posture:
- Salinas sued Coastal Oil & Gas Corp. in a Texas state trial court for breach of implied covenants.
- Salinas later amended the complaint to add claims for subsurface trespass due to hydraulic fracturing and for bad-faith pooling.
- A jury found in favor of Salinas on the trespass, development, and pooling claims, awarding substantial actual and punitive damages.
- The trial court entered judgment on the verdict after reducing the damages for drainage and bad-faith pooling to the maximum amounts supported by the evidence.
- Coastal, as appellant, appealed to the Texas Court of Appeals.
- The Court of Appeals affirmed the trial court's judgment on the trespass, development, and pooling claims but reversed and remanded the award of attorney's fees.
- Coastal, as petitioner, sought review from the Supreme Court of Texas.
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Issue:
Does subsurface hydraulic fracturing that extends into another’s property constitute an actionable trespass for which the value of gas drained as a result may be recovered as damages?
Opinions:
Majority - Justice Hecht
No, the rule of capture precludes recovery of damages for the value of gas drained by a hydraulic fracturing operation that extends across property lines. Although a mineral lessor with a reversionary interest has standing to sue for a trespass that causes actual and permanent injury, the only injury alleged here—the drainage of gas—is not legally cognizable. The rule of capture grants title to the oil and gas produced from a lawful well to the operator of that well, even if the minerals migrated from an adjacent tract. This rule is a cornerstone of property rights and state regulation in the oil and gas industry. To allow a trespass claim for drainage via fracing would fundamentally undermine this long-standing doctrine and usurp the regulatory authority of the Railroad Commission. Unlike slant drilling, which produces minerals already in place under another's land, fracing causes minerals to migrate, which is precisely the scenario the rule of capture was designed to address.
Concurring - Justice Willett
No, hydraulic fracturing that crosses subsurface property lines should not be considered a trespass at all, rather than merely a non-actionable trespass. Following the logic of Railroad Commission of Texas v. Manziel, which dealt with secondary recovery operations, orthodox rules of surface trespass should not apply to subsurface invasions essential for resource recovery. A balancing of interests—weighing the immense societal and economic benefits of maximizing energy production through fracing against the interests of an individual owner—demonstrates the act is not wrongful and thus not a trespass. Creating tort liability would stifle an indispensable technology, harm the Texas economy, and impede the development of vital energy reserves at a time of great need.
Concurring-in-part-and-dissenting-in-part - Justice Johnson
The court should not decide this case based on the rule of capture without first determining whether hydraulic fracturing across lease lines is a trespass. The rule of capture only protects the recovery of minerals that are captured legally. If the act of fracturing into a neighbor's property is an illegal trespass, then the rule of capture should not shield the operator from liability. By applying the rule of capture first, the majority assumes the legality of the underlying act and effectively changes the rule to protect conduct that may be tortious. The court should have first addressed the primary issue of whether a subsurface trespass occurred.
Analysis:
This landmark decision solidifies the dominance of the rule of capture in Texas oil and gas law, extending its protection to the modern technology of hydraulic fracturing. By immunizing operators from trespass liability for drainage, the court prioritized the state's interest in maximizing energy production and deferred to the regulatory authority of the Railroad Commission. This ruling provides significant legal certainty for operators in tight formations requiring fracing, preventing a potential flood of litigation that could have hampered development. However, by basing the holding on the lack of recoverable damages (due to the rule of capture) rather than declaring fracing is not a trespass, the court leaves open the possibility of liability for other non-drainage harms, such as damage to a reservoir or a neighboring well.
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