13 March 2024

Mineral Lessee's H2S Damage Claim Rejected

Gray Reed & McGraw LLP


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Landowner and mineral owner (that includes you, lessee): Under ETC Texas Pipeline, Ltd. v. Ageron Energy, LLC, your right to sue for damages for tort or trespass...
United States Litigation, Mediation & Arbitration
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Landowner and mineral owner (that includes you, lessee): Under ETC Texas Pipeline, Ltd. v. Ageron Energy, LLC, your right to sue for damages for tort or trespass could pass into history before you even know you have a claim. Here's why:

Under the legal-injury rule (more on that later), a property claim based on trespass or tort accrues even if the claimant:

  1. Does not yet know a legal injury occurred,
  2. Has not yet experienced or gained knowledge of the full extent of the injury,
  3. Does not yet know the specific cause of the injury or the party responsible,
  4. Later suffers additional injuries. or
  5. Has not yet suffered or cannot yet ascertain any or all of the resulting damages.

The background

In 2012 mineral lessee Swift and landowners the Quintanilla Ranch and the Dickinson Ranch sued Regency Field Services (now ETC) for tort and trespass in connection with Regency's H2S disposal well. See our previous posts for a history of that case.

The Supreme Court ruling reversing the

Court of Appeals ruling

The new dispute

In 2021 Ageron obtained a permit to drill an Eagle Ford Shale well on mineral leases on the Dickinson Ranch. The well was located near ETC's H2S disposal well. Ageron's permit application included a 40-page H2S contingency plan.

Despite extensive safety precautions, H2S ate through Ageron's drill pipe, severing it at 61 feet into ETC's injection zone in the Wilcox formation. The well was abandoned and Ageron's leases expired. Ageron sued ETC for negligence, nuisance, and trespass, assessing its damages at $197 million.

ETC moved to dismiss based on Ageron's lack of standing, arguing that the H2S claims accrued in 2012 to the Dickinson Ranch owners. The trial court denied the motion. The court of appeals reversed and dismissed Ageron's suit.

The legal-injury rule.

For a court to have subject matter jurisdiction over a case the plaintiff must have standing to sue. The right to sue belongs to the person who owns the land when the injury occurs and does not pass to a subsequent owner without an express assignment.

A claim for trespass to a mineral lessee's rights accrues when unauthorized conduct first invades or interferes with the claimant's legal rights. Hence, the admonition at the beginning of this post. This results in accrual of not only claims arising from this injurious event but also all other claims the owner might have had arising from the same allegedly wrongful conduct, whether ripe or not.

The single-action rule

A trespass or tort committed against an undivided estate involves only a single, indivisible action for all co-owners. If Jeffrey Dickinson's present and future mineral interest claims arising from the injection operation accrued no later than November 2012, when his cows died from escaping H2S similar claims of all other Dickinson Ranch owners, including the Dickinson lessor on whose tract Ageron's well sat, also accrued then.

Ageron did not have standing as a mineral lessee because it did not have assigned claims from a prior landowner or lessee.

Note: The court declined to decide whether a mineral-development claim accrues only after a drilling attempt fails. Regardless, Argeron's claim failed because of the single-action rule.

The dissent

The dissent reasoned that, per the Supreme Court in Lightning Oil, an unauthorized interference with the place where the minerals are located is a trespass as to the mineral estate only if it infringes on the mineral lessee's ability to exercise its rights.

Argeron's petition should be construed as intending a "trespass on the case" for its claimed injury to its right to develop the leasehold. As pleaded, Ageron's injury is concrete and particularized, not hypothetical.

The Dickinson family's claims in the prior suit were different from Ageron's, and any claim the Dickinsons would have had for injury to their right to develop their minerals would be premature. The Dickinson family's pleading failed to allege any such injury.

Relying on the single-action rule requires future operators to bring causes of action when damages are impossibly speculative and premature. The majority's conclusion conflates a surface owner's trespass-to-possessory-rights cause of action with a trespass cause of action belonging to a mineral lessee who sustains an injury while developing its mineral interests.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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