Fracking Is Likely to Produce Something in Addition to Oil and Gas — Litigation
April 30, 2012One of the root causes of the current economic boom in Texas (as well as several other states) is the use of hydraulic fracturing, or “fracking” as it is commonly referred , to extract oil and natural gas from underground shales. This hot topic – whether you are for or against its use – is shaping today’s domestic exploration.
Fracking is a process used to permeate and expand subsurface formations so that oil and gas can flow more freely to a wellbore. This process was first used in the oil and gas arena in 1947 and the current fracking technique was first used in the 1990s in the Texas Barnett Shale. Though used in more than a million wells since that time, only recently has fracking received substantial attention and become controversial – mainly over concerns and fears that fracking might adversely affect underground water aquifers which are an important source of drinking water for most parts of Texas. Despite those fears, more than 44,000 wells have been hydraulically fractured in the US to date with no reported cases where fracking the wellbore has influenced the water table.
As with any environmentally controversial issue, fracking has raised environmental and legal challenges spawning litigation in Texas and other US states. While there are only a handful of fracking-related cases in Texas, claims by landowners against the companies that are drilling, operating and servicing wells in the various shale regions are expected to increase. But, what type of claims will be asserted?
In Harris v. Devon Energy (a suit pending in the US District Court for the Eastern District of Texas) allegations were made that illustrate the types of claims potential plaintiffs may assert against exploration and production companies as the development of these natural resources continues. They include:
Trespass/Nuisance
In the context of fracking, there are several scenarios where this might occur:
- subsurface trespass resulting from the fractures themselves extending into a neighbor’s property and draining the minerals;
- subsurface contamination of a neighbor’s property; and
- at and above surface pollution resulting from the drilling operations.
The first scenario was resolved by the Texas Supreme Court in Coastal Oil v. Garza where a neighboring land owner alleged that the operator’s fracturing created a trespass by draining the neighbor’s minerals. Rooted in the common law principle of “rule of capture,” the court made clear that no trespass claim will stand where the allegations are that a frac extended onto a neighbor’s property and drained their oil or gas.
The second scenario deals with subsurface pollution and may be more viable, but will require proof of actual, permanent harm to the property to maintain a trespass action. To establish a nuisance, a plaintiff must prove that the activity was intentional, substantial and unreasonable. Whether an activity is unreasonable is determined by balancing the utility of the activity alleged to be a nuisance with its harm. Additionally, companies operating within the parameters of a Railroad Commission permit will attempt to use it as a liability shield. How well that will work remains to be seen.
The third scenario will likely be the easiest for neighboring landowners to pursue. Pollution that occurs at or above the surface is easier to detect and prove substantial or permanent harm. In the nuisance context, the adverse affects are also easier to describe and quantify in terms of harm. This last category is also more consistent with traditional claims of trespass and nuisance which courts have been dealing with for years.
NOTE: Something the courts will likely consider is that subsurface trespass/nuisance claims are inherently different than traditional surface claims and, as the Texas Supreme Court indicated in a 2008 case, flying a plane through the airspace two miles above property is not trespass…and the same rule should apply two miles below the surface.
Negligence
A negligence claim imposes liability on one who causes harm to another if their conduct fails to meet the standard of what a reasonable person would do in the same or similar circumstance. In the oil and gas arena, there are many legislative or regulatory rules that govern exploration activities. However, the existence of regulations or statutes does not per se establish the standard of care in a negligence claim. In Texas, the adoption of such legislative mandates as the standard of care is left to judicial discretion. In cases where a company fails to comply with a regulation, plaintiffs will undoubtedly use the regulations as evidence of the appropriate standard of care. Of course, the converse is true too. A company sued for negligence but who is in compliance with the regulations governing its activities will argue that it can’t be found negligent for following the law.
Fraudulent Concealment
In Harris v. Devon Energy the plaintiff asserted a claim for fraudulently concealing the dangers of the drilling process. This claim was dismissed by the court based on facts that supported the allegation. It is hard to envision how such a claim might survive in the future given all that has been written about fracking in recent years. In addition, the recent enactment by the Texas Railroad Commission of rules requiring disclosure of chemicals used during the fracking process now makes most of this information part of the public domain.
Breach of Contract
Exploration and production of oil and gas typically occurs pursuant to written contracts – an oil and gas (or mineral) lease and in some cases a surface use agreement. These written agreements set forth the parties obligations towards each other and can lay the ground for a potential claim if not honored.
Private Citizen Suits
As the various shale plays across Texas and the rest of the country continue to be developed, an increase in litigation can be expected. As new lawsuits are filed and proceed through the judicial process, these as well as other theories of liability, will receive intense judicial scrutiny.