In Swift Energy Operating, LLC v. Regency Field Services LLC, 04-17-00638-CV, 2019 WL 2272900 (Tex. App.—San Antonio May 29, 2019, pet. filed), the San Antonio Court of Appeals analyzed the claim-accrual date for various causes of action in the context of a spreading contamination from an injection well, noting that the Emerald Oil rule for field-wide notice of past damage does not apply to claims concerning spreading contamination. Where a contamination is spreading, the standard claim-accrual rules for trespass, negligence, gross negligence, and nuisance apply.
Swift Energy Operating owned the leasehold for mineral leases (the “Non-PCQ Leases”) in McMullen County near or contiguous to Swift’s mineral lease in and under the Quintanilla Ranch (the “PCQ Lease”). In 2006, Regency Field Services was granted a permit to operate an injection well (the “Tilden Injection Well”) in McMullen County to dispose of hydrogen sulfide and carbon dioxide. Swift’s leases were all situated near the Tilden Injection Well.
Regency’s plume projections predicted that the injectate would spread horizontally by 2,900 feet after 30 years. In August 2012, however, Swift’s operator of the JCB Horton #1 well (completely surrounded by the PCQ Lease and 3,300 feet from the Tilden Injection Well) detected hydrogen sulfide contamination and was forced to plug and cap the well. Swift’s operator notified Swift of the need to plug and cap in October 2012 and identified additional wells and permitted locations that may have also been affected by the spreading contamination, including wells in the Non-PCQ Leases.
In July 2014, the lessor of the PCQ Lease (and others) sued Regency for trespass and negligence. Swift intervened in the case in September 2015, alleging trespass, negligence, gross negligence, and nuisance for “present and future damage to seventy-four existing or planned wells.” Regency, citing the two-year statute of limitations for injuries to real property, moved for summary judgment on Swift’s claims. The trial court granted the motion; Swift appealed.
The San Antonio Court of Appeals, noting that Regency’s limitations defense required conclusively establishing that the claim-accrual date was outside the limitations period for each claim, examined Swift’s claims as they related to the PCQ Lease and as to the Non-PCQ Leases separately.
Regarding the PCQ Lease, Swift argued that its claims did not arise until the injectate actually interfered with its rights on the PCQ. Conversely, Regency argued that the claims accrued when the injectate physically intruded the acreage covered by the PCQ Lease. Because injectate discovered in the JCB Horton #1 was “wholly surrounded by the PCQ Lease,” Regency argued, the injectate must have entered the PCQ Lease by October 2012, outside the two-year limitations period for Swift’s claims. Because Swift would have to drill through the injectate plume in the Wilcox formation to reach its leased depths in the PCQ Lease, Swift’s claims accrued in October 2012 at the latest, when Swift became aware of the interference by Regency. In so holding, the court cited Lightning Oil for the proposition that an “unauthorized interference with the place where the minerals are located constitutes a trespass as to the mineral estate [when] the interference infringes on the mineral lessee’s ability to exercise its rights.”
With respect to Swift’s Non-PCQ Leases, Regency argued that the Emerald Oil rule for field-wide notice of damage should apply; because Swift had notice of its claims related to the PCQ Lease and because of the proximity of the Non-PCQ Leases to the PCQ Lease, Regency argued, Swift’s claims should be barred by limitations. The Court of Appeals distinguished Emerald Oil, however, noting that Emerald Oil did not deal with ongoing and spreading contamination; rather, the damage in Emerald Oil was a one-time, single-occurrence event that affected an entire field. Because the contamination from the Tilden Injection Well was spreading—and would continue to spread—Swift’s claims as they related to the Non-PCQ Leases would accrue under the standard claim-accrual rules (e.g., when the injectate breached the boundary of a Non-PCQ Lease). Because Regency failed to provide conclusive evidence that Swift’s claims related to the Non-PCQ Leases were barred by the statute of limitations, the Court of Appeals held that summary judgment on those claims was improper.
The Court of Appeals reversed the trial court’s summary judgment ruling as it related to the Non-PCQ Leases. Both parties have filed petitions for review to the Texas Supreme Court, which requested briefing on the merits.
Conrad Hester and Connor Bourland
Thompson & Knight LLP
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