West Virginia Supreme Court Requires Consent of the Surface Owner to Drill Horizontal Wells Across Lease Lines
Baker Botts Energy Litigation Update
The West Virginia Supreme Court decided on June 5, 2019 that a trespass occurs against the surface owner of the drillsite tract when a lessee drills and completes a horizontal well under both the drillsite tract and adjacent tracts. The West Virginia Supreme Court’s opinion in EQT Production Company v. Crowder, No. 17-0968 represents a departure from Texas law in this respect.
Through a series of conveyances and assignments, the plaintiffs in Crowder owned a surface interest in a partial tract burdened by EQT’s oil and gas lease, which covered 351 acres and was acquired by EQT’s predecessor in 1901. Before the 2000’s, EQT’s predecessors had drilled nine conventional vertical wells on the 351 acre tract.
In 2011, EQT obtained an amendment to the 1901 lease from the mineral lessors that expressly granted EQT the right to pool and/or unitize the 1901 lease with neighboring leases. EQT then permitted and drilled nine horizontal Marcellus wells with drillsite locations on the plaintiffs’ tract. According to the trial record, 37.5% of the productive lateral wellbore was located under the 351 acre tract, with the remaining 62.5% of the productive lateral underneath neighboring tracts.
Plaintiffs sued EQT for claims including trespass and unjust enrichment, arguing that EQT’s use of plaintiffs’ surface tracts to develop minerals outside of the lease burdening their surface tract resulted in a trespass. The trial court granted partial summary judgment for plaintiffs on trespass liability and after a trial on damages, the jury returned a verdict of $190,000 in actual damages for the plaintiffs based on rental value, annoyance, and inconvenience.
The West Virginia Supreme Court affirmed judgment for the plaintiffs, rejecting EQT’s argument that it was a reasonable and necessary use of the surface to pool the 351 acre tract with neighboring leases to drill horizontal wells developing both the minerals beneath the 351 acre tract and neighboring leases. Instead the Court held that “a mineral owner or lessee does not have the right to use the surface to benefit mining or drilling operations on other lands, in the absence of an express agreement with the surface owner permitting those operations.”
In reaching its decision, the Court glossed over the fact that a portion of the wells EQT drilled benefitted the mineral estate under the lease burdening the plaintiffs’ surface tract. The Court also purported to rely on a line of Texas cases beginning with Robinson v. Robbins Petroleum Corporation that dealt with the mineral lessee’s ability to use water without compensation (an incident of the surface estate) as part of secondary recovery operations solely benefiting other mineral leases. See 501 S.W.2d 865 (Tex. 1973). However, the Court misapplied Robinson and the other Texas cases the Court cited, which did not involve a situation where the water removed benefitted production underlying both the surface tract where it was removed and production underlying adjoining tracts.
The Crowder opinion represents a departure from the law in Texas and other jurisdictions, where the lessee in EQT’s situation has an implied right to use as much of the surface as is reasonably necessary to develop the minerals on the lease burdening the surface of the drillsite tract, and therefore, at a minimum, is not liable for trespass.
Going forward, West Virginia operators facing situations similar to those at issue in Crowder will likely need to obtain the consent of the surface owner of the drillsite tract to develop the minerals underlying adjacent tracts.