Southeastern Pipe Line Co. v. Tichacek

977 S.W.2d 393, 143 Oil & Gas Rep. 163, 1998 Tex. App. LEXIS 3549, 1998 WL 306485
CourtCourt of Appeals of Texas
DecidedJune 11, 1998
Docket13-96-196-CV
StatusPublished
Cited by13 cases

This text of 977 S.W.2d 393 (Southeastern Pipe Line Co. v. Tichacek) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Southeastern Pipe Line Co. v. Tichacek, 977 S.W.2d 393, 143 Oil & Gas Rep. 163, 1998 Tex. App. LEXIS 3549, 1998 WL 306485 (Tex. Ct. App. 1998).

Opinion

OPINION

SEERDEN, Chief Justice.

This is an oil and gas case. Lessors 1 sued Southeastern Pipe Line Co., individually and as trustee for numerous non-operating working interest owners, for wrongfully allowing the drainage of gas reserves from under their lands to be produced on other leases under Southeastern’s control. At trial, the jury found against Southeastern and the trial court granted judgment for actual damages caused to each of the Lessors by wrongful drainage. Southeastern raises nine points of error complaining of the sufficiency of the evidence to support the claim for wrongful drainage or resulting damages, and challenging awards of prejudgment interest and attorney’s fees. The Lessors raise thirteen contingent cross-points, which we do not address because we conclude that the judgment in their favor should be affirmed.

In the late 1930’s the East Bernard gas field was discovered. In the late 1950’s, Stanley C. Woods began to lease mineral rights in the western part of the field, drilling numerous wells, some of which continue to produce gas. Woods eventually consolidated his leases under the name Southeastern Pipe Line Company, made up of Woods’ own interests as well as those of other investors in the company. Over the past thirty years, Southeastern has produced some 30 billion cubic feet (b.c.f.) of gas from its wells in the East Bernard field, and its engineers estimate another 80 b.c.f. remain to be produced.

After the western boundary had been established, Woods sought to explore the eastern extent of the field on a lease taken on the W.C. Leveridge tract. Woods drilled a “wildcat” test well in 1990 designated the W.C. Leveridge Well No. 4, some distance from wells which were already producing in the field. Woods also sought to protect Southeastern’s interest in the eastern portion *396 of the field by taking three-year leases in late 1990 and early 1991 on adjoining lands owned by the present Lessors to the north of the W.C Leveridge tract. As the East Bernard was a depletion-drive field, another lessee-operator to the north could have drilled wells to drain gas from under the W.C. Lev-eridge tract if Woods had not already leased those lands. When the W.C. Leveridge Well No. 4 began to produce significant quantities of gas, Woods then drilled two more successful wells on the W.C. Leveridge tract, designated the W.C. Leveridge Well No. 5 in 1992 and W.C. Leveridge Well No. 6 in 1993. However, he did not drill on the Lessors’ tracts to the north, nor did he attempt to pool them with producing acreage until just before the three-year leases otherwise would have expired.

In December 1993, Woods pooled 175 acres of Lessors’ lands with 175 acres of the W.C. Leveridge lands to share production from the W.C. Leveridge Well No. 5. By their own terms, the northern leases were thus extended by production on the pooled unit. The Lessors, however, complained that the pooling was done in bad faith and that their leases had expired. Southeastern then brought the present lawsuit as a declaratory judgment to declare the leases valid. Lessors counterclaimed against Southeastern for bad faith pooling and breach of its covenant to protect them from drainage by the W.C. Leveridge wells. They claimed that the pooling of their leases with the single No. 5 well came too late and provided them too little share in the production of the W.C. Leveridge wells as a whole, such that their leases were being unlawfully extended and their lands wrongfully drained. The jury rejected the Lessors’ claims of bad faith pooling, but did find that they had been substantially drained. The trial court granted judgment for the Lessors for wrongful drainage.

By its first four points of error, Southeastern complains that the Lessors failed to prove that it wrongfully drained their lands.

An oil and gas lessee has an implied obligation to protect from local drainage or migration from under one lease to the well bore of a producing well on an adjacent lease. Amoco Production Co. v. Alexander, 622 S.W.2d 563, 567 (Tex.1981). The standard of care in testing the performance of this obligation is that of a reasonably prudent operator under the same or similar facts and circumstances, such that claimed violations by the lessee should be tested against the general duty to conduct operations as a reasonably prudent operator in order to carry out the purposes of the oil and gas lease. Id. at 567-68; Parker v. TXO Production Corp., 716 S.W.2d 644, 646 (Tex.App.—Corpus Christi 1986, no writ).

Specifically, the duties of a reasonably prudent operator to protect from drainage may include (1) drilling replacement wells, (2) re-working existing wells, (3) drilling additional wells, (4) seeking field-wide regulatory action, (5) seeking Rule 37 exceptions from the Railroad Commission, (6) seeking voluntary unitization, and (7) seeking other available administrative relief. Amoco Production Co., 622 S.W.2d at 568. However, there is no duty unless such an amount of oil can be recovered to equal the cost of administrative expenses, drilling or re-working and equipping a protection well, producing and marketing the oil, and yield to the lessee a reasonable expectation of profit. Id. at 568; Clifton v. Koontz, 160 Tex. 82, 325 S.W.2d 684, 695-96 (1959).

By its first two points, Southeastern complains that the jury’s finding of good faith pooling with the W.C. Leveridge Well No. 5 negates any claim for wrongful drainage. Southeastern argues that pooling protects the individual leases from drainage as a matter of law such that there is no longer any duty to the individual lessors. We disagree.

When leases aré unitized or “pooled,” production from a well located anywhere on the unit is deemed to be production from everywhere on the unit. Southland Royalty Co. v. Humble Oil & Refining Co., 151 Tex. 324, 249 S.W.2d 914, 916 (1952); Tennessee Gas Pipeline Co. v. Lenape Resources Corp., 870 S.W.2d 286, 299 (Tex.App.—San Antonio 1993), modified, 925 S.W.2d 565 (Tex.1996). As a part of the more general duty of the lessee to conduct operations as a reasonably prudent operator *397 in order to carry out the purposes of the oil and gas lease, see Amoco Production Co., 622 S.W.2d at 567-68, the lessee must exercise in good faith any pooling authority granted by the lessor. Circle Dot Ranch, Inc. v. Sidwell Oil and Gas, Inc., 891 S.W.2d 342, 345-46 (Tex.App.—Amarillo 1995, -writ denied); Vela v. Pennzoil Producing Co., 723 S.W.2d 199, 206 (Tex.App.—San Antonio 1986, writ ref'd n.r.e.); Elliott v. Davis,

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Bluebook (online)
977 S.W.2d 393, 143 Oil & Gas Rep. 163, 1998 Tex. App. LEXIS 3549, 1998 WL 306485, Counsel Stack Legal Research, https://law.counselstack.com/opinion/southeastern-pipe-line-co-v-tichacek-texapp-1998.