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Water is everywhere in current Texas jurisprudence. A court of appeals overturned a $13 million judgment against a disposal well operator found negligent for drowning out producing oil wells with produced from nearby injection wells.
Basic Energy Services, LP v. PPC Energy LLP, held:
- The statutory prohibition against waste in the “production, storage, or transportation” of oil and gas applies to disposal well operators, and
- The operator is entitled to rely on the Natural Resources Code’s reasonably prudent operator standard as a defense when supported by evidence.
The facts
PPC operated nine oil wells in the Matthews Consolidated Field in Reeves County, Texas, producing from the Delaware Mountain Group. These low-volume wells generated significant wastewater. Basic operated a commercial disposal well approximately 6,300 feet from PPC’s nearest well.
PPC’s wells experienced a sudden surge in reservoir pressure and produced, which eventually caused the wells to drop out of production. PPC filed a complaint with the Texas Railroad Commission, which investigated but was “unable to attribute the increased pressure to local commercial disposal operations.”
PPC sued Basic and other disposal well operators. After PPC settled with all defendants except Basic, the jury found Basic negligent and attributed 60% of the fault to Basic, with a judgment for PPC of $13 million.
The jury charge
On appeal Basic challenged the jury charge, arguing the trial court committed two related errors: first by defining negligence to include committing statutory “waste” and then by refusing to include the corresponding statutory “reasonably prudent operator” defense.
In the charge, “negligence” was defined as failure to use ordinary care; that is, failing to do that which a person of ordinary prudence would have done under the same or similar circumstances or doing that which a person of ordinary prudence would not have done under the same or similar circumstances.
The instruction went further: It is negligence to commit “waste.”, which means the drowning with water a stratum or part of a stratum that is capable of producing oil or gas or both in paying quantities or underground loss, however caused.
Waste provisions apply to disposal wells
Basic argued that the Natural Resources Code’s prohibition against “waste” should not apply because its operations are not part of the “production, storage, and transportation of oil and gas” as specified in § 85.045.
The court rejected this narrow interpretation. “Production” in the context of § 85.045 includes the handling of wastewater from oil and gas production. The court reasoned that wastewater is “inherent to the production process” and flooding of producing strata is a “long-recognized form of waste.”
Reasonably prudent operator instruction required
The court also determined that Basic was entitled to an instruction on the reasonably prudent operator defense provided by § 85.321. Pages 17-19 of the opinion cite evidence in the record for Basic’s actions that supported the defense.
The trial court erred by omitting the reasonably prudent operator instruction from the jury charge. The appellate court reversed and remanded the case for a new trial.
The case featured a split between the majority and dissent over whether a defendant can assert the reasonably prudent operator defense by relying solely on the opposing party’s expert testimony to establish the standard of care. We won’t discuss that portion of the opinion.
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