The day after Christmas, an appellate panel dealt a setback to oil-and-gas company Anadarko in its drilling rights dispute with landowners.
The 10th Circuit Court of Appeals ruled Dec. 26 that Anadarko, through a company it leased its mineral rights, overstepped those rights to an oil-and-gas deposit under a Weld County family’s farmland. Focusing on a deed that dates back to 1907, the appellate panel reversed the district court’s judgment against the plaintiffs, Marvin and Mildred Bay.
The Bays’ original trial, held in fall 2017, was the bellwether for a putative class action involving other similarly situated landowners. Unless Anadarko raises other defenses, or it does and the district court rejects them, the Bays’ case could see another trial as a result of the 10th Circuit ruling.
The Bays claimed Anadarko’s lessee drilled an excessive number of wells on their land, which constituted a “trespass” of their surface land rights. The 10th Circuit sided with the Bays, finding that the drilling used more surface land than was “convenient or necessary” according to Anadarko’s rights articulated in the deed. The district court erred, according to the panel, because it wrongly interpreted the word “convenient” to expand the mineral owner’s rights beyond common law.
The district court ruled that Anadarko and its lessees had the right to choose any drilling method as long as it was reasonable. But the 10th Circuit held, using a test set by the Colorado Supreme Court in 1997, that the oil-and-gas operators had to choose the reasonable drilling method that was least disruptive to the surface land.
“The Tenth Circuit confirmed that Colorado common law provides protections where oil companies unreasonably disrupt farms and homes to extract gas,” said appellate attorney Sean Connelly, who argued the appeal for the Bays. “The district court had construed a 1907 railroad deed to give carte blanche to industry practices. But Colorado law requires balancing competing interests of surface and mineral owners.”
The plaintiff landowners are also represented by Astrella Law; George A. Barton, P.C; and Hamre Rodriguez Ostrander & Dingess.
“We look forward to proving that Anadarko unreasonably impaired our clients’ rights to farm their farms and house their homes,” Connelly said.
Greenberg Traurig is currently representing Anadarko. The firm had not responded to requests for comment.
The Bays own the surface of their land but not the mineral deposits below it. Those rights were reserved by the Union Pacific Railroad Company in the century-old deed, and Anadarko bought those rights in 2000.
In 2004, Anadarko leased the rights to the oil and gas under the Bay farm to United States Exploration, a company that would be bought by Noble Energy two years later. United States Exploration and Noble Energy would drill seven vertical wells altogether on the Bays’ land. The Bays had asked Noble Energy to use directional drilling — a far less common method for placing wells — instead of vertical drilling so the company would need fewer drill sites and occupy less of the Bays’ land.
Anadarko’s lessees proceeded to drill the vertical wells, and in 2009 the plaintiffs filed their putative class action. Eight years later, and after six days of trial, Anadarko moved for judgment as a matter of law, arguing among other things that the Bays had consented to any trespass and Anadarko wasn’t vicariously liable for any trespass by Noble Energy. Chief Judge Marcia Krieger entered the judgment in Anadarko’s favor.
In reversing the judgment, the 10th Circuit relied on a test from the Colorado Supreme Court’s 1997 decision in Gerrity Oil & Gas Corp. v. Magness. In that case, the Supreme Court set limits on mineral rights owners’ access and use of surface land to get to the minerals below. “If a mineral owner has not exceeded what was reasonable and necessary to access the relevant minerals, then it has not trespassed,” the 10th Circuit summarized in its opinion.
The deed granted mineral owners the right to use as much surface land as was “convenient or necessary” to access minerals below.
The 10th Circuit held that the Gerrity test requires an oil-and-gas operator “to choose the least disruptive of two reasonable alternatives.” By contrast, the district court took the deed’s “convenient” phrasing to mean the operator may choose any reasonable alternative, regardless of whether it’s more or less disruptive to the landowner.
The 1907 deed’s “convenient or necessary” clause didn’t grant the mineral owners any access rights beyond common law, according to the 10th Circuit. One reason, the panel contended, was that the term “convenient” needed to be interpreted not by its broad modern definition, but its “more constrained meaning” from when the deed was written. Black’s Law Dictionary from 1910 defines “convenient” as “[p]roper; just; suitable,” the panel noted.
“Although we do not decide how clear, explicit, or specific a deed must be to grant the surface owner or mineral owner more rights than the due regard each already owes the other under Gerrity, we conclude the deed’s reservation was insufficient here,” Judge Paul Kelly wrote in the opinion. “Accordingly, the reservation should not bestow the mineral owner with any rights beyond those already provided at common law.”
In the Gerrity test, a landowner who is disputing a drilling method as a trespass may suggest a more reasonable drilling method as a rebuttal. But the district court “modified” the Gerrity test to increase the burden on the Bays: they had to show the vertical drilling method Noble Energy wanted to use was “unreasonable and contrary to industry standards.”
“Consequently, requiring the Bays to meet an increased burden on rebuttal was inappropriate, and the district court should have applied the Gerrity test without any modifications,” according to the opinion.
Besides the trespass claim, there remained the issue as to whether Anadarko was vicariously liable for Noble Energy’s trespass. The district court didn’t get to rule on that issue, having decided against the Bays in the judgment.
The 10th Circuit, however, offered a few sentences on that question: a lessor isn’t “ordinarily” liable for its lessee’s trespasses — but it might be liable if it “authorized or ratified” them.
“We leave this for the district court to consider at the appropriate time,” the opinion concluded.
— Doug Chartier