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Swift Energy Operating, LLC v. Regency Field Services LLC

Court of Appeals of Texas, Fourth District, San Antonio

April 10, 2019

SWIFT ENERGY OPERATING, LLC, Appellant
v.
REGENCY FIELD SERVICES LLC, Regency Energy Partners LP, Regency GP LP, and Regency GP LLC, Appellees

          From the 343rd Judicial District Court, McMullen County, Texas Trial Court No. M-14-0029-CV-C Honorable Janna K. Whatley, Judge Presiding

          Sitting: Rebeca C. Martinez, Justice Patricia O. Alvarez, Justice Luz Elena D. Chapa, Justice

          Concurring and Dissenting Opinion by: Rebeca C. Martinez, Justice

          MEMORANDUM OPINION

          PATRICIA O. ALVAREZ, JUSTICE

         Appellant Swift Energy Operating, LLC sued Appellees for damage to its leased minerals allegedly caused by H2S/CO2 injectate spreading from Appellees' nearby injection well. Appellees asserted a statute of limitations affirmative defense, and both sides moved for summary judgment. Because Appellees conclusively established their affirmative defense only to Swift's PCQ lease claims, we affirm the trial court's order in part, reverse it in part, and remand this cause.

         Background

         This case concerns damage caused by the underground spread of H2S/CO2 gas from an injection well. The damages Swift seeks pertain to its leases near Appellees' injection well in McMullen County.

         A. Swift's PCQ Lease

         In 2009, Swift and Leo O. Quintanilla entered into a lease (the PCQ lease) for minerals underlying much of Quintanilla's ranch. The PCQ lease covers most depths below 2, 000 feet for over 4, 200 acres of the approximately 4, 271-acre Quintanilla ranch. Swift's leased depths include some depths in the Olmos and Eagle Ford formations.

         B. Swift's Other (Non-PCQ) Leases

         Swift has other leases in the area, some contiguous, some not, to the PCQ lease.[1] Swift's PCQ lease and its eight other (non-PCQ) leases are all near Appellees' injection well.

         C. Regency's Injection Well

         Appellees are Regency Field Services LLC, Regency Energy Partners LP, Regency GP LP, and Regency GP LLC (collectively Regency). In 2006, Regency sought permission from the Texas Railroad Commission (RRC) to allow Regency to operate an injection well (the Tilden Injection Well) in McMullen County to dispose of a gaseous mixture of concentrated hydrogen sulfide (H2S) and carbon dioxide (CO2).[2] Regency sought to pump the H2S/CO2 mixture, the injectate, into the Wilcox formation.

         In its permit application, Regency submitted a plume model that predicted the injectate would spread horizontally by about 2, 200 feet after forty years of injection.

         The RRC Examiner's Report, issued in response to Regency's permit application, states there is "at least 250 feet of shale overlying the disposal interval and at least 100 feet of shale below the disposal interval. These shale barriers will prevent the [vertical] migration of acid gas from the disposal zone." The RRC approved Regency's plan to use H2S resistant materials, such as stainless steel, for the injection well and the RRC issued the permit for the Tilden Injection Well. In February 2012, the RRC approved an increased disposal rate. Regency's revised model predicted a horizontal spread of 2, 900 feet after thirty years of injection.

         D. JCB Horton #1 Well Contamination

         In August 2012, Layline Petroleum was operating the JCB Horton #1 well. The JCB Horton #1 well is located on the Quintanilla ranch, and is about 3, 300 feet northeast of the Tilden Injection Well. That August, Layline detected H2S in the JCB Horton #1 well; the H2S was tested and determined to have originated from Regency's Tilden Injection Well.

         Although the plume was not predicted to spread to the JCB Horton #1 well even after thirty years of injection, in 2012, Layline had to plug and cap its JCB Horton #1 well because of the H2S contamination from Regency's injectate.

         E. Layline's Notice to Swift of Spreading H2S Plume

         On October 23, 2012, Layline's Aaron Brougher e-mailed Swift's Richard Kimberlin with this message:

Subject: McMullen County H2S outbreak
Hi, Richard:
Layline Petroleum is an offset operator of yours in McMullen County. I believe you have some of the deep rights where we have Olmos operation on the main Quintanilla Ranch.
Regency has an H2S injection well just to our west that has exceeded their permit and have forced us to plug a producing well. It looks as though Swift has 2 horizontal wells permitted in the area and the bottom hole locations seem very near this injection well.

         Later the same day, Swift's Bob Redweik responded to Layline's Aaron Brougher with this request:

Subject: H2S BREAK OUT FROM INJECTION WELL IN McMULLEN COUNTY
Can you provide me some additional details including our permitted well names which could be affected by this issue so that we can look into this further?

         That evening, Layline's Aaron Brougher responded to Swift's Bob Redweik's request and identified the permitted wells that could be affected.

The permitted wells are: PC-Q EF #5H, #8H and #10H

         On October 29, 2012, Layline's Aaron Brougher asked Swift's Bob Redweik if Swift would like to participate in the upcoming RRC hearing with Layline. Swift's Bob Redweik responded with "I will say a tentative yes at present. Please keep me in the loop."

         F. ...


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