Exploring Past, Present, and Future
Roles for Correlative Rights
David Pierce
Washburn University School of Law
Topeka, Kansas
1
Correlative Rights
• Concurrent rights in a common resource.
• Correlative rights in oil and gas have both
individual and common components.
• Exclusive and non-exclusive components.
• Property law doctrine generally focuses on the
individual and exclusive; boundary lines.
• Conceptually it is more difficult to define the
common and non-exclusive.
2
Correlative Rights
• Those rights that owners in a connected
resource have to protect their individual
rights and exercise their common rights.
3
Correlative Rights
• To properly respond to increasingly complex
oil and gas development issues, we must be
prepared to fully define the “common and
non-exclusive” aspects of ownership in the oil
and gas reservoir.
• This will require further definition of each
owner’s correlative rights and further
development of a correlative rights doctrine
to marshal those rights.
4
Correlative Rights
• My talk will:
• Identify the history and current status of
correlative rights under Arkansas law.
• Demonstrate how a failure to consider
correlative rights results in the use of ill-suited
remedies such as trespass.
• Introduce you to a recommended “reservoir
community analysis.”
5
The Origins of Correlative Rights
• Hague v. Wheeler, 27 A. 714 (Pa. 1893).
• The case best known as a rejection of a
correlative rights doctrine is actually an early
recognition of the concept.
• Here, private rights prevail over public rights.
• Supreme Court elected to protect the
correlative rights of the wasting party.
6
The Origins of Correlative Rights
• The trial judge considered correlative rights
limitations recognized under water law and
commented on “certain duties of good
neighborhood” that were applicable to the oil
and gas reservoir.
7
The Origins of Correlative Rights
• “‘What then, are the rights of adjoining
owners of oil and gas? Are they absolute and
independent, or qualified and correlative?’”
• The “right of each owner is qualified”
because of the connected nature of the right;
each must “submit to such limitations as are
inevitable to enable each to get his own.”
8
The Origins of Correlative Rights
• The Supreme Court:
• Owners in a common source of supply (a
“reservoir”) are subject to two limitations:
• “he must not disregard his obligations to the
public,
• “he must not disregard his neighbor’s rights.”
• An offer to sell gas to neighbor was the only
recognition required under the facts.
9
The Origins of Correlative Rights
• Ohio Oil Co. v. Indiana, 177U.S. 190 (1900).
• Protection of correlative rights of private
owners relied upon to support state law
protecting public rights.
• Public actions to prevent “waste” caused by
Ohio Oil acceptable when pursued to protect
the private property rights (correlative rights)
of other owners in the reservoir.
10
The Origins of Correlative Rights
• Bandini Petroleum Co. v. Superior Court, 284
U.S. 8 (1931).
• California “Oil and Gas Conservation Act”
enforced to enjoin the “unreasonable waste of
natural gas.”
• Lower Court: public interest basis in doubt.
• Supreme Court: statute can be upheld as one
“regulating the exercise of the correlative
rights” of the owners; a private property basis.
11
The Origins of Correlative Rights
• Correlative rights were first addressed by the
Arkansas Legislature in the 1920s through
broad prohibitions of “waste.”
• The prohibited conduct included actions that
could impair the ability of other owners in the
reservoir to exercise their capture rights.
12
The Origins of Correlative Rights
• Act 664 of 1923, §2: “The term ‘waste’ . . .
shall include (1) escape of natural gas in
commercial quantities into the open air; (2)
the intentional drowning with water of gas
stratum capable of producing gas in
commercial quantities; (3) underground
waste; (4) the permitting of any natural-gas
well to wastefully burn; and (5) the wasteful
utilization of such gas; . . . .”
13
The Origins of Correlative Rights
• The other major concern was equal access to
marketing outlets. For example:
• Act 664 of 1923, §4 (restrictions on
production to match “market demand”) and
§5 & §6 (pipelines must act as common
purchasers and cannot discriminate in taking
gas).
14
The Origins of Correlative Rights
• The primary focus of the pre-1939
conservation acts was to protect the natural
gas resource from being destroyed in the
process of producing oil.
• The 1939 Conservation Law included a new
focus on oil as well as gas.
15
The Origins of Correlative Rights
• Ratable production continued to be a major
concern.
• The 1939 Act defined “waste” to include:
• “Abuse of the correlative rights and
opportunities of each owner of oil and gas in a
common reservoir due to non-uniform,
disproportionate, and unratable withdrawals
causing undue drainage between tracts of
land.”
16
The Origins of Correlative Rights
• This limited definition of correlative rights is
carried forward, without change, to the
present statutory definition. ARK. CODE ANN.
§ 15-72-102(15)(C) (2009).
• The same definition is used in the
Commission’s regulations. ARK. OIL AND GAS
COMM’N, GEN. RULES AND REGS., RULE A-4:
DEFINITIONS, WASTE(3), 18 (Jan. 20, 2014).
17
The Origins of Correlative Rights
• In the Act’s “Declaration of policy” the
Legislature equates “coequal or correlative
rights of owners of crude oil or natural gas in a
common source of supply to produce and use
the crude oil or natural gas” to “compelling
ratable production.”
• ARK. CODE ANN. § 15-72-101 (2009).
18
The Origins of Correlative Rights
• The equal opportunity definition of correlative
rights is carried through in the statutes requiring
drilling units to:
• “[A]fford the owner of each tract . . . the
opportunity to recover or receive his or her just
and equitable share of the oil and gas in the pool
without unnecessary expense and will prevent or
minimize reasonably avoidable drainage from
each developed unit which is not equalized by
counter drainage.” ARK. CODE ANN. § 15-72-304
(2009).
19
The Origins of Correlative Rights
• Common law correlative rights in Arkansas?
• As Thomas Daily has noted: “Please remember
though, correlative rights are not common
law rights; they are one hundred percent
statutory.” Thomas A. Daily, Lawyering the
Fayetteville Shale Play – Welcome To My
World, 44 ARKANSAS LAWYER 10, 12 (Spring,
2009).
20
The Origins of Correlative Rights
• Are there “common law” correlative rights?
• One commentator has suggested that
Arkansas would likely recognize a limitation on
the rule of capture similar to that imposed by
the Texas Supreme Court in Elliff v. Texon
Drilling Co., 210 S.W.2d 558 (Tex. 1948). Susan
Webber Wright, The Arkansas Law of Oil and
Gas, 9 U. OF ARK. AT LITTLE ROCK L.J. 223,
234-35 (1987).
21
The Origins of Correlative Rights
• Any act that impairs the ability of other
owners to exercise their capture rights would
be a violation of their correlative rights.
• This analysis is supported by the court’s
observations in Young v. Ethyl Corporation,
521 F.2d 771 (8th Cir. 1975), cert. denied, 439
U.S. 1089 (1979), where it noted the rule of
capture would be constrained by “the doctrine
of ‘correlative rights.’”
22
The Origins of Correlative Rights
• However, Young was a “brine” case.
• The “brine cases” demonstrate a reluctance by
courts to grant any one party in a reservoir an
undue advantage because of the connected
nature of the reservoir.
23
The Origins of Correlative Rights
• If courts give the hold-out a trespass claim, the
hold-out receives undue power over the operator
desiring to invest in secondary and other
enhanced recovery techniques that require use of
the reservoir.
• The trespass remedy does much more than
merely protect the owner’s land; it effectively
impedes use of the entire reservoir.
• When dealing with a connected reservoir any
trespass remedy will have considerable extraterritorial impact.
24
The Origins of Correlative Rights
• If courts give the operator the benefits of the
rule of capture to deal with the hold-out, the
operator receives undue power over the holdout and may elect to simply ignore them.
25
The Origins of Correlative Rights
• The court in Young opined that if it adopted a
capture remedy (which it rejected), the
operator would nevertheless be subject to
“the doctrine of ‘correlative rights.’”
• The court, however, limited the doctrine to a
duty not to “injure the source of supply” or to
“take an undue proportion of the oil and gas
from the common pool.”
26
The Origins of Correlative Rights
• The court focused on the “undue proportion”
language suggesting that allowing the rule of
capture to operate in this situation would, in
any event, violate correlative rights by
allowing the operator to take an undue
proportion of the brine.
27
The Origins of Correlative Rights
• The balance between trespass and the rule of
capture was ultimately struck in Jameson v.
Ethyl Corporation, 609 S.W.2d 346 (Ark. 1980).
• The court allowed the otherwise trespassing
activity to take place so long as “such
operations are carried out in good faith for the
purpose of maximizing recovery from a
common pool.”
28
The Origins of Correlative Rights
• However, the extracting party must
“compensate the owner of the depleted lands
for the minerals extracted in excess of natural
depletion, if any, at the time of taking and for
any special damages which may have been
caused to the depleted property.”
29
The Origins of Correlative Rights
• Water and correlative rights.
• The oil and gas industry shunned water law as a
guide for correlative rights analysis because it
was also used to allocate water quantity rights.
• This allocative component ran counter to the rule
of capture.
• However, water law correlative rights has a nonallocative component that offers insight for
dealing with intra-reservoir disputes.
30
The Origins of Correlative Rights
• Harris v. Brooks, 283 S.W.2d 129 (Ark. 1955)
(adopting reasonable use theory as applied to
surface waters).
• “‘The use of the stream or water by each
proprietor is . . . limited to what is reasonable,
having due regard for the rights of others
above, below, or on the opposite shore.’”
31
The Origins of Correlative Rights
• The rights of the riparian owner are
“‘qualified only by the correlative rights of
other riparian owners, and by certain rights
of the public, and they are to be so exercised
as not to injure others in the enjoyment of
their rights.’”
32
The Origins of Correlative Rights
• Jones v. Oz-Ark-Val Poultry Company, 306
S.W.2d 111 (Ark. 1957) (adopting reasonable
use theory as applied to subsurface waters).
• “‘[T]he right of a landowner to appropriate
percolating water in his own land is limited by
the corresponding right of his neighbor, and
extends only to a reasonable exercise of such
right; or, as said by the court, the rights are
correlative.’”
33
The Origins of Correlative Rights
• “‘Where two or more persons own different
tracts of land, underlaid by porous material
extending to and communicating with them
all, which is saturated with water moving with
more or less freedom therein, each has a
common and correlative right to the use of
this water . . . .’”
34
The Origins of Correlative Rights
• Common law correlative rights, as applied to
oil and gas law, reamin to be developed in
Arkansas.
• I predict this will occur as courts find it
necessary to more completely define aspects
of oil and gas “ownership” that have, to date,
not been defined.
35
Previously Undefined Contours of
Oil and Gas “Ownership”
• Not changing or re-defining rights.
• Defining rights for the first time.
• The precise circumstances have not been the
focus of prior litigation.
• Must be sure that all relevant circumstances
are considered when declaring ownership and
the resulting property rights.
36
Property Law Defines Tort Law
• Defining “ownership” as a matter of property
law will also define the scope of tort law.
• The nature of an adjacent owner’s
“ownership” (property law) will often be
determinative when evaluating whether
something is a trespass or nuisance (tort law).
37
The Issues Triggering the Inquiry
• The specific issue:
• How should courts respond to a frac fissure
that crosses subterranean property lines?
• The more general issue:
• How should courts resolve cross-boundary
intra-reservoir conflicts?
38
The Key Observation
• Rights in a reservoir cannot be isolated from
the reservoir.
• It is not possible to set apart “ownership” in a
reservoir from the reservoir.
• Rights in a reservoir are connected and
therefor collective.
• Each owner has communal rights in the
“reservoir community.”
39
Negative and Positive Rights
• In the past most of the focus has been on
“rights and duties” that place limitations on
what an owner can do within the reservoir:
negative rights.
• The fracing issue, and other intra-reservoir
conflicts, require that we explore the positive
rights aspects of correlative rights.
40
The Ad Coelum Doctrine
• The “ad coelum doctrine” is the abbreviated
term used to describe the extent of ownership
in land within surface boundaries.
• Ownership extends above and below the land
surface.
• Much of the law of property depends upon
boundary lines drawn upon the surface of
land.
41
The Ad Coelum Doctrine
• This extension of surface boundaries to define
subsurface rights operates on the same fenceline mentality used to define surface rights.
• Oil and gas can move within the reservoir rock
structure, and migrate across the downward
projection of surface boundary lines.
42
The Rule of Capture
• It does not matter whether oil and gas rights
are part of the “ownership of land” or a right
to enter land to explore, develop, and produce
oil and gas.
• In either case the right to search for, extract,
and own the oil, gas, or other minerals, is
defined by what takes place on a tract of land
that is described by surface boundaries.
43
Defining “Correlative Rights”
• The term “correlative rights” is used in two
contexts.
• The public regulatory meaning: if the state is
going to limit my ability to drill under the Rule of
Capture, the limitation must be applied equitably.
• The private property meaning: each owner
overlying a reservoir can impact, and is impacted
by, what happens within the reservoir.
44
Conservation Regulation
• The major limitation on the Rule of Capture is
“conservation” regulation.
• Designed to place minimum ground rules for
exercising the Rule of Capture.
• Squares and rectangles.
• Pooling to facilitate the squares and
rectangles.
• Unitization as the one means to remove
boundary lines from operational decisions.
45
Conservation Regulation
• To a large extent, an owner is left to their own
devices, under the rule of capture, to secure
and protect their correlative rights.
• As Professors Kramer and Martin note in their
treatise on pooling and unitization: “The
correlative right is having the opportunity to
produce, not having a guaranteed share of
production.”
46
Conservation Regulation
• When a conservation authority limits an
owner’s self-help capture remedy -- the
“opportunity” -- it must do so in a fair and
equitable manner.
• A failure to do so would violate the owner’s
correlative rights.
• E.g., Zinke & Trumbo, Ltd. v. State
Corporation Commission, 749 P.2d 21 (Kan.
1988).
47
Conservation Regulation
• The court held the Commission violated
Zinke’s correlative rights by failing to consider
a statutory factor in adopting a proration
formula for gas wells in the Morrow sand.
• Sho-Bar completed a well with 11 feet of pay
located 330 feet from Zinke’s lease line.
• Zinke had completed a well on its lease with
30 feet of pay.
48
Conservation Regulation
• Sho-Bar fraced its well; the court commented
on the trajectory of the frac stating:
• “Experts for both parties testified a fracture of
this size would extend at least 400 feet in the
area of least resistance. The center of the
reservoir on Zinke’s lease is the area of least
resistance. Since Sho-Bar’s location of the
Fincham 1-30 is only 330 feet from Zinke’s
lease line, the fracture obviously penetrated
Zinke’s lease.”
49
Conservation Regulation
• After the frac treatment, production from ShoBar’s well increased by over 550%.
• This was attributed to the highly porous and
permeable nature of the reservoir and the frac
traveling from the edge of the formation,
where Sho-Bar’s well was located, to the heart
of the formation, where Zinke’s well was
located.
50
Conservation Regulation
• The Kansas Corporation Commission adopted
Sho-Bar’s requested 160-acre spacing with a
50/50 proration formula: 50% of the total pool
allowable based upon the open flow of each well
and 50% based upon the acreage attributable to
each well.
• Zinke objected, arguing for 640-acre spacing and
a formula that was not so heavily weighted
toward the open flow of Sho-Bar’s fraced well.
51
Conservation Regulation
• The applicable conservation statute required the
Commission to “give equitable consideration to
acreage, pressure, open flow, porosity,
permeability and thickness of pay, and such other
factors, conditions and circumstances as may
exist in the common source of supply under
consideration at the time, as may be pertinent.”
• Zinke contended the Commission erred by not
considering the impact of the fracture treatment
as an “other factor” in developing field rules for
the Morrow formation.
52
Conservation Regulation
• The court agreed, stating:
• “Under the KCC’s duty to protect correlative
rights to natural gas in a common source of
supply, we find evidence of fracture treatment
to a well or wells in the common field to be
one of the ‘other factors, conditions, and
circumstances’ which must be considered in
making a proration order.”
53
Conservation Regulation
• The Commission’s error in the Zinke case was
not necessarily the ultimate formula it chose
to adopt, it was the failure to consider the
statutory factors in arriving at its decision.
• The court held this constituted a violation of
Zinke’s correlative rights.
54
Correlative Rights
• The Zinke case is an example of correlative
rights in a public context designed to ensure
fair treatment by government when it
intervenes to marshal capture rights.
• That is a fairly routine issue that commissions,
commissioners, and courts have dealt with
extensively.
55
Correlative Rights
• Much less developed is the private context of
correlative rights.
• The cases that follow are examples of courts
resolving disputes that could have been better
addressed using a correlative rights analysis.
• Instead, the issues were forced into an illfitting “property line” analysis.
56
The “Property Line” Analysis
• To date, conflicts among owners within an oil
and gas reservoir have been framed using an
ad coelum/rule of capture analysis; a
“property line” analysis.
• The most notable recent intra-reservoir
disputes have concerned hydraulic fracturing
where frac fissures cross a subterranean
boundary line.
57
Coastal v. Garza
• Coastal Oil & Gas Corp. v. Garza Energy Trust,
268 S.W.3d 1 (Tex. 2008).
• Supreme Court: No “actionable” trespass
when a frac fissure extended into adjacent
lands. Damages negated by rule of capture.
• Court of Appeals & Trial Court: Malicious
trespass to engage in felony theft. $543,776
actual and $10,000,000 punitive damages.
58
Coastal v. Garza
• The weakness with the analysis in Garza is the
court never evaluated the legitimacy of the
activity that made it possible to capture the oil
and gas.
• The predicate for being able to capture the oil
and gas was the act of fracing the well.
59
Coastal v. Garza
• If the fracing was a legitimate act, then the
drainage from the adjacent land would be
protected by the rule of capture.
• If the fracing was illegitimate, the subsequent
capture would also be illegitimate.
60
Coastal v. Garza
• Although hailed by many as “solving” fracing
trespass problems, the court in Garza clearly
indicated it was not addressing the issue.
• After noting its withdrawn opinion in Geo Viking,
that held “fracing beneath another’s land was a
trespass,” the court stated: “We need not decide
the broader issue here.”
• The court held that any damages the plaintiffs
could assert were related solely to drainage
which the majority deemed to be encompassed
by the rule of capture.
61
Stone v. Chesapeake
• Stone v. Chesapeake Appalachia, LLC, No.
5:12-CV-102, 2013 WL 2097397 (N.D. W.Va.
April 10, 2013), vacated following settlement,
2013 WL 7863861 (July 30, 2013).
• Rejected the analysis in Garza and held that
frac fissures extending into adjacent lands
constituted an actionable trespass.
• “The Garza opinion gives oil and gas operators
a blank check to steal from the small
landowner.”
62
Stone v. Chesapeake
• The problem with the analysis in Stone is the
court assumed that when a frac fissure
crossed a subterranean boundary line, it
would constitute a trespass.
• It answered the question left unanswered in
Garza: recovery of oil and gas through a frac
fissure that crosses property lines is a trespass
and is therefore not protected by the rule of
capture.
63
Stone v. Chesapeake
• The court noted that West Virginia fully
embraces the ad coelum doctrine.
• The ad coelum doctrine is a necessary
component of the property line analysis.
• Once a frac fissure crosses a property line a
trespass has been committed and any
drainage of oil and gas associated with the
frac will be illegitimate and not protected by
the rule of capture.
64
Stone v. Chesapeake
• As is frequently the case, the court chose to
protect the landowner’s right to refuse to pool
their land or otherwise participate in
development of the reservoir; the right to just
say “no.”
• In many states the landowner’s ability to just
say “no” is severely limited by compulsory
pooling statutes.
65
Not Alone in the Reservoir
• In Nunez v. Wainco Oil & Gas Co., 488 So.2d 955
(La. 1986), the court held that:
• “[W]hen the Commissioner of Conservation has
declared that landowners share a common
interest in a reservoir of natural resources
beneath their adjacent tracts, such common
interest does not permit one participant to rely
on a concept of individual ownership to thwart
the common right to the resource as well as the
important state interest in developing its
resources fully and efficiently.”
66
Wrong Analysis?
• The Stone analysis, like the Garza analysis,
fails to consider the connected nature of the
property interest at issue.
• Nowhere in either opinion is there any
analysis regarding the parties’ correlative
rights in the reservoir.
• The observations made by Theresa Poindexter,
in her student comment on Garza, are
therefore equally applicable to Stone.
67
Wrong Analysis?
• Theresa D. Poindexter, Correlative Rights
Doctrine, Not the Rule of Capture, Provides
Correct Analysis for Resolving Hydraulic
Fracturing Cases [Coastal Oil & Gas Corp. v.
Garza Energy Trust, 268 S.W.3d 1 (Tex. 2008)],
48 WASHBURN L. J. 755 (2009).
68
Fence-Line Mentality
• “Although an owner of land can construct a
fence, and delineate his or her surface
boundaries, this is not possible when the line
is drawn within an oil and gas reservoir. Yet, all
oil and gas conveyances and leases draw lines
that purport to neatly carve up the oil and gas
reservoir.”
• David E. Pierce, Oil and Gas Easements, 33
ENERGY & MIN. L. INST. 317, 319 (2012).
69
It’s a Beautiful Day in the
Neighborhood
• The court in Stone made it clear that hydraulic
fracturing is not protected by the rule of
capture.
• But, might it be protected under a more
precise definition of the parties’ respective
rights as members of a “reservoir
neighborhood?”
70
The Reservoir Neighborhood Analysis
• No property interest is absolute.
• Private property is often made more valuable
by recognizing limits on its free use because
the property will benefit from similar limits
imposed on surrounding owners.
71
The Reservoir Neighborhood Analysis
• Carol Rose: property consists of: “some
individual rights, mixed with still more rights
shared with nearby associates or neighbors,
mixed with still more rights shared with a larger
community, all held in relatively stable but
nevertheless changing and subtly renegotiated
relationships.”
• When dealing with oil and gas in a reservoir,
these reciprocal limitations, and corresponding
reciprocal rights, are reflected in the concept of
correlative rights.
72
Correlative Rights
• Why have correlative rights not played a
bigger role in defining rights in oil and gas?
• Particularly positive or affirmative rights.
• During the formative years of oil and gas law
the greatest threat to the rule of capture was
the correlative rights doctrine.
73
Correlative Rights
• In 1931 the American Petroleum Institute
sought to describe each owner’s correlative
rights in a reservoir by stating: “each owner of
the surface is entitled only to his equitable
and ratable share of the recoverable oil and
gas energy in the common pool in the
proportion which the recoverable reserves
underlying his land bears to the recoverable
reserves in the pool.”
74
Correlative Rights
• API’s 1942 clarification of its 1931 statement:
“Within reasonable limits, each operator shall
have an opportunity equal to that afforded
other operators to recover the equivalent of
the amount of recoverable oil [and gas]
underlying his property. The aim should be to
prevent reasonably avoidable drainage of oil
and gas across property lines that is not
offset by counter drainage.”
75
Correlative Rights
• By the time this change in policy was
announced, states were passing oil and gas
conservation laws and the focus shifted from
private correlative rights to ensuring equal
treatment of owners by conservation agencies
regulating drilling and production.
• The only private correlative rights issues were
those dealing with injury to the reservoir that
impaired the capture rights of other owners in
the reservoir.
76
Professor Kuntz’ Special Community
• Professor Kuntz first described correlative
rights as rules for a “special community” in a
1958 article for the Mississippi Law Journal.
• In summarizing the scope of the term
“correlative rights,” Professor Kuntz observed:
“It is a simple doctrine that owners of rights
in a common source of supply may not inflict
loss upon one another by conduct which is
considered socially undesirable.”
77
Professor Kuntz’ Special Community
• “The owners in the common source of supply
operate in a special community, and the social
acceptability of conduct within such
community must be determined, not only by
applying the standards applicable to conduct
generally, but by also considering the utility
of the conduct in the light of its peculiar
consequence to others operating in the same
community.”
78
Professor Kuntz’ Special Community
• In his treatise Professor Kuntz expands upon
his analysis of correlative rights, mentioning
“fracturing the sands” as being in a category
where the rule of capture protects correlative
rights by allowing impacted owners to “do
likewise.”
• He contrasts that with when the issue is
secondary recovery.
79
Reservoir Community Analysis
• The “reservoir community” analysis builds on
Professor Kuntz’ special community but also
provides a foundation for a positive rights
component to correlative rights.
80
Reservoir Community Analysis
• The foundation of a reservoir community
analysis is the physical reality that it is not
possible to draw a property line within a
reservoir and thereby create a segregated
portion of reservoir ownership.
• This is also the inherent flaw with the ad
coelum doctrine, the rule of capture, and the
resulting property line analysis.
81
Reservoir Community Analysis
• What the courts failed to realize in Garza and
Stone is the undeniable fact that neither party
to the litigation had the sole rights to the
reservoirs at issue.
• In each case the parties owned more, and
less, than the courts accounted for in their
analyses.
82
Reservoir Community Analysis
• They each owned “more” rights because they
also possessed rights in the reservoir at large,
which also gave them rights in the properties
of their neighbors.
• They each owned “less” rights because the
portions of the reservoir within their
property
lines
were
connected
to
surrounding properties.
83
Reservoir Community Analysis
• Because activities within the owner’s property
lines could impact surrounding properties, the
owner will be restrained to account for
community rights.
• The three step Reservoir Community Analysis:
84
Define Community Membership
• Step #1. The reservoir community analysis
begins where the property line analysis begins
and ends: with surface boundaries.
• Surface boundaries define membership in the
reservoir community.
85
Define Community Membership
• Using the Garza case as a guide, assume the
reservoir at issue, the community, is a defined
geologic structure: the Vicksburg T Formation.
• Property lines will be used to define
membership in the Vicksburg T reservoir
community.
• Property lines, however, will not define rights
as a community member.
86
Physical Attributes of the Community
• Step #2. Understand how the reservoir
community works.
• Gas reservoir located at a depth between
11,688 and 12,610 feet below the surface.
• “[A] ‘tight’ sandstone formation, relatively
imporous and impermeable, from which
natural gas cannot be commercially produced
without hydraulic fracturing stimulation . . . .”
87
Evaluate the Activity at Issue
• Step 3. Evaluate the activity being conducted
within the reservoir community.
• The activity for this example is the hydraulic
fracturing conducted by Coastal in the
Vicksburg T formation.
• The first issue is whether any hydraulic
fracturing should be allowed in the Vicksburg
T formation.
88
Evaluate the Activity at Issue
• What if a landowner owning oil and gas rights
in the Vicksburg T formation objects to all
hydraulic fracturing?
• Perhaps they are concerned about frac
fissures coming onto their part of the
formation from adjacent lands.
• Perhaps they fear producing additional fossil
fuels will contribute to climate change and the
ultimate destruction of planet Earth.
89
Evaluate the Activity at Issue
• The matter will not be put to a vote.
• The answer will be provided by considering
the physical attributes of the Vicksburg T
formation.
• Because the Vicksburg T is worthless without
hydraulic fracturing, it is an appropriate
activity and one that should be promoted.
90
Evaluate the Activity at Issue
• But what if prudent development of the
Vicksburg T formation requires that frac
fissures extend across property lines?
• Can an owner object to the practice?
91
Evaluate the Activity at Issue
• Unlike the ad coelum/capture property line
analysis, the issue is not the proximity of a
frac fissure to a property line.
• The issue is whether the conduct is in
harmony with development of the reservoir
community.
92
Evaluate the Activity at Issue
• Consider only what is necessary to maximize
value from the Vicksburg T formation.
• Surface use and other collateral issues should
not enter into the analysis.
• Purely an exercise for the technicians seeking
to get the most out of the reservoir
economically possible.
93
Evaluate the Activity at Issue
• The proper focus should be on the conduct;
the justification for what was done, how it was
done, and its impact on the reservoir
community.
• It will be a matter of time and place; the state
of the art combined with the special
requirements of the reservoir.
94
Evaluate the Activity at Issue
• Time and place.
• Crocker v. Humble Oil & Ref. Co., 419 P.2d 265
(Okla. 1965) (“no reasonable or prudent
operator would drill additional wells on the
lease until after the advent of sandfracing.”).
95
Evaluate the Activity at Issue
• Development techniques and practices that
were reasonable at one time may become
unreasonable as they are eclipsed by new
techniques and practices.
• Correlative rights within a particular reservoir
community must be evaluated on a case-bycase basis.
96
Evaluate the Activity at Issue
• This step is where the positive aspects of
correlative rights play a major role in the
analysis.
• Because of the connected nature of the
reservoir, when it is consistent with reservoir
community standards to develop the
reservoir, owners will have the affirmative
right to send frac fissures across property
lines and into adjacent lands.
97
Evaluate the Activity at Issue
• When properly viewed as a property right of a
common owner in the reservoir community,
trespass will not be an issue.
• The intrusion across property lines is
authorized as a member or the reservoir
community pursuing development of the
reservoir.
98
Evaluate the Activity at Issue
• When a court is asked to evaluate the
legitimacy of frac fissures that cross property
lines, the concept of “trespass” should not be
considered until the property interests of all
parties have been accurately defined.
• Trespass will always be dependent upon an
accurate definition of the affected parties’
property rights.
99
Evaluate the Activity at Issue
• The reservoir community analysis recognizes
communal rights in the reservoir that will
often extend beyond property lines.
• The issue can also arise before a state oil and
gas conservation commission, often regarding
spacing and set-backs from adjacent
properties.
100
Evaluate the Activity at Issue
• The communal rights of all parties in the
reservoir must likewise be acknowledged to
prevent adopting development rules that
create unnecessary buffer zones for no reason
other than to accommodate property lines.
• Buffer zones can strand oil and gas reserves
resulting in waste.
101
“Frack Hits” and Correlative Rights
• Current issues amendable to a reservoir
community analysis:
• “Frack hits.”
• Geophysical communication between offset
wells during hydraulic fracturing.
• Colorado Oil and Gas Conservation
Commission’s Statewide Offset Policy.
102
Tree Roots and Disposal Wells
• Louisiana Civil Code Article 688 provides:
• A landowner has the right to demand that the
branches or roots of a neighbor’s trees,
bushes, or plants, that extend over or into his
property be trimmed at the expense of the
neighbor.
• A landowner does not have this right if the
roots or branches do not interfere with the
enjoyment of his property.
103
Tree Roots and Disposal Wells
• Geologic structures suitable for the disposal or
storage of liquid or gaseous substances will be
porous, permeable, and therefore connected.
• Problems arise when the tract of land where
the injection well is located is in proximity to
other lands such that physics will ultimately
run its course and injected substances will
migrate into surrounding lands.
104
Tree Roots and Disposal Wells
• Applying a property line analysis means a
trespass will occur the moment the injected
substances cross surface boundary lines.
• Consider: Hill v. Southwestern Energy
Company, No. 4:12-cv-500-DPM, 2013 WL
5423847 (E.D. Ark. Sept. 26, 2013) (licensed
disposal of frac fluids into disposal well).
105
Tree Roots and Disposal Wells
• Because the geologic structure is not an oil
and gas reservoir, correlative rights, at least of
the oil and gas type, will not apply.
106
Tree Roots and Disposal Wells
• Must courts account for the connected nature
of the formation underlying separately-owned
properties?
107
Tree Roots and Disposal Wells
• Although the “waste” and other issues unique
to oil and gas are not involved, the same sort
of reservoir community analysis applies
because of the connected nature of the rock
structure.
• The question then properly becomes whether
the activity is acceptable by the reservoir
community – the neighborhood that consists
of the porous and permeable rock structure at
issue.
108
Tree Roots and Disposal Wells
• It may not matter in the least that migration
is occurring if the conduct giving rise to the
migration is in harmony with community
standards.
109
Tree Roots and Disposal Wells
• Community standards will often be measured
by the “harm” either to the community or
certain members of the community.
• If the harm is significant, the activity may be
unacceptable to the community.
• If the harm is slight, unlikely, or unprovable at
the moment, the activity may be acceptable
when it involves making a productive use of
property within the community.
110
Tree Roots and Disposal Wells
• This is where the law of tree roots may be
instructive in evaluating waste injection
issues.
• The roots are “down there,” and they have
broken the defining plane under a property
line analysis, but the Civil Code tells us the
landowner has no cause of action because the
presence of the invading roots does not
“interfere with the enjoyment of his property.”
111
Tree Roots and Disposal Wells
• This issue is currently the subject of on-going
litigation in Texas.
• FPL Farming LTD. v. Environmental Processing
Systems, L.C., 383 S.W.3d 274 (Tex. App. 2012),
petition for review granted Nov. 22, 2013.
• “We conclude that Texas law recognizes FPL’s
property interest in the briny water underneath
its property. We do not agree with EPS that no
trespass action exists under Texas law to protect
FPL’s legal interest to its property.”
112
Concluding Thoughts
• Whether termed correlative rights, reservoir
community, or subterranean neighborhood,
the goal is to ensure that oil and gas
ownership is viewed in its proper multidimensional context.
• Each owner within a reservoir is “connected”
to varying degrees with other owners in the
reservoir.
113
Concluding Thoughts
• This places restrictions on all owners to not do
things in the reservoir that could injure the
reservoir community.
• At the same time, it gives each owner
affirmative rights that can extend into the
community to such an extent that property
lines may not be the limitation encountered
at the surface.
114
Concluding Thoughts
• Hydraulic fracturing is a good example.
• Because developers must operate in an
interconnected reservoir, it will often be
reasonable to allow frac fissures to venture
beyond property lines to achieve effective
development of the reservoir community.
115
Concluding Thoughts
• When the activity is appropriate to meet the
needs of the reservoir community, it
becomes one of the developer’s affirmative
correlative rights.
116