In Swift Energy Operating LLC v. Regency Field Services LLC, claims for damage to leased minerals allegedly caused by contamination spreading from an H2S-CO2 injection well were barred by limitations. When the cause of action accrued was the essential question.

Regency received a permit from the Railroad Commission to operate the Tilden injection well to dispose of a mixture of concentrated H2S and CO2 into the Wilcox formation. The plume model submitted with the permit application predicted the injectate would spread horizontally by about 2200 feet after 40 years of injection. A revised model predicted a horizontal spread of 2900 feet after 30 years. The RRC examiner noted a shale barrier of 250 feet overlying the disposal interval and 100 feet below.

Layline operated the Horton #1 well, located 3300 feet northeast of the Tilden injection well.

Here is a timeline to simplify the case:

• August 2012 – Layline detected H2S in its Horton #1 well that was determined to have originated from the Tilden well, Layline plugged its well because of contamination.
• October 23, 2012 – Layline advised Swift of the H2S incursion and identified Swift’s permitted wells that could be affected.
• October 29, 2012 – Layline asked Swift if it wanted to be involved in a RRC hearing. Swift responded with a tentative yes.
• September 24, 2013 – Two years before Swift’s suit. Accrual of Swift’s cause of action before now = Swift loses.
• July 2014 – Swift’s lessor and others sued Regency.
• September 24, 2015, Swift intervened, suing for trespass, negligence, gross negligence and nuisance for damages to 74 existing or planned wells. Some were on the PCQ lease, some were not.

Regency invoked the two-year statute of limitations, which began to run when facts come into existence that authorized Swift, the claimant, to seek a judicial remedy.

Swift’s point: No cause of action accrued merely because of the uninvited intrusion of H2S into the subsurface space covered by the PCQ lease. No cause of action accrues until the “uninvited molecules” actually infringe on its mineral rights.

Resolution

Swift’s claim accrued in October 2012. Swift suffered a known injury when it learned that the Horton #1 had been contaminated. Because of the relative locations of the Tilden well, Horton #1, and the PCQ lease, Swift knew then that Regency’s H2S had spread onto its PCQ lease.

The court also looked at the vertical dimensions of the formations. The Wilcox is above the Almos, Swift’s PCQ wells were producing from the Eagle Ford, which is below the Almos. To reach the Eagle Ford, Swift must drill through the Wilcox and the Almos. Drilling new wells through an H2S-contaminated formation and protecting its existing wells will impose additional costs and burdens on Swift.

Before October 23, 2013, Swift would have had to drill new wells through the contamination because the injectate had reached Swift’s existing wellbores and would corrode them. Citing Lightning v. Anadarko, the court reasoned that an unauthorized interference with the place where the minerals are located constitutes a trespass to the mineral estate when the interference infringes on the mineral lessee’s ability to exercise its rights. Layline’s warning was notice to Swift that the plume had spread to the PCQ lease’s southeast and northeast corners.

All is not lost

On Swift’s non-PCQ lease claims, Regency unsuccessfully applied Exxon Corp v. Emerald Oil and Gas, where the question was whether notice of Exxon’s alleged sabotage of wells owned by the same royalty owners in the same field barred claims by all of the royalty owners. That was not a spreading contamination case. Regency failed to conclusively establish when its injectate infringed on or substantially interfered with Swift’s rights in the non-PCQ leases.

Sympathies to Swift for its unfortunate timing.

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