Texas Supreme Court Considers Water Rights and Fracking: Environmental Processing Systems LC v. FPL Farming Ltd.

Texas Supreme Court Considers Water Rights and Fracking by Robert Brown, January 17, 2014, Weil, Gotshal & Manges LLP Product Liability monitor
As the debate over the environmental impact of hydraulic fracturing (“fracking”) continues (see our previous coverage here, here, and here), Texans find themselves wrestling with competing self-interests.  On the one hand, the Texas economy has flourished on the back of an oil and gas boom—largely due to fracking—that has made the state one of the top ten oil-producing “nations” in the world.  On the other, the dry state faces a water shortage so dire that voters recently approved a constitutional amendment to set aside $2 billion from the state’s sacred (and robust) “Rainy Day Fund” for water projects.  To bring it full circle, the water crisis is further compounded by the exploding population, a byproduct of energy sector-led economic growth.  No wonder Texans are apt to say, “Water is the new oil.”

On January 7, the Supreme Court of Texas heard oral argument in a groundwater case that could significantly impact both the water rights of landowners and the waste disposal practices of the oil and gas industry.  In FPL Farming v. Environmental Processing Systems, FPL Farming, a rice farmer, claims that wastewater from a nearby injection well has migrated into a saltwater aquifer beneath the farmer’s land, amounting to an actionable trespass.  Environmental Processing Services (“EPS”), the operator of the well, maintains that it has no tort liability arising from an alleged subsurface trespass absent a showing of actual harm.  The saltwater aquifer at issue, notes EPS, is not contaminated by EPS’s fluids because it is unusable to begin with.  FPL Farming counters that current desalinization technology raises the possibility that the water could be made fit for use in the future, and at any rate, Texas law allows for an actionable trespass without a showing of harm.  Informing the case is the Court’s 2012 ruling in Edwards Aquifer Authority v. Day, in which the Court held that landowners have a constitutional property interest in the groundwater in place beneath their land.  369 S.W.3d 814 (Tex., 2012).

This is not the Court’s first encounter with this case.  In 2011, the Court held that EPS’s possession of an injection well permit did not in and of itself insulate EPS from tort liability, and remanded the case to the Beaumont Court of Appeals to be decided on the merits.  The Court of Appeals ruled in favor of FPL Farming, holding, “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.”  FPL Farming Ltd. v. Envtl. Processing Sys., L.C., 383 S.W.3d 274, 282 (Tex. App., 2012), review granted (Nov. 22, 2013).  Now before the Supreme Court on the merits, the key issue in the case is whether the migration of wastewater 8,000 feet beneath the surface amounts to a trespass, a nearly unprecedented issue in Texas that challenges the scope of the ad coelum doctrine (“from the sky to the depths”).

The ramifications of the Court’s decision loom large over the rights of landowners and the oil and gas industry in Texas.  A ruling in favor of FPL Farming could prompt landowners across the state to file suit to protect their property interest in their groundwater, whether or not such water is currently fit for use.  Well operators could be forced to relocate wells or alter waste disposal practices; at the very least, an onslaught of disputes could bog down oil and gas production, which is “inextricably tied to the availability of injection wells,” according to an amicus brief filed by Texas Oil and Gas Association in support of EPS.  Although the well at issue is a Class I well, typically used for the injection of industrial waste, the prior decisions in this case make no distinction between the different types of injection wells.  See FPL Farming, Ltd. v. Texas Natural Res. Conservation Comm’n, 2003 WL 247183 (Tex. App. Feb. 6, 2003); FPL Farming Ltd. v. Envtl. Processing Sys., L.C., 305 S.W.3d 739 (Tex. App. 2009) rev’d, 351 S.W.3d 306 (Tex. 2011); FPL Farming Ltd. v. Envtl. Processing Sys., L.C., 351 S.W.3d 306 (Tex. 2011); FPL Farming, 383 S.W.3d.  Thus, the ruling could equally impact Class II wells, which are more commonly associated with oil and gas production, including fracking.  The case also raises major questions related to damages.  “I’m having a hard time wrapping my head around the issue of how much would be owed and when it would be owed,” said Justice Paul Green during oral arguments, as reported by The Texas Tribune.  Whichever way the Court lands, the decision has the potential to significantly shape the evolving law on subsurface property rights in Texas.  We will continue to monitor this case and update the blog accordingly. [Emphasis added]

CASE DETAIL: 12-0905  

[Refer also to:

Texas Supreme Court Hears Arguments In Fracking Water Trespass Case; Environmental Processing Systems LC v. FPL Farming Ltd. No. 12-0905

Texas Supreme Court Set To Hear Case Involving Subsurface Trespass Claim ]

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