Oil and Gas Lawyer Blog
In January, the El Paso Court of Appeals decided the appeal of Lazy R. Ranch, LP, et al. vs. ExxonMobil Corporation. The court reversed a summary judgment in favor of Exxon and remanded the case to the trial court for a trial on the merits. Exxon has asked the Texas Supreme Court to review the El Paso Court’s decision. Exxon argues that it has conclusively proven that Lazy R’s claims are barred by limitations.
The Lazy R Ranch is 20,000 acres in Ector, Crane, Ward and Winkler Counties. Exxon had operations on the ranch for many years. In 2009, the Ranch hired an environmental firm to investigate several sites on the property for oil-related contamination. The environmental firm found substantial hydrocarbon contamination at five sites, and found that at one of the sites the contamination had percolated down into the groundwater and that contamination at the other sites also posed a risk of leaching down into the groundwater. Lazy R sued Exxon for an injunction to require Exxon to take sufficient steps to prevent further spread of the contamination into the subsurface and groundwater.
The trial court ruled that the Ranch had waited too long to sue and dismissed its claims. The El Paso Court of Appeals reversed, holding that the statute of limitations does not apply because the Ranch is only suing for an injunction to require Exxon to abate a continuing nuisance, the spread of hydrocarbon contamination into the subsurface.
Both parties have now filed their briefs in the Texas Supreme Court, which has not yet decided whether to hear the case.
Groundwater contamination from older oil and gas operations, especially from tank batteries and compressor stations, is a big issue in Texas and has been for a long time. Once hydrocarbons, particularly condensate, leach into groundwater they are practically impossible to clean it up.
The agency in Texas responsible for enforcing cleanup of sites contaminated by oil and gas production operations is the Texas Railroad Commission. Companies found to have contaminated groundwater must obtain approval from the RRC of a “remediation plan” to remediate the property. For groundwater contamination, this usually involves taking steps to stop the spread of the contamination and then leave it to natural processes for the hydrocarbons in the groundwater to gradually degrade over time, called “natural attenuation.” That may take tens or even hundreds of years. In the meantime, the company responsible must obtain agreement from the landowner not to use the contaminated groundwater – a restrictive covenant that is binding on the property in perpetuity.
Landowners have a private cause of action for damages to the land resulting from contamination. The problem with such claims has been that the statute of limitations to bring the claims is either two or four years, depending on the claim. The landowner may not realize that the contamination, although evident on the surface of the property, has seeped into the groundwater until years after the contamination began. By then it’s too late to sue for damages.
The Lazy R Ranch has proposed a different remedy that, as far as I know, no Texas court has addressed — suing for an injunction to require the company to remediate the contamination, to prevent it from spreading further. This typically requires removal of the contaminated soil, which may be hugely expensive. Witness Exxon’s pleas to the Texas Supreme Court to dismiss Lazy R’s claims.
Exxon argues that, under established Texas precedent, the measure of damages for “permanent” damage to land is the diminution in the value of the property. It argues that the land contaminated on the Lazy R Ranch is only 1.2 acres, worth only $50/acre, but it would cost it millions of dollars to clean up the contamination. Exxon argues that Lazy R’s effort to use an injunction as a remedy is an “attempt at an end-run around the law,” which is really only a request for remediation damages that violate the measure of damages for permanent damage to land.
I have written before about my view of the inadequacy of established legal remedies in Texas for contamination like that allegedly caused by Exxon to the Lazy R Ranch. In 2009, I filed an amicus brief (Senn v. Premrose Amicus) for the Texas Land and Mineral Owners’ Association in Primrose Operating Co. v. Senn, 161 S.W.3d 258 (Tex.App.-Eastland 2005, Pet. denied), asking the Texas Supreme Court to address the issue. That case applied the “permanent damage” measure of damages advocated by Exxon to contamination of the Senns’ ranch. The court of appeals held that the Senns’ property had not been damaged by the admittedly substantial contamination because the value of the property had actually increased from the time it discovered the contamination to the time of trial. Because the damages were “permanent,” and because there was no diminution in the value of the land resulting from the contamination, the Senns had not been harmed.
So this case may have important implications for landowners in areas of the state contaminated by legacy oil and gas operations.